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EU Taxation

EU Taxation. Unit 1: Introduction Arvind Ashta ESC Dijon- Pole Finance Unions of States Taxation EU Taxation. War and the need for a Union.  40 million deaths 20 million Russians, 6 million Jews 46 million displaced 20% to 50% of population disappeared No law and order

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EU Taxation

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  1. EU Taxation Unit 1: Introduction Arvind Ashta ESC Dijon- Pole Finance Unions of States Taxation EU Taxation ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  2. War and the need for a Union •  40 million deaths • 20 million Russians, 6 million Jews • 46 million displaced • 20% to 50% of population disappeared • No law and order • The Need for a Union ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  3. Advantages of uniting • Military • Economic • Political ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  4. Forms of Unions Trade With Barriers Free Trade Area: no internal taxes Customs Union: Same customs duty Economic Union Confederalism Federalism Unitary State: one tax ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  5. Chronology of European Integration • The Treaties: EEC 1957 • The EC: merged executive 1965 • Common external Tariff 1968 • EC gets own resources 1975 • Internal tariffs abolished 1977 • EU 1993 ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  6. Theories of checks and balances • A.      Separation of Power • B.       Alternation of Power • C.       Federal Division of Power ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  7. Features of Federalism Vertical Separation Horizontal Differentiation Legal Autonomy Financial Federalsim Vertical Control Redistribution Integration Vertical Participation Horizontal ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  8. Taxation • Compulsory • Transfer • To government ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  9. Compulsory Levies • Taxation • Social Security ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  10. Direct/Indirect Tax • Distinction: • Direct Tax: you pay directly to government • Indirect Tax: you pay to someone who pays to government • Direct taxes • Usually redistributive • Indirect taxes • Poorer countries have low taxing capacities • Considered more neutral by some • Degressive/regressive by others ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  11. Taxes Influence Corporate Policy • The investment decision (to invest abroad) • Based on deductibility of foreign losses • Dividend policy • Depends on taxes on dividends and capital gains • Financial policy • Debt is tax deductible • Thin capitalization rules • Employment policy • By varying VAT • By changing employers’ social security charges ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  12. The State is a business: Before STATE Financing Votes Security of business Security of Employment Individuals Enterprises ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  13. The State is a business: Later Security of Financing STATE Votes Security of Employment Individuals Enterprises ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  14. The States needed to merge Financing STATE Votes Security of business (harmonization of markets) Security of Employment Individuals Enterprises ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  15. Harmful Tax competition • Attract foreign enterprise only on basis of lower taxes • Lower taxes on international companies vis-à-vis national companies • Special regimes for insurance, holdings, coordination centres, banks ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  16. OECD Government C Government B Government A OECD and cartel type networksControlling inter-governmental competition ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  17. Harmful tax competitionOECD Report ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  18. Harmful tax competition in EU EU Primarolo Report ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  19. Tax Competition ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  20. Tax evasion: profiting from diversity • 1. Intra-group manipulations • Goods: • transfer accounting between related companies • Services: • Royalties: level may vary • common R & D: contributions to expense may vary, not necessarily with benefit • common service centers: coordination, distribution • Financing • Loans: varying interest rates • Thin capitalization • Write-offs of debts of loss-making subsidiaries • Guarantees given free ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  21. Mechanisms of tax evasion • 2. Holding company regimes • Holding in State with no/low taxes on holdings • Requires dividends to be received without having been taxed in other States • 3. Base companies (société écran) • Paper companies in tax-havens with a view to transfer profits there • Profit gets taxed if eventually distributed • but not • if reinvested • If distributed to States with Double Tax avoidance treaties ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  22. Mechanisms of corporate tax evasion • 4. Treaty shopping (société relais) • Invest in India through Madagascar company • 5. Captive companies • Self-Insurance companies • Group Finance companies • Coordination centers ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  23. Tax fraud • This requires creating artificial entries in books of accounts • High penalties ESC-Dijon- Pole Finance – EU Tax – A. Ashta

  24. European Legal System EU • Sources of European Law • EU sources • National sources • Infra-national sources • Enforcement of EU Law Member States EU Law Localities ESC-Dijon- Pole Finance – EU Tax – A. Ashta

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