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Dual Income Taxation as a Stepping Stone Towards a European Corporate Income Tax

Although globalization in trade and in particular in financial markets forced national governments to adjust their capital income tax regimes to capital mobility and to strategic tax competition since the mid 1980s, there is evidence that national governments facing this increased pressure have an interest in taxing corporate income at the national level. This interest is also true for EU member states but it has not led to coordinated actions in the past. The Commission denied the necessity of harmonizing corporate income taxation when the proposals of the Ruding Report 2 were discussed in the early 1990s. One reason was certainly the EC Treaty which although fundamentally revised and extended by the European Single Act and the Treaty of Maastricht only addresses the harmonization of commodity taxes. There have, however, been agreements and EU directives concerning the abolition of income tax discrimination for transborder capital flows (merger directive, parent subsidiary directive), improved transborder cooperation of tax authorities (administrative assistance, arbitration convention), or harmful tax practices (code on conduct on business taxation). Objectives behind these measures have been competitiveness in the internal market and administrative issues rather than revenue and tax policy targets. The Bolkestein report 3 marked a change in the EU’s position towards capital taxation by stressing the importance of supranational coordination of capital taxation. Most member countries seem to subscribe to the necessity for stronger capital income tax coordination, but little if any progress can be identified. Governments are very reluctant and unwilling to shift competences in capital income taxation to the EU, because this is recognized to have major fiscal repercussions on national income taxation and national tax revenue. To overcome this standstill Sijbren Cnossen recently proposed an agenda for capital income tax coordination in the EU, which in his view should pave the way to broader political support. The paper is organized as follows. The Cnossen agenda, which calls for the introduction of a dual income tax (DIT) in EU member countries as a first step, is presented in section 2.