Elementos constitutivos del discurso

Section 3 concluded that investment location may be driven by tax rather than economic considerations, in which case would lead to the misallocation of capital.

The question then arises whether a consolidated common tax base with formula apportionment as envisaged in the Commission’s proposal would be able to remove these inefficiencies in the allocation of capital. The economic literature is quite clear on the issue: a common consolidated tax base with formula apportionment will not, by itself, result in economic neutrality, as long as tax rates differ (among the most recent studies, see Hellerstein and McLure, 2004; Sorensen, 2004a; Weiner, 2005). As previously mentioned, the exact types of distortions, with regard to the

17 _{Value-added as reported for VAT purposes should be adjusted for exports, imports,}

acquisitions from other Member States and depreciation rather than immediate deduction of the investment costs.

allocation of the factors of production within the EU (to which the system of formula apportionment would be restricted) will depend on the factors included in the formula. The magnitude of the welfare losses will be a function of the tax rate differential between countries and of the elasticity of the taxed factor to these tax rate differentials. If property or capital income is included in the formula, the location of capital would continue to be driven by tax considerations and countries would continue to have incentives to compete over tax rates to attract FDI. It is no coincidence that in federal states such as the United States and Canada, the fiscal autonomy of member states is limited by the floor effectively provided by federal taxation. Moreover, the variation in rates is much smaller than in the EU. Here, tax rates range from a minimum of zero, on retained earnings in Estonia or 12.5% in Ireland, to around 40% in Germany and Italy. The comparable state rates for the United States range from 0% to 8%, whereas in Canada the provincial tax rates range from 14% to 17%.18

Looking at the specific case of the EU, it is not easy to evaluate what the efficiency gains of moving from separate accounting to formulary apportionment would be. According to Mintz and Weiner (2003) “since it is not clear whether the inefficiencies that apportionment introduces are empirically more important than those that it removes, the efficiency gains in moving from the existing system to an optional formula apportionment system are unknown” (Weiner, 2005, p. 43)

Other important questions should be considered in order to evaluate the efficiency implications of the proposal.

First, efficiency calls for a common formula. In the US, where states can change the weights given to the various allocating keys, an increasing number of them have moved from the traditional three factors formula (labour, capital and sales) to a destination-based sales formula, in order to attract investments from other states (Edmiston, 2002). Competition moved from tax rates to factor weights in the formula. To avoid this risk, the EU countries should adopt a common formula, but such an agreement may be difficult to reach since each formula will have a different impact on tax revenue distribution across countries.

Second, for efficiency reasons it would be preferable to have a truly EU common base, without exceptions and permitted divergences from the common rules. This means, for example, that member states should be prevented from granting additional fiscal incentives, such as accelerated depreciation allowances, that reduce the tax base. This would not however mean denying their sovereignty to use fiscal tools to pursue national public policy aims, if desired. Fiscal incentives could take the form of tax credits, or cash grants, rather than deductions from the tax base. The result could be equivalent, but the tax base would not be affected; the incentive would be more transparent and it would be easier and more straightforward to check for its compatibility with state aid provisions. A similar lesson can be drawn from the different experiences of the US and Canada.

Finally, by looking at the efficiency content of the individual tax base coordination proposals, CTB turns out to be superior to HST. The latter may induce countries to compete over the tax base for headquarters – obviously by narrowing the tax base, which would be negative from an efficiency point of view, as generally moderate tax rates plus a broad tax base seem to be advantageous from an efficiency perspective. Moreover, HST may imply distortions of competition as subsidiaries operating in a given country are taxed on a different overall tax base depending on the

country of residence of their parent company and depending on the tax code existing there (Mintz and Weiner, 2003).

3.4.2 T

The consolidated common tax base coordination policy examined in the previous section, and suggested by the Commission as a comprehensive solution to remove the main obstacles of the internal market, will leave Member States full autonomy to apply their own freely chosen tax rates on apportioned profits. This proposal, as we have seen in the previous section, would reduce compliance costs, and if accompanied by a consolidation of profits with formula apportionment, would solve the problem of cross-border loss offset. Depending on the formula adopted, it could also reduce although would be unlikely to fully eliminate the incentive to manipulate transfer pricing and use other profit shifting and tax planning devices to reduce the tax burden. Moreover, the question of the costs to be paid in terms of efficiency losses, due to the observed divergences of statutory and effective tax rates. As the tax policy scenarios simulated in the 2001 Commission Study demonstrate, in some circumstances potential distortions, measured by dispersions in effective tax rates, might even increase by harmonising the tax bases whilst leaving tax rates untouched. Thus the Commission’s proposal for a common consolidated tax base is not a complete and satisfactory solution to all relevant issues.