Corporate tax harmonization as a specific case of standardization in EU

Seediscussions,stats,andauthorprofilesforthispublicationat:http://www.researchgate.net/publication/274567177

CorporatetaxharmonizationasaspecificcaseofstandardizationinEU

CONFERENCEPAPER·JUNE2012

READS

28

1AUTHOR:

JanHunady

UniverzitaMatejaBelavBanskejBystrici

14PUBLICATIONS2CITATIONS

SEEPROFILE

Availablefrom:JanHunady

Retrievedon:23September2015

http://www.researchgate.net/publication/274567177_Corporate_tax_harmonization_as_a_specific_case_of_standardization_in_EU?enrichId=rgreq-7fd4d9d8-5b22-4c86-9d0b-a527bf65a2d9&enrichSource=Y292ZXJQYWdlOzI3NDU2NzE3NztBUzoyMTUzMTEzNzE1MDk3NjBAMTQyODM0NTYzOTM3OA%3D%3D&el=1_x_2

http://www.researchgate.net/publication/274567177_Corporate_tax_harmonization_as_a_specific_case_of_standardization_in_EU?enrichId=rgreq-7fd4d9d8-5b22-4c86-9d0b-a527bf65a2d9&enrichSource=Y292ZXJQYWdlOzI3NDU2NzE3NztBUzoyMTUzMTEzNzE1MDk3NjBAMTQyODM0NTYzOTM3OA%3D%3D&el=1_x_3

http://www.researchgate.net/?enrichId=rgreq-7fd4d9d8-5b22-4c86-9d0b-a527bf65a2d9&enrichSource=Y292ZXJQYWdlOzI3NDU2NzE3NztBUzoyMTUzMTEzNzE1MDk3NjBAMTQyODM0NTYzOTM3OA%3D%3D&el=1_x_1

http://www.researchgate.net/profile/Jan_Hunady?enrichId=rgreq-7fd4d9d8-5b22-4c86-9d0b-a527bf65a2d9&enrichSource=Y292ZXJQYWdlOzI3NDU2NzE3NztBUzoyMTUzMTEzNzE1MDk3NjBAMTQyODM0NTYzOTM3OA%3D%3D&el=1_x_4


http://www.researchgate.net/institution/Univerzita_Mateja_Bela_v_Banskej_Bystrici?enrichId=rgreq-7fd4d9d8-5b22-4c86-9d0b-a527bf65a2d9&enrichSource=Y292ZXJQYWdlOzI3NDU2NzE3NztBUzoyMTUzMTEzNzE1MDk3NjBAMTQyODM0NTYzOTM3OA%3D%3D&el=1_x_6


17th EURAS Annual Standardisation Conference –

Standards and Innovation

18-20 June 2012, Košice, Slovakia

Corporate tax harmonization as a specific case of standardization in EU

Jan Hunady

Faculty of Economics, Matej Bel University, Tajovskeho 10, 97590 Banska Bystrica, Slovak Republic,

[email protected]

Abstract

The paper analyzes corporate tax harmonization process in EU as a specific case of

standardization. The theory of standardization could be helpful to understand tax

harmonization from different point of view. The aim of the paper is to explore a potential of

setting few multiple standards in corporate taxation. This procedure will significantly reduce

heterogeneity in corporate taxation and help improve international competitiveness. Major

attention is focused on the results of cluster analysis as common classification tool. We

conducted cluster analysis of EU member states based on the selected variables reflecting

structure of tax revenues and corporate tax burden. The results may be helpful for identifying

current preconditions for corporate tax harmonization process. Countries with similar

corporate tax systems are more suitable for application of so-called enhanced cooperation

procedure, where taxes should be harmonized separately in several groups of members.

Keywords: tax harmonization, standardization, cluster analysis, multiple standards

1. Introduction

The paper is closely related to the problem of tax harmonization in the EU. The main

analysis is focused primarily on corporate taxes, due to the fact there are currently the most

relevant proposals for next tax harmonization in this area. Despite that there is no consensus

on the technical definition of tax harmonization it can be seen as specific case of

standardization. Peggy Musgrave (1967) defines tax harmonization as the process of

adjusting national fiscal systems to conform with a set of common economic aims, while

some other authors associate it with the adoption a common tax rate (Mitchell, 2004). Siroky

(2010) and Orviska (2005) define a tax harmonization as a process of convergence of tax

systems by common rules. Similar view of tax harmonization is presented also in Medved,

Nemec et al. (2011). As we show further, despite undoubted similarities, tax harmonization is

in many ways different process compared to standardization by EU setting standards

organizations (ESOs).

