NoC49/38 OfficialJournaloftheEuropeanCommunities 24.2.92
OpinionontheCommissionCommunication toParliamentandtheCouncil:
'GuidelinesonCompanyTaxation'
(92/C49/11)
On20March1991,atits285thplenarysession,theEconomicandSocialCommitteeadopted
twoOpinionsontheproposalforaCouncilDirectiveonaCommonSystemofTaxation
ApplicabletoInterestandRoyaltyPaymentsMadeBetweenParentCompaniesandSubsidi­
ariesinDifferentMemberStates,andtheproposalforaCouncilDirectiveconcerning
Arrangements fortheTakingIntoAccountbyEnterprisesoftheLossesoftheirPermanent
Establishments andSubsidiariesSituatedinOtherMemberStates.
On23April1991,theEconomicandSocialCommitteeBureaudecided,inaccordancewith
thethirdparagraphofArticle20oftheRulesofProcedure,todrawupanAdditional
OpinionontheCommissionCommunication toParliamentandtheCouncil:'Guidelineson
CompanyTaxation'.
TheSectionforEconomic,FinancialandMonetaryQuestions,whichwasresponsiblefor
thepreparatorywork,adopteditsOpinionon12November1991.TheRapporteurwas
MrR.Pelletier.
Atits292ndplenarysession(meetingof18December1991),theEconomicandSocial
CommitteeadoptedthefollowingOpinionwithnovotesagainstand11abstentions .
PRELIMINARY REMARK influenceoftaxationinassessingthenetyieldonin­
vestedcapital,theCommission'sadoptionoftheprin­
cipleofsubsidiarityisjustified,asthetaxationfactor
isonlyoneamongotherswhenchoosingwhereto
locateinvestments . TheCommissionCommunication of20April1990on
guidelinesforcompanytaxationisdifferentfromthe
documents—draftdirectivesorregulations—onwhich
theESCisusuallyaskedtoissueanOpinion. Moreover,inaninstitutionalsystembasedontherule
ofunanimityitisdifficulttoobtaintheagreementof
alltheMemberStatesonrulesforcommonbasesof
assessmentforcompanytaxation.Bycitingtheprin­
cipleofsubsidiaritytheCommissioninfactmerely
acknowledgesthatitisimpossibletotakeactionby
imposingregulation.ThisCommunication isbasicallytheexpressionofa
shortandmedium-termstrategyforcompanytaxation
totakeintoaccounttheneedsofeconomicintegration .
ManyofthetaxationproblemswhichtheCommission
feelsmustberesolvedbefore1993havebeenthesubject
ofdirectiveswhichhavebeenorareintheprocessof
beingadoptedandonwhichtheESChasissuedan
Opinion.
1.Theimmediateproblemstobesolvedandthe
measurestobeimplementedbetweennowand1993
Themostimportantpositionconcernsthechangeof
directioncomparedwiththeproposalforadirective
whichtheCommission submittedin1975andwhich
foresawaharmonisation ofcompanytaxsystemsand
ratesintheMemberStates.
TheCommissionfeelsthattheSingleActandtheplan
foreconomicandmonetaryunionhavere-definedthe
conceptofeconomicintegration .Thenewapproach
putsmoreemphasisonthecoordinationandapproxi­
mationofpoliciesratherthanonsystematicharmonis­
ation.IntheCommission'sview,itrespectstheprin­
cipleofsubsidiarity .TheCommitteehasalreadyissuedOpinionsonthe
majorityofmeasurestoencouragecross-bordercooper­
ation.TheseincludethetwoOpinionsontheproposals
fordirectivesoninterestandroyaltypaymentsandthe
takingintoaccountoflosses,whichwereadoptedon
20March1991,andOpinionson:
—the'mergersdirective',and
—the'parentcompanyandsubsidiariesdirective'.
