EU Threatens Corporation Tax, Says London Lawyer

by Jason Gorringe, Tax-News.com, London

05 February 2003

Writing in London's Financial Times today, Edward Troup, Head of Tax Strategy at law firm Simmons and Simmons, says that the European Union must make a conscious choice between harmonisation of corporate taxation or extensive reform of the single market.

Mr Troup's article has been prompted by recent cases which have seen the European Court of Justice striking down national tax laws which it says are incompatible with the 'freedom of association' requirement in the 'Single Act', the treaty which established the single market. This requirement leads ineluctably for instance to the proposition that a company with losses in one member state and profits in another one should be able to set them off against each other, if that is the rule in its home country (which it always is).

Mr Troup says that the only corporation tax system which would satisfy the ECJ's logic would be a fully harmonised one, something which is anathema to the UK, among other countries, and which he sees as politically unattainable.

'The Court is not motivated by some malign or Eurocratic desire to level down the national institutions but by a dogged obedience to the established freedoms of the EU treaty,' writes Mr Troup. Well, maybe. All the EU institutions are informed by a commonly-held belief in 'ever closer union' which is often underestimated in London, and has proven over the years to be a more powerful force than the efforts of successive UK administrations to preserve the country's freedom of movement within the Union. It's highly ironic that the most eurosceptic of all UK leaders, Margaret Thatcher, should have been the one to sign the Single Act into law.

'Inaction is not a viable option if member states are to keep control of their corporation tax systems and tax receipts,' concludes Mr Troup. 'As long as harmonisation is off the agenda, EU governments should establish new parameters for the application of the single market rules to taxation, before they find they have no corporation tax revenues left to defend.'

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