Tax harmonization is mostly seen as process with several degrees of intensity. James

(2000, s. 265) identifies degrees of intensity on range from “no harmonization” to complete

“standardization”. In his view there is always important for any harmonization to define a

common set of taxes at first. The standardization is the highest degrees of harmonization, but

harmonization process not always reach this level. Similar concept was applied by Velyos at




al. (2007). He specifies five degrees of intensity from convergence to standardization. (see

Figure 1)

Figure 1. Degrees of tax harmonization intensity

Source: Velayos et al., 2007

1. Convergence: Velayos et al. (2007) define convergence as a spontaneous movement in the

taxation. This movement is result of pressures from globalization and tax competition.

2. Cooperation: Entails a condition of mutual assistance, either for reasons of reciprocity or

because of mutual interest. This degree does not require common tax policy or specifying

common tax components. Extensive exchange of information among tax administrations is

one of the most important examples of tax cooperation.

3. Coordination: It is a concept in the middle between convergence and standardization.

Codes of conduct on double taxation are examples of tax coordination. It may also involve

many different harmonizing mechanisms.

4. Compatibility: Compatibility is mostly represents by adjusting the tax structure as a result

of international disparities in the tax burden. Despite the adjustment, there are still some

differences in the tax structure among countries.

5. Standardization: It is the highest degree of harmonization which entails standardized tax

base and tax across the integrated area.

It is very difficult to reach the standardization level (especially in direct taxation) in EU,

because of the disparities among member states. Based on the Lisbon Treaty matters relating

to direct taxes are still in competence of EU Member States. Therefore, any change in direct

taxation required the consent of all members.

2. Standardization and tax harmonization - similarities and differences.

There are three main European organizations in charge of setting standards in EU:

European Committee for Standardization (CEN), European committee for electro-technical

standardization (CENELEC) and The European Telecommunications Standards Institute

(ETSI). All these institutions are also commonly called ESOs (EU setting standard

organizations). We can say that the standardization in ESOs “is performed on federal level,

rather than national level” (Hudson, Orviska, 2009). In contrast, decisions in tax policy, as




important part of fiscal policy, is still mainly done by member states. European commission

is formally the body in charge of setting European taxation standards and strategies in the

federal level. Nevertheless, in reality commission has in mostly tied hands. Based on the

Lisbon Treaty matters relating to direct taxes are fully in competence of members states, and

any change in direct taxation required the consensus of all members. Therefore it is evident,

that there is no powerful institutional authority on federal level over the standardization in

taxation.

The definition of a standard provided by CEN/CENELEC is a “document established by

consensus and approved by a recognized body that provides for common and repeated use,

rules, guidelines or characteristics for activities or their results, aimed at the achievement of

the optimum degree of order in a given context”. Similarly, in tax harmonization it is

necessary to adopt common rules based on wide consensus of members, but the principal

aims of both actions are slightly different. Generally speaking standardization of goods is

motivated by two main intentions: taking advantage of economies of scale and reduce

transaction cost. The harmonization of tax codes also significantly reducing transaction costs

for multinational corporations, but the main purpose of tax harmonization probably lies in

reducing several negative aspects of tax competition on public sector. Especially decreasing

tax revenues and under-sizing of public sector in most countries is currently very important

problem. This issue is even more important in corporate taxation because of high mobility of

tax base and rising tax competition. Furthermore, changes in corporate tax policy affect

investments, unemployment, innovations and economic competitiveness of the region.

However, the economical justification of tax harmonization, in comparisons to common

standard adoption by ESOs, remains still more questionable task.

It is also theoretically possible that formal tax harmonization will be not need because of

tax competition activity. Mitchell (2004) and the others suppose that tax competition will lead

in spontaneous convergence of tax systems in long run. The leaders in tax competition, will

probably show the trend and other states will have to follow. The harmonized tax rates and

total tax burden will be lower than today in most countries. This situation is somewhat similar

to de facto standardization of goods or services, when one producer shows trends and

introduced new standards without any legislative acts. Or it is even more similar to

competition between different de facto standards as well as between de jure standards. There

are many studies about competitions (or wars) between de facto standards. According to

Mione, Leroy and Irola (2009) the economists of standardization assume that the emergence

phase of standards is often characterized by competition between two alternative technologies

and ends with domination of one. There are two main alternatives how the standard could be

emerged. It can be done through severe competition that is fatal for the loser, or through

converging process and negotiation leading to a common solution (Mione, Leroy, Irola,