Itispleasedthatseveralofitscommentshavebeen
incorporatedintothetextadoptedbytheCouncil.Evenifoneisobligedtorecognisetherelevanceofthe
traditionaleconomicanalysis,whichstressesthe

24.2.92 OfficialJournaloftheEuropeanCommunities NoC49/39
Moreover,initsOpinionontheproposalforaCouncil
regulationlayingdownastatuteforaEuropean
CompanytheCommittee,liketheCommunication of
20April1990,stressedthattheprovisionsallowing
foreignlossestobetakenintoaccountatcompanylevel
shouldbeappliedtoallfirmscarryingoutcross-border
business,andnotjustEuropeancompanies .1.3.Guidanceonorganisingsimultaneousfiscalcon­
trolsofcompaniesorbranchesofamultinational
enterprisesituatedindifferentMemberStatesisaimed
atfacilitatingconsultationsbetweenMemberStateson
thefixingoftransferprices.Theprincipleofitmustbe
approved.Butitcannotbeenvisagedindependentlyof
asearchforinter-Stateagreementonaprocedurefor
exchanginginformationwhichcanbeappliedwhile
reconcilingtheimperativesoftaxauthoritieswiththe
needtorespecttheprivatelivesofordinarypeople.TheCommitteethereforeapproved,subjecttoafew
technicaladjustments,thelinetakenintheproposal
foradirectiveonaschemeallowingfirmstotake
accountoflossesincurredbytheirpermanentestablish­
mentsorsubsidiariessituatedinotherMemberStates.
Actionmustbeconcentrated onbarriersofafiscal
naturewhichpreventthecarrying-outofcross-border
transactions .1.3.1.Moreover,itisvitalthatcommonrulesonthe
fixingoftransferpricesshouldbeestablishedboth
asregardsintra-grouprelationswithintheEECand
relationswithnon-EECcountries.Itisjustifiablehere
thatsuchrulesshouldbedrawnupinaccordance
withtheprincipleslaiddownbytheOrganizationfor
EconomicCooperationandDevelopment (OECD).If
thisisnotdonemajordistorsionsofcompetitioncould
remain,whichcouldjeopardisecompletionoftheSingle
Market.
1.1.TheCommissionrightlystressestheinadequacy
ofbilateralagreements .Moreover,onemustremember
thatagreementsdonotremovethepossibilityofMem­
berStatesmaintainingwithholdingtaxesundertheir
domesticlaws.
2.Companytaxationproblemsarisingfromfurther
expansionoftheSingleMarket 1.1.1.Insuchcases,evenifabilateralagreement
doesawaywithwithholdingtaxes,thebeneficiariesof
incomesarestillliablefortaxationunderdomestic
laws,forwhichtheymustrequestreimbursement .
1.1.2.Moreoftenthannotreimbursement isonly
madeafterafairlylongtime;asaresultmanyinvestors
areputofffromusingtheprocedurelaiddowninthe
agreementanddoubletaxationisinfactfullymain­
tained.2.1.Onemustapprovethepositionofprinciple
takenbytheCommissionofnolongerseekingtohar­
monisecompletelyatanypricecompanytaxsystems
andrates,whichhasledtoitwithdrawingits1975
proposalforadirective,foritisthefruitofanobjective
assessmentofthecurrentpossibilitiesofbringingMem­
berStates'taxsystemsclosertogether.Itismotivated
bytheneedtocompletetheSingleMarketrapidlyby
puttingmoreemphasisonthecoordinationofpolicies
ratherthanonsystematicharmonisation . 1.2.Asregardstheneedforaccounttobetakenof
foreignprofitsorlosses,theharmonisation ofsystems
forthecarry-forward andcarry-backoflossesfortax
purposeswouldbeanisolatedmeasure,withoutany
realsignificanceunlessthereisanoverallalignmentof
therulesonassessment . 2.2.TheEconomicandSocialCommitteedoesnot
wishtoprejudicetheconclusionofthestudywhichthe
Commissionhasentrustedtoagroupofexperts.It
trustsitwillbeconsultedontheexperts'conclusions . 1.2.1.Itwastoovercomethisverydifficultyofthe
lackofoverallharmonisation thattheCommittee
expressedthewishthat,intheabsenceofanagreement
byamajorityofMemberStatestotreatlossesincurred
abroadinaccordancewiththetaxassessmentrulesin
thehostcountry,anotherprincipleshouldbeadopted
forassessingsuchlosses,consistingofsubstitutingbook
lossesfortaxlosses.TheCommitteefeltthatsuchan
approachwouldbeconsistentbecause,formostfirms,
harmonisation oftheaccountingrulesfordetermining
acompany'sresultshaspracticallybeenachievedwithin
theEEC,bothasregardsthetradingandtheconsoli­
datedaccounts .2.2.1.Whentaxfrontiersareeventuallyabolished
withintheCommunityValueAddedTax(VAT)rates
willhavetoconverge;thisconvergencewouldhelp
inanapproximation ofMemberStates'taxsystems
reflectingtherelativeimportance,withinsuchsystems,
oftaxesoncompanyprofits;however,onemusttake
carethatthetaxburdenisnotshiftedtoomuchonto
individuals,asthismayeventuallystrainsocialcohesion
withintheMemberStates.

