Taxing corporate profits in the EU : a comparative study. A comparison of the Portuguese, British and Dutch systems.

Abstract

This work aims to explore the main distortionary features arising from the economic double taxation of distributed profits in three member states of the European Union: Portugal, United Kingdom and the Netherlands. The problem of economic double taxation of distributed profits has been studied by public finance economists, but so far no comprehensive comparative analysis has been carried out at the juridical level. It is the purpose of this work to study the tax implications deriving from taxing distributed profits twice, but from the legal point of view. To achieve this aim both domestic laws and international tax treaties of the three member states selected are analysed in an interactive and pluridimensional way. Inward and outward investment is covered and dividend income tax burdens are ascertained by taking into account those taxes that directly influence the effective dividend income tax rate. The results are exposed and critically analysed in the light of the tax principles of neutrality and efficiency, the European Union principle of non-discrimination, and the objectives of fair distribution of revenue between member states, simplicity and prevention of tax evasion. The research findings indicate that well accepted tax principles, such as the principle of worldwide taxation and the principle of vertical equity, operate less efficiently in their roles within the overall tax system. Instead, the source principle is gaining momentum with simplicity or neutrality aims prevailing over distributional criteria. Accordingly, from a theoretical point of view, the principle of capital import neutrality is of growing importance as compared with the principle of capital export neutrality. It is also suggested that in the three states surveyed, unless an exemption system is in place, problems remain with the balance between debt financing and equity financing, complicated by the more favourably treatment given to capital gains. Neither classical or imputation systems provide a satisfactory answer to these problems.