2009). This could be as well true for tax competition and tax harmonization process. It is

possible that the standardization of taxes can be achieved both ways. While the result of

formal tax harmonization will be compromise, tax competition will drop the effective tax

rates at possible level. Moreover, it is clear that spontaneous process without any

coordination on federal level will take much longer. On the other hand, only a little has been




written about competition between de jure standards (Egyedi, Koppenhol, 2009). Blind

(2008) in this case equals de jure to de facto standards and assume that competition between

de jure standards increase social welfare. If we transform this conclusion to the issue of

taxation, tax competition could positively affect welfare. This is considerably consistent with

the argumentation of economists advocating tax competition (e.g. Mitchell, 2004; Boss

2005). In contrary Egyedi and Koppenhol (2009) argue that de jure standards is not identical

to de facto standards and competition in de jure standards result in non-transparent market,

raises transaction costs and undoes all the advantages of de jure standardization. Very similar

arguments are commonly used by advocates of tax harmonization necessity (e.g. Mintz,

2004).

European and international standards on goods and services are setting mostly in

connection with technical aspects and decisions are based on professional discussion. On the

other hand, decision making process for tax harmonization is strongly influenced by the

political and economic interests of member states and EU as whole. These interests are often

very different and mutually incompatible. The nature of negotiation decision making process

is well considerably different. While the standardization of goods and services is made

mostly by public institutions (in EU) with strong private sector and academic participation,

tax harmonization is more closed process, in spite of its unquestionable effect in private as

well as in public sector. Moreover, the final decision about tax harmonization is always made

by political leaders of member states. Because of all these facts, we believe that setting

standards by tax harmonization in EU seems to be even more difficult task than

standardization of goods and services. Especially in the case of corporate taxation, it is highly

unlikely to reach the consensus across all members. In our opinion, one realistic alternative

how to partly solve this problem is separate tax harmonization in several groups of member

states (two or three groups). It can be done by setting multiple standards suitable for each of

the groups (or clusters). This could be optimal solution for all member states, as they have

different structure of tax revenues, different corporate tax burden and different interests. It is

important to say that multiple standards will not provide complete harmonization, but only

reduce the heterogeneity in corporate tax systems. However, it is possible that these multiple

standards could subsequently converge together in the long run, as we hope so. Bettendorf,

Van der Horst, de Mooij and Vrijburg (2009) determined possibility of separate

harmonization in groups as the most likely future scenario and Brochner, Jensen, Svensson,

Sørensen (2007) study reached similar conclusions. Authors realize that direct tax

harmonization is in current situation feasible only by cooperation in separate groups of

member states.

3. Separate tax harmonization and procedure of enhanced cooperation

Current proposal on a Common Consolidated Corporate Tax Base (the CCCTB)

introduced by the European Commission (EC) in March 2011, currently making the basis for

another negotiations. Despite the efforts of the European Commission and the increasing

pressure for fiscal policy harmonization, it is still highly unlikely that this proposal will be

approved by all members. On the other hand, there is still possibility to pursue tax




harmonization at the level of several Member States. According to Bordignon and Brusca

(2006), EU countries with more similar tax policies could introduce the CCCTB with

significantly lower costs. Identical alternative approach is allowed by the procedure called

enhanced cooperation, introduced by the Amsterdam (1997) and Nice (2003) treaty, whereby

a group of member states could progress in harmonization independently from the others.

Other countries may remain outside this group, but could join this process at any time. Non

participants may stay outside the group, but could join the harmonization process at any time.

Using of enhanced cooperation is limited to these six conditions:

1. Enhanced cooperation is possible only if attempts at EU level clearly fail.

2. The group must have at least nine members (before Lisbon Treaty 8 members)

3. Each group of enhanced cooperation must be approved by the European Council by

qualified majority.

4. Other member states have the option to join the group at any time.

5. All members of EU have the opportunity to discuss the decisions of the enhanced

cooperation group, but have no direct influence on decision making process within the

group.

6. Enhanced cooperation must support the further integration process.

Exactly the same procedure was previously used for the proposal of unitary EU patent.

The aim of EU patent is to provide protection for inventions in the EU countries, cheaper and

more reliable through the existence of a single European procedure for granting patents based

on uniformity. This system could reduce companies’ costs on patent protection by 80%.

Despite the necessity of such common rule, the negotiation among states progress very

slowly. The major problem was the disagreement of two members (Spain and Italy), because

of translation issues. Spain and Italy were against trilingual system (translation into English,

French and German), but also ask for translation into Spanish and Italian. With this demand

they blocked whole ratification process. Other 25 states decide to use the enhanced

cooperation procedure. As the result of this step the negotiations progressed more rapidly and

it is expected that the proposal will be finally approved in recent months.

