Europe Takes Another Step Toward Tax Harmonization

Even though several nations are opposed, the European Commission plans to harmonize the definition of taxable income for corporations. It is true that the current system is a hassle for multinational companies, requiring 27 different tax returns for firms operating in all EU nations. But there are good ways and bad ways to address this problem. Allowing firms the option of choosing the “common” tax base would ensure that the bureaucrats in Brussels had less of an incentive to use the new system as a way of extorting more money from businesses. Another option would allow firms to use their home country’s definition of taxable income – an approach that would promote rather than retard tax competiiton since governments would have an incentive to attract companies by using a pro-growth definition of taxable income. Needless to say, the European Commission is not using either of these approaches. The EU Observer reports:

The European Commission is set to press ahead with introducing a single EU company tax base by 2010 in only a limited number of member states, circumventing national veto power in the sensitive tax area. … EU member states are deeply divided over possible harmonization, with 12 capitals in favour, five to seven against and the rest remaining undecided. Britain, Ireland and the Baltic states fear that the next step for Brussels would be interference in the levels of their corporate taxes, an area where EU states compete with each other as well.