Taxation of Cross Border Income

Neutrality was the guiding principle for tax co-ordination in the European Community under the Treaty of Rome.

Taxes, it was held, should not be allowed to hinder the free movement of goods and services, persons and capital, nor interfere with the establishment of a regime which would ensure that competitive conditions are not distorted.

The Treaty of Masstricht added subsidiarity to this, basically meaning that the power to tax, among other powers, rests with the member states.

Obviously, these criteria for a "good" tax system interact.

Moreover, doing justice to both criteria may require considerable tax reform.

The community-wide introduction of VAT stands out as a reform which met the neutrality and subsidiarity requirements.

The destination basis of the tax and the attendant border tax adjustments ensure that intra-Community trade is unaffected and that revenues accrue to the member state of consumption.

No such easy solution is available for the corporation tax.

Neutrality and subsidiarity are inextricably intertwined since capital is highly mobile and the entitlement to tax corporations and their shareholders is based on both the source principle and the domicile principle. This volume presents Klaus Vogel's view on the choice between the source principle and the domicile principle.

Neutrality considerations, Vogel believes, dictate the adoption of the source principle.

His economic arguments are contested by Johan Brands, and Kees van Raad takes issue with Vogel's legal arguments.