In comparison to EU patent, there are by far more members against the proposal for

corporate tax harmonization and this problem seems to be more complex as well. Even

though the nine participate states are needed for enhanced cooperation, there are also other

possibilities how to achieve progress on bilateral and multilateral basis. The current example

of cooperation within smaller group of member is a plan to harmonize taxes between

Germany and France. The proposal involves unification of corporate taxes between both

countries, at least since 2016. We expected several other member states to join this system in

the medium term by other (e.g. countries of Benelux and Austria). If the number of

participating states will be higher than nine, they can use enhanced cooperation procedure.

This group of member states will thus create standard for corporate taxation in EU. It is

possible that non participating member states adopt another standard or standards within their

groups. The multiple standards alternative will be more suitable for each of the groups. The




more similar are the characteristics of tax systems within each group, the more intensive

harmonization we can expect. On the other hand, it should be also noted that the overall

potential benefits of tax harmonization will be considerably smaller by setting multiple

standards instead of one unique standard.

4. Methodology and data

Based on the selected tax variables, we will try to identify potential clusters (groups) of

countries, among which the partial tax harmonization will be possible. In some aspects

comparable study was conducted by Kellermann a Kammer (2009). Authors classified EU

member states based on the structure of tax revenues (the proportion to GDP) in four groups

as follows:

1. Group - the group of new EU member states, characterized by low tax revenues from

personal taxes. Taxation is mostly proportional or little progressive. Redistributive tax

function is here limited. The tax systems of these countries are focused on high tax efficiency

and international competitiveness.

2. Group - The group of continental states or “core” group of member states, representing a

model of welfare state. For these group is typical higher tax personal and corporate tax

burden. There is also high proportion of social security and direct taxes in total tax revenues.

These states are mostly losing tax revenues as effect of tax competition. Therefore, they are

active supporters of tax harmonization in the EU. Typical representatives of this group are

Germany and France.

3. Group - The group of “Anglo-Saxon” countries or more liberally oriented states in term of

taxation and public sector. There are relatively large differences among these countries in tax

policy, but they have also some similar characteristics. The corporate and personal taxes are

not as important for public revenues as in the second group. Social security plays here mostly

only a complementary function.

4th Group - The group with the highest proportion of personal taxes in total tax revenue.

This group includes Scandinavian countries, Belgium, Austria and Italy. Income tax is here

always progressive and redistributive tax function is one of the priorities. They are mostly in

favor of further tax harmonization, but do not support it so intensively as for instance

Germany and France.

Our classification was conducted to find optimal clusters for separate corporate tax

harmonization. Consequently, there are relatively many differences to Kellermann a Kammer

(2009) study. Firstly, we intended to get as little groups as possible. In our opinion, four

groups seem to be too much for effective corporate tax harmonization. Secondly, our analysis

was oriented especially on corporate taxes. Therefore, we used mostly variables connected

with this problem. Not only the structure of the tax revenues was analyzed, but also corporate

tax burden because we believe this is as well very important aspect. In fact, we conducted

two different classifications. First classification was based on structure of tax revenues with

focus on direct taxes (and corporate taxes as its component). Member states gain resources

for the public budget differently. For some members corporate taxes are essential part of their

tax revenues. Different preferences in tax revenues structure, can greatly affect their




willingness to participate in corporate tax harmonization. Second classification was oriented

on corporate tax burden in analyzed countries. The corporate tax burden reflects the effort of

states to attract tax bases on its territory. Especially the corporate effective tax rates are the

suitable indicator for international comparison. Both mentioned classifications were done by

hierarchical cluster analysis as standard quantitative classification method.

According to Han and Kamber (2006) cluster analysis the process of grouping objects

into classes of similar objects. Similarity of objects is distinguished by their distance in

multidimensional space. In our case is the distance expressed in the Euclidean metric. For the

classification of objects several methods of clustering are used. We used so-called

agglomerative hierarchical method, where each object is initially a single cluster. The clusters

are gradually (at specific distance) associated between each other based on the similarity of

used variables. Both clustering was carried out by between-groups linkage method. Graphic

output of a hierarchical cluster analysis - dendrogram was used for displaying the results in

both cases. Cluster analysis and graphical outputs were performed using the statistical

software SPSS 17.

As we have mentioned, two different sets of input data was used, for both cluster

analysis. All variables used are summarized in Table 1.

Table 1: Input data used in both cluster analysis

Cluster analysis 1. Cluster analysis 2.

indicator source indicator source

total taxes excluding

social security as %

of GDP

Taxation trends in the

European Union (2011)1

top statutory tax rate Taxation trends in the

European Union (2011)

total taxes including

social security as %

of GDP



5-year effective

corporate tax rate

Djankov, Ganser,

McLiesh Ramalho,

Shleifer (2009)

tax revenues from

direct tax /

total tax revenues



effective corporate

tax rate (world bank

calculation)

World bank (2010).

