1. EU Taxation Unit 1: Introduction ESC Dijon- Pole Finance Arvind Ashta
Unions of States
Taxation
EU Taxation
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

2. War and the need for a Union
 40 million deaths
20 million Russians, 6 million Jews
46 million displaced
20% to 50% of population disappeared
No law and order
The Need for a Union
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

3. ESC-Dijon- Pole Finance – EU Tax – A. Ashta
Advantages of uniting
Military
Economic
Political
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

4. ESC-Dijon- Pole Finance – EU Tax – A. Ashta
Forms of Unions
Trade With Barriers
Free Trade Area: no internal taxes
Customs Union: Same customs duty
Economic Union
Confederalism
Federalism
Unitary State: one tax
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

5. Chronology of European Integration
The Treaties: EEC
The EC: merged executive 1965
Common external Tariff 1968
EC gets own resources 1975
Internal tariffs abolished 1977 EU
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

6. Theories of checks and balances
A.      Separation of Power
B.       Alternation of Power
C.       Federal Division of Power
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

7. Features of Federalism
Vertical
Separation
Horizontal
Differentiation
Legal
Autonomy
Financial
Federalsim
Vertical
Control
Redistribution
Integration
Vertical
Participation
Horizontal
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

8. ESC-Dijon- Pole Finance – EU Tax – A. Ashta
Taxation
Compulsory
Transfer
To government
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

9. ESC-Dijon- Pole Finance – EU Tax – A. Ashta
Compulsory Levies
Taxation
Social Security
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

10. ESC-Dijon- Pole Finance – EU Tax – A. Ashta
Direct/Indirect Tax
Distinction:
Direct Tax: you pay directly to government
Indirect Tax: you pay to someone who pays to government
Direct taxes
Usually redistributive
Indirect taxes
Poorer countries have low taxing capacities
Considered more neutral by some
Degressive/regressive by others
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

11. Taxes Influence Corporate Policy
The investment decision (to invest abroad)
Based on deductibility of foreign losses
Dividend policy
Depends on taxes on dividends and capital gains
Financial policy
Debt is tax deductible
Thin capitalization rules
Employment policy
By varying VAT
By changing employers’ social security charges
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

12. The State is a business: Before
Financing
Votes
Security of business
Security of Employment
Individuals
Enterprises
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

13. The State is a business: Later
Security of Financing
STATE
Votes
Security of Employment
Individuals
Enterprises
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

14. The States needed to merge
Financing
STATE
Votes
Security of business (harmonization of markets)
Security of Employment
Individuals
Enterprises
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

15. Harmful Tax competition
Attract foreign enterprise only on basis of lower taxes
Lower taxes on international companies vis-à-vis national companies
Special regimes for insurance, holdings, coordination centres, banks
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

16. ESC-Dijon- Pole Finance – EU Tax – A. Ashta
OECD and cartel type networks Controlling inter-governmental competition
Government A B C
OECD
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

17. Harmful tax competition OECD Report
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

18. Harmful tax competition in EU EU Primarolo Report
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

19. ESC-Dijon- Pole Finance – EU Tax – A. Ashta
Tax Competition
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

20. Tax evasion: profiting from diversity
1. Intra-group manipulations
Goods:
transfer accounting between related companies
Services:
Royalties: level may vary
common R & D: contributions to expense may vary, not necessarily with benefit
common service centers: coordination, distribution
Financing
Loans: varying interest rates
Thin capitalization
Write-offs of debts of loss-making subsidiaries
Guarantees given free
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

21. Mechanisms of tax evasion
2. Holding company regimes
Holding in State with no/low taxes on holdings
Requires dividends to be received without having been taxed in other States
3. Base companies (société écran)
Paper companies in tax-havens with a view to transfer profits there
Profit gets taxed if eventually distributed
but not
if reinvested
If distributed to States with Double Tax avoidance treaties
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

22. Mechanisms of corporate tax evasion
4. Treaty shopping (société relais)
Invest in India through Madagascar company
5. Captive companies
Self-Insurance companies
Group Finance companies
Coordination centers
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

23. ESC-Dijon- Pole Finance – EU Tax – A. Ashta
Tax fraud
This requires creating artificial entries in books of accounts
High penalties
ESC-Dijon- Pole Finance – EU Tax – A. Ashta

24. ESC-Dijon- Pole Finance – EU Tax – A. Ashta
European Legal System EU
Sources of European Law
EU sources
National sources
Infra-national sources
Enforcement of EU Law
Member States
EU Law
Localities
ESC-Dijon- Pole Finance – EU Tax – A. Ashta