The lack of coordination of the taxation of companies creates many obstacles for companies willing to do business throughout Europe and threatens the achievement of the internal market.  Jérôme Monsenego at the Stockholm School of Economics analyses the conflict between the rules of Member States on the taxation of companies and the principles protected by European law in his doctoral thesis. 

The taxation of companies is, within the European Union, part of the competence of the Member States. Each State has its own rules to compute the tax base, and applies its own tax rates. As a result, companies doing business throughout the European Union are subject to the different tax rules of the States in which they carry out their operations.

The European Treaties grant certain fundamental rights, and ultimately aim at implementing an internal market between the Member States.

Consequently there is a conflict between, on the one hand, the rules of Member States on the taxation of companies, and, on the other hand, the principles protected by European law.

– This conflict is obvious when it comes to the taxation of foreign income, i.e. when companies do business cross-border. The Member States are far from taxing companies doing business cross-border as if their operations were purely domestic, says JĂ©rĂ´me Monsenego.

Areas of conflict with European law include particularly the taxation of foreign profits, the deduction of foreign losses, the elimination of international double taxation, and the attribution of profits to permanent establishments.

It is concluded in the dissertation that Member States’ rules on the taxation of the foreign business income of companies, whether they disregard foreign income or tax such income, raise complex issues of compatibility with the law of the European Union. It is submitted that the European Court of Justice cannot, by itself, efficiently solve the conflict between the taxation of business income in a cross-border context and the objective of achievement of the internal market.

Consequently, the findings of the dissertation contribute to the discussion on the future of corporate taxation within the European Union and help assess the need of a common consolidated corporate tax base as suggested by the European Commission on 16 March 2011.

Stockholm School of Economics . Sveavägen 65 . Box 6501. SE-113 83 Stockholm .  Sweden . Phone +46 8 736 90 00 . www.hhs.se

For more information: JĂ©rĂ´me Monsenego, Stockholm School of Economics, tel. 0709-29 3483