Doing businnes 20112

corporate tax

revenues/

total tax revenues



first year tax

depreciation

De Mooij, Devereux

(2009)

personal tax

revenues/

total tax revenues



net present value of

allowances

De Mooij, Devereux

(2009)

taxes on labour as

% of GDP



taxes on capital as

% of GDP



1UB/KS-DU-11-001/EN/KS-DU-11-001-EN.PDF

2 http://www.doingbusiness.org/data/exploretopics/paying-taxes




First cluster analysis included indicators of total tax burden (including and excluding

SSC) and structure of tax revenue. The second cluster analysis examined corporate tax

burden. Effective tax rates were for us substantial part because they reflect the tax rate as well

as the tax base. Therefore, we used two indicators of effective tax rates as inputs: effective

tax rate according calculation of World bank (2010) – Doing business 2011 and 5-year

effective tax rate according to Djankov, Ganser, McLiesh Ramalho, Shleifer (2009) study.

For better estimation of corporate tax burden, we used also top statutory tax rate and other

two indicators calculated by De Mooij, Devereux (2009). This includes the following

indicators: First year tax depreciation and Net present value of depreciations allowances.

5. Classification of member states

The first analysis explores similarities respectively differences in the structure of tax

revenues of EU member states (the emphasis was placed on direct taxes). The results are

graphically illustrated on the dendrogram shown in Figure 2. We can see that the

heterogeneity among members of one clusters rising with distance on which the cluster is

formed (to the right).

States that are forming a cluster more to the right are significantly more differenced. In

this case, we decide to determine the critical distance at level 5. Therefore, we took into

account three major clusters formed at a distance less than 5. States are thus classified in

clusters as follows:

Cluster 1.1: Bulgaria, Slovakia, Lithuania, Latvia, Romania, Estonia, Slovenia, Czech

Republic, Poland, Greece, Portugal, Spain, Ireland and Greece.

Cluster 1.2: France, Hungary, Germany, Austria, Holland, Belgium, Italy, Finland and

Sweden.

Cluster 1.3: UK, Malta, Cyprus, Luxembourg

We have failed to include Denmark to any cluster, because of completely different structure

of the direct taxes (social security contributions are part of direct taxes).

Figure 1: Dendrogram of 1st cluster analysis Rescaled Distance Cluster Combine

C A S E 0 5 10 15 20 25

Štate ..... +---------+---------+---------+---------+---------+

Bulgaria 2 ─┐

Slovakia 24 ─┤

Lithuania 14 ─┼─┐

Latvia 13 ─┤ │

Romania 22 ─┘ │

Estonia 6 ─┐ │

Slovenia 23 ─┼─┤

CzechRepublic 3 ─┤ ├───────┐

Poland 20 ─┘ │ │

Greece 8 ─┐ │ │

Portugal 21 ─┼─┤ │

Spain 9 ─┘ │ │

Ireland 7 ───┘ │

France 10 ─┐ │

Hungary 16 ─┤ ├─────────────────────────────────────┐

Germany 5 ─┤ │ │

Austria 19 ─┼───┐ │ │




Netherlands 18 ─┘ │ │ │

Belgium 1 ─┐ ├───┐ │ │

Italy 11 ─┤ │ │ │ │

Fínland 25 ─┼───┘ │ │ │

Sweden 26 ─┘ ├─┘ │

Luxemboug 15 ─┐ │ │

Malta 17 ─┼───┐ │ │

Cyprus 12 ─┘ ├───┘ │

United Kingdom 27 ─────┘ │

Denmark 4 ─────────────────────────────────────────────────┘

In the cluster 1.1 are included new member states (except Hungary, Cyprus and Malta) and

some countries of southern Europe. The overall tax burden in these countries is largely

below. Tax policy is usually slightly oriented on indirect taxes (mainly VAT). All these states

are similar in terms of the revenues structure and overall tax burden. If we look at this cluster

in more detail, we can split it into several subgroups. Bulgaria, Slovakia, Latvia, Lithuania

and Romania are in the first subgroup. The second subgroup is created by Estonia, Slovenia,

Czech Republic and Poland. In the third subgroup we can include Greece, Portugal and

Spain. It is interesting that exactly these three member states have currently the biggest fiscal

problems. Therefore, unsuitable structure of tax revenues together with inappropriate total tax

burden may be one of the reasons for this situation (in addition to the poor condition of

government debt and high public revenues).

