Company Taxation in the European Union – a Stocktaking

In this chapter, important structural elements of the member states’ current national tax systems effective on 1 January 2006 are compared. 25 member states are taken into account. Bulgaria and Romania are not considered. First, tax rules concerning national investments are addressed. These include the nominal corporate income tax rates as well as rules governing the determination of the corporate income tax base. As regards the tax base, the comparison deals with the relationship between financial and tax accounting, the method to calculate the taxable income, the recognition of assets and liabilities and the determination of cost values. Furthermore, specific tax areas such as the tax treatment of dividends paid to affiliated companies and individuals, losses and group taxation are dealt with. Besides corporation income tax, this chapter also provides a brief overview on additional local taxes. Second, member states’ tax rules with respect to cross-border investments are compared. They include concepts of taxing foreign income, the tax treatment of interest expenses and foreign losses, group taxation, business regorganisations and methods used to determine arm’s length prices. Finally, national effective tax rates of corporations combining the elements of the corporation income tax rate, the corporation income tax base and additional local taxes are presented using the methodology developed by Devereux and Griffith.