NoC49/40 OfficialJournaloftheEuropeanCommunities 24.2.92
2.2.2.Thesignificantloweringandapproximation
ofnationalcompanytaxrateswhichhasalreadytaken
placewillreduceanydistortionslikelytoresultfrom
theuseofdifferentassessmentrules.Thesedistortions
may,however,stillbeconsiderable .Attentionshould
thereforebegiventoimprovingthetransparencyof
assessmentrules,withaneyetopossibleharmonisation .
Suchtransparencyshouldcoveralltaxesoncompany
profits,includingthosewhicharetheresponsibilityof
localordecentralised authorities .
2.2.3.Thecomparativeyieldofcorporationtaxfrom
oneMemberStatetoanotherdependsfirstofallon
theprofitcapacityofbusinessesandtheirdegreeof
profitability ;thenumberandsizeofthefirmssubject
totaxandtheircontributiontowardsacountry'sGross
DomesticProduct(GDP)alsoplayadecisivepartin
therevenuegainedfromcorporationtax.
2.2.4.Theeffectoftaxesonprofitsonthelocation
ofbusinessinvestmentsmustnotbeexaggerated .Other
factorswhichalsoplayadecisivepartincludepolitical
stability,currencystability,thevitalityoffinancialmar­
kets,wagecosts,representedbydirectandindirect
wages,thelabourrelationsclimate,thecostofsupply­
ingenergyorrawmaterials,thecostofcredit,the
existenceofcertaininfrastructures andtheflexibility
ofcompanylaw.
2.2.5.Nevertheless ,onemustremainawareofthe
considerablepossibilitiesthatStateshaveofusingtax­
ationtoencouragebusinesscompetitiveness artificially .2.2.5.1.Itisconsideredthatselectiveorsectoraltax
incentiveslacktransparency ;supervisionbyCom­
munitycompetitionauthoritiesappearsincreasingly
necessarytodetectpossiblecasesofselectivesubsidies
beingpassedoffastaxationmeasures.
2.2.5.2.Itisalsoimportantnottooverlooktheposs­
ibleselectiveuseoftaxesimposedbylocalauthorities
enjoyingmoreorlessautonomousstatuswithinMem­
berStates.
2.2.6.TheCommitteesharestheconcernsexpressed
bytheCommissionabouttherisksofcountriesoutbid­
dingeachotherincuttingcompanytaxationusingthe
mostvariedandleasttransparentdevicespossibleto
bringaboutare-distribution ofthetaxburdenbetween
thedifferenttaxesandleviesineachMemberStates.
2.2.7.Generallyspeaking,theCommittewould
stressthataplanformonetaryunionleadingtofixed
exchangerateswouldremoveanypossibilityofusing
exchangeratestooffsetimbalancesintaxlevies.
2.2.7.1.Vigilanceisallthemoreimperative,sincethe
temptationtousetaxestooffsetmonetaryconstraints
couldbecomeirresistible .
2.2.8.FinallytheCommitteefeelsitmustpointout
thatthecoordinationasregardsrespectingtheprinciple
ofsubsidiarityshouldnotstopatthefrontiersofthe
EEC:suchanapproachcanonlybeencouragedbythe
growinginfluenceofthetaxreformsbeingcarriedout
bythelargeindustrialisednon-EECcountries.
DoneatBrussels,18December1991.
TheChairman
oftheEconomicandSocialCommittee
FrancoisSTAEDELIN