Cluster 2.1 contains mostly original EU countries (EU 15), except Hungary. We could

identify this cluster, as a “core” EU states. Members included in the cluster have higher total

tax burdens and higher tax revenues from direct taxes. The majority of this group is

supporting corporate tax harmonization.

Cluster 3.1 includes states with more competitive tax systems in compared second cluster.

The predominant focus here on attracting new investments, mainly through lower tax burden.

We cannot expect any harmonization among these countries because of some different

interests and relatively low number of participants.

Classification in the second cluster analysis was based on corporate effective corporate

tax burden. Indicators in the second section of Table 1 were used as inputs into classification

(the effective tax rate, nominal tax rates and quantification of depreciation allowance.)

Estonia, Cyprus and Malta are not included into our analyses; because of unavailability of

specific data. Graphical output of the second cluster analysis is displayed in Figure 3. We

choose this time to use different critical distances for clustering. For instance Slovakia was

included into initial cluster with the Czech Republic and Bulgaria. These three countries have

very similar corporate tax burden. This cluster could be also connected with cluster of

Hungary, Poland and Ireland at relatively short distance. At even longer distances this cluster

could associate with Luxembourg. In our case we decided to consider only cluster of six

countries as final cluster 2.2 (excluding Luxembourg). We similarly created next three final

clusters of member states.

Cluster 2.1: Portugal, Sweden, Finland, Greece, Austria, Germany, Holland, Italy, UK,

Spain, Denmark, Slovenia, Belgium, France.




Cluster 2.2: Hungary, Poland, Ireland, Bulgaria, Czech Republic, Slovakia

Cluster 2.3: Latvia, Lithuania, Romania

Luxembourg has not been included into any cluster because of difference.

Cluster 2.1 consists mainly of the original EU-15 states (without Ireland) and Slovenia.

These states have the highest effective corporate tax rates. Corporation profit is taxed

significantly and this could be a reason for multinationals to shift the tax base to countries

with lower tax burdens. Current tax competition in the corporate taxation is not convenient

for these states, and therefore most of them promoted tax harmonization.

Cluster 2.2 comprised member states focused on attracting the tax base. Corporate tax

burden is here low. These states often try to compensate their handicap (e.g. lower quality of

infrastructure) by cutting corporate tax rates.

Cluster 2.3 consists of three members. These states are in some respects similar to those

included in cluster 2.2. Nevertheless, they have some common features different from the

others. Especially the depreciation rules are here more convenient as well as effective tax

rates are considerably low. Groups 2.2 and 2.3 are opponents of corporate tax harmonization.

Figure 3: Dendrogram of 2nd cluster analysis Rescaled Distance Cluster Combine

Štate 0 5 10 15 20 25

Label Num +---------+---------+---------+---------+---------+

Portugal 18 ─┐

Sweden 23 ─┼───┐

Finland 22 ─┘ ├───┐

Greece 7 ───┬─┘ │

Austria 16 ───┘ ├─────────┐

Germany 5 ─┬─┐ │ │

Netherlands 15 ─┘ │ │ │

Italy 10 ─┬─┼─────┘ ├───┐

United Kingdom 24 ─┘ │ │ │

Spain 8 ───┘ │ ├───────┐

Denmark 4 ─────────────┬─────┘ │ │

Slovenia 20 ─────────────┘ │ │

Belgium 1 ───────┬───────────────┘ │

France 9 ───────┘ ├─────────────────┐

Hungary 14 ─┬───┐ │ │

Poland 17 ─┘ ├───────┐ │ │

Ireland 6 ─────┘ ├─────────────┐ │ │

Bulgaria 2 ─────┬─┐ │ │ │ │

Czech Republic 3 ─────┘ ├─────┘ ├───┘ │

Slovakia 21 ───────┘ │ │

Luxembourg 13 ───────────────────────────┘ │

Latvia 11 ─────┬───────┐ │

Lithuania 12 ─────┘ ├───────────────────────────────────┘

Romania 19 ─────────────┘

The final classification of the member states was in both cases slightly different, although

there are two certain groups of countries that we can label in term of corporate taxation as




“core” and “peripheral” group or more precisely the group of tax harmonization supporters

and the group of tax harmonization opponents.

