In his paper, Lukas shows how the liberalization of the common market facilitated cross-border mergers and transactions between related firms. Policymakers knew this would intensify tax competition among member states. Yet, fundamental disagreement between capital importing and capital exporting countries paired with the unanimity requirement in tax matters kept them from harmonizing their corporate tax rules. As a result of the persisting mismatches between national tax systems and the free movement of capital, tax avoidance is today easier inside the common market than in the rest of the world.
The common consolidated corporate tax base (CCCTB), which the European Commission currently proposes, may provide a remedy to profit shifting inside the EU, if adopted. It foresees the EU-wide introduction of unitary taxation with formulary apportionment. That is, a multinational group’s total profit in the common market is calculated by aggregating the revenues and expenses of its European subsidiaries. As a result, a profit that is shifted from one subsidiary to the other will always be included in the group’s result, no matter in which member state it is recorded. Subsequently, the group’s profit is divided among member states based on sales, local workforce, and fixed assets. Intellectual property and other intangible assets are explicitly excluded.While some of the provisions in the current CCCTB proposal may enable different forms of tax planning and should be amended, it is certainly an improvement over the current situation. The CCCTB’s political feasibility is currently improving as a result of three developments. First, the Commission’s state aid decisions against tax advantages granted by member states to individual firms create uncertainty as to their legal validity and thereby reduce their attractiveness. If the European Court of Justice confirms the decisions, this may force capital-importing member states to the negotiating table. Second, although Brexit is generally a deplorable decision, it removes a key opponent to the CCCTB from the Council of Ministers. Third, the European Parliament’s committee work keeps the issue of tax avoidance on the agenda and provides an important platform for alternative tax expertise.