General corporate: Tax competition in the firing line

Tax competition in the firing line

The Commission has issued a Communication on curbing harmful tax competition where Member States grant tax concessions and encourage companies to locate there. The Communication lists four measures for solving this problem:

• a code of conduct on business taxation: a non-binding political commitment by the Member States to respect the principle of fair competition and to refrain from adopting harmful tax measures;
• taxation of capital and income: the Communication suggests a gradual approach to eliminating distortions of competition, particularly in the financial markets;
• interest and royalty payments: the Commission recommends eliminating withholding taxes on interest and royalty payments between companies which create obstacles to cross-border economic activity because of their complexity and the risk of double taxation; and
• indirect taxation: the Commission is concerned to ensure that there is no double taxation or non-taxation resulting from different interpretations of the Sixth VAT Directive.