Table 2: States included in a similar cluster in both classifications „Core“ group „Peripheral“ group

States included in identical

cluster in both

classifications

France, Germany, Italy, Austria,

Belgium, Netherlands, Finland,

Sweden

Slovakia, Czech Republic, Bulgaria,

Poland, Ireland

Other potential members Denmark, Sweden, Portugal,

Luxemburg

Romania, Latvia Estonia, Cyprus,

Lithuania

Member states placed into the same group in both analyses are shown in first row of

Table 2. These members have very similar structure of tax revenues and also corporate tax

burden. In this case, the “core” group has only eight members, which is low considering the

requirements of enhanced cooperation requirement (at least nine). Other potential candidates

for joining the group are Denmark (different system of personal tax structure is not crucial

task in harmonization of corporate taxation), Spain and Portugal.

We have identified the second group as "peripheral”. We included here only countries

classified in cluster 1.1 and cluster 2.2 at the same time. The group included only five

members (Slovakia, Czech Republic, Bulgaria, Poland and Ireland), but we assumed that

states with similar characteristics (Romania, Latvia, Lithuania, Estonia and Cyprus) would

also be willing to cooperate in this group.

.

Conclusion

Corporate tax harmonization in EU is still very questionable issue. This problem is

discussed among professionals for many years, but the process still progressing slowly. There

is only very little written about tax harmonization in connection with theory of

standardization, despite the fact they are related together in many ways. The process of tax

harmonization can be interpreted as specific case of standardization. Nevertheless, there are

some differences especially in objectives and decision making process. We see the critical

problem for achieving the agreement in the fact that tax policy is still mostly in competence

of member states. Tax competitions and tax harmonization is also similar to competition

between multiple standards. The final result can be achieved by severe competition or by

negotiation. It is on consideration, which is the better way for corporate taxes in EU. Current

tax competitions have a negative effect on tax revenues of some countries, but on the other

hand less developed countries trying to attract investments by lower corporate tax rates.

Differences between these two positions are currently too large for reaching any common

agreement. In our opinion we are getting to a critical point, where the next progress will not

be possible without changing the paradigm. Separate tax harmonization in groups could be

the way out of this problem. Instead of trying to establish uniform standard we could

introduce multiple standards for certain group of member states. Clearly it would be only

partial solution because of the different standards existence. In spite of this fact, the number




of standards would be reduced to possible minimum and in optimal case it will be only a

coexistence of two individual corporate tax standards. Despite the fact that tax competition

would be still exists, this situation would be more transparent for member states as well as for

multinationals with activities across Europe. Setting multiple standards in EU is legislatively

possible via enhanced cooperation procedure. It is also probable that these multiple standards

will converge together in the long run. In our analysis we identified possible clusters of

member states with similar characteristics. We conducted classification by cluster analysis

based on selected input tax indicators. The first cluster analysis was focused on the overall

tax burden and structure of tax revenues. While the second cluster analysis was oriented on

corporate tax burden in the member states. As the final result we identified two main groups:

“core” group and “peripheral” group. While “core” group is supporting corporate tax

harmonization, members of “peripheral” group are advocates of tax competition. We are

expecting increasing tendencies towards corporate tax harmonization among members of the

first group. Moreover, it is also possible that the members of second group will cooperate to

defend their interest.

Literature

BETTENDORF, L., VAN DER HORST, A. DE MOOIJ, R., A., VRIJBURG, H. 2009.

Corporate Tax Consolidation and Enhanced Cooperation in the European Union. [online].

Centre for Business Taxation, Oxford University, Working Paper, No. 1. 2009. [cit. 2012-2-

2]. Available at:

http://www.sbs.ox.ac.uk/centres/tax/Documents/working_papers/WP1001.pdf

BOSS, A. 2005. Tax competition and tax revenues. [online] Kiel Working Paper No.1256,

Kiel : The Kiel Institute of World Economics. [cit.2011-10-09] Available at:

http://www.econstor.eu/bitstream/10419/3670/1/kap1256.pdf

BORDIGNON, M., BRUSCA, S. 2006. On enhanced cooperation. In Journal of Public

Economics, 90, 2006, s. 2063–2090. ISSN 0047-2727

BROCHNER, JENSEN,J., SVENSSON, P.,SORENSEN, P.,B. 2007. The Dilemmas of Tax

Coordination in the Enlarged European Union. In CESifo Economic Studies, Vol. 53,

4/2007, 561–595, 23 November 2007. ISSN 1612-750

DE MOOIJ, R., A., MICHAEL P. DEVEREUX. 2009. Alternative Systems of Business Tax

in Europe: An applied analysis of ACE and CBIT Reforms. [online] Office for Official

Publications of the European Communities, Taxtaion papers: Working paper 17, 2009. 139p.

