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CorporatetaxharmonizationasaspecificcaseofstandardizationinEU
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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,
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
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18-20 June 2012, Košice, Slovakia
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
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18-20 June 2012, Košice, Slovakia
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
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18-20 June 2012, Košice, Slovakia
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
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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
17th EURAS Annual Standardisation Conference –
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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
17th EURAS Annual Standardisation Conference –
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18-20 June 2012, Košice, Slovakia
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
Taxation trends in the
European Union (2011)
5-year effective
corporate tax rate
Djankov, Ganser,
McLiesh Ramalho,
Shleifer (2009)
tax revenues from
direct tax /
total tax revenues
Taxation trends in the
European Union (2011)
effective corporate
tax rate (world bank
calculation)
World bank (2010).
Doing businnes 20112
corporate tax
revenues/
total tax revenues
Taxation trends in the
European Union (2011)
first year tax
depreciation
De Mooij, Devereux
(2009)
personal tax
revenues/
total tax revenues
Taxation trends in the
European Union (2011)
net present value of
allowances
De Mooij, Devereux
(2009)
taxes on labour as
% of GDP
Taxation trends in the
European Union (2011)
taxes on capital as
% of GDP
Taxation trends in the
European Union (2011)
1UB/KS-DU-11-001/EN/KS-DU-11-001-EN.PDF
2 http://www.doingbusiness.org/data/exploretopics/paying-taxes
17th EURAS Annual Standardisation Conference –
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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 ─┼───┐ │ │
17th EURAS Annual Standardisation Conference –
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18-20 June 2012, Košice, Slovakia
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.
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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
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“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
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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.
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