[cit. 2012-17-3]. Available at:

http://ec.europa.eu/taxation_customs/resources/documents/taxation/gen_info/economic_analy

sis/tax_papers/taxation_paper_17_en.pdf

DJANKOV, S. GANSER, T., MCLIESH, C. RAMALHO,R., SHLEIFER., A. 2010. The

Effect of Corporate Taxes on Investment and Entrepreneurship. [online] American Economic

Journal: Macroeconomics 2, July 2010.. 31–64, 2010 [cit. 2012-23-3]. Available at:

http://www.nber.org/papers/w13756.pdf

http://www.sbs.ox.ac.uk/centres/tax/Documents/working_papers/WP1001.pdfä




EGYEDI, M.T, KOPPENHOL, A. 2009. Competing De Jure Standards, Good for

innovation? In 14th

EURAS Annual Standardization conference, “Standardization and

corporate intelligence, 2009. Aachen: Wissenschafts Verlag Mainz in Aachen. ISBN 3-

86130-741-3

EUROPEAN COMMISSION- taxation and custom union. 2011. Taxation trends in

European union - 2010 edition. Luxemburg: Publications Office of the European Union,

2011. ISBN 978-92-79-19644-7

HAN J., KAMBER M. 2006. Data Mining:Concepts and Techniques. Morgan Kaufmann,

2006, 703 s. ISBN 1-55860-901-6

HUDSON, J., ORVISKA, M. 2009. Standards and Standardization in Crisis, In 14th

EURAS

Annual Standardization conference, “Standardization and corporate intelligence, 2009.

Aachen: Wissenschafts Verlag Mainz in Aachen. ISBN 3-86130-741-3

JAMES, S. 2000. Can We Harmonise Our Views on European Tax Harmonisation? In

International Fiscal Documentation Bulletin. vol. 54, June 2000, s.263-269 ISSN 0007-4624

KELLERMAN, CH., KAMMER, A. 2009. Deadlocked European Tax Policy. Which Way

Out of the Competition for the Lowest Taxes? [online] European Tax Policy IPG 2/2009,

2009. [cit. 2011-15-9]. Available at: http://library.fes.de/pdf-files/ipg/ipg-2009-2/2-

09_a_kellermann_us.pdf

MEDVED, J., NEMEC, J., ORVISKA, M., ZIMKOVA, E.: Verejné financie. Bratislava:

Sprint, 2005. 463 s. ISBN 80-89085-32-2

MEDVED,J. NEMEC, J.: Verejné financie. Bratislava : Sprint dva, 2011. 640 s. ISBN 978-

80-89393-46-6

MIONE, A., LEROY, M., IROLA, S. 2009.Standards War in Forest Management: The FSC

and PEFC Rivalry. In 14th

EURAS Annual Standardization conference, “Standardization and

corporate intelligence, 2009. Aachen: Wissenschafts Verlag Mainz in Aachen. ISBN: 3-

86130-741-3

MUSGRAVE, P., B. 1967. Harmonisation of Direct Business Taxes: A Case Study. In

CSShoup, Fiscal Harmonisation in Common Markets, Vol II, Practice (1967, Columbia

University Press) at 216.

MINTZ, J. 2004. Corporate Tax Harmonization in Europe: It’s All About Compliance. In

International Tax and Public Finance, 11, s. 221–234, 2004. ISSN 0927-5940

MITCHELL, D., J. 2004. The Economics of Tax Competition: Harmonization vs.

Liberalization, In Index of Economic Freedom, Marc Miles, et al., editors, Washington:

Heritage Foundation, Chapter 2. 2004. ISBN 0891952659




SIROKY, J.: Daňe v Evrópské únií. Praha: Linde, 2010, 250s. ISBN 80-7201-593-1

VELAYOS, F., BARREIX, A., VILLELA, L. 2007. Regional Integration and Tax

Harmonization: Issues and Recent Experiences. [online] Inter-American Development Bank,

January 2007. [cit.2011-9-9] Available at:

http://siteresources.worldbank.org/INTTPA/Resources/Velayos-Villela-Barreix.pdf

VRIJBURG, H., DE MOOIJ, R., A.: Enhanced Cooperation in an asymmetric model of Tax

Competition. [online] Oxford University Centre for Business Taxation. Working paper 10/02,

2010. [cit. 2011-15-9]. Available at: http://www.intertic.org/Unions%20Papers/Vrijburg.pdf

Ing. Jan Hunady Faculty of Economics, Matej Bel Univeristy, Tajovskeho 10, 97590 Banska Bystrica, Slovak Republic,

[email protected]

http://siteresources.worldbank.org/INTTPA/Resources/Velayos-Villela-Barreix.pdf

Corporate tax harmonization as a specific case of standardization in EU

Documents

Transcript of Corporate tax harmonization as a specific case of standardization in EU