Decline of CFC rules and rise of IP boxes: How the ECJ affects tax competition and economic distortions in Europe

Rainer Bräutigam, Christoph Spengel and Frank Streif

No 15-055, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: The European Court of Justice (ECJ) has become an influential player in the field of direct taxation in the European Union in the past twenty years. However, it is unclear whether the ECJ's decisions actually increase tax neutrality and therefore contribute to the achievement of an internal market as stipulated by the European treaties or not. In 2006, the ECJ limited the applicability of specific tax rules in Europe that are intended to prohibit the excessive use of low-tax countries. Our counterfactual scenarios show that this restriction of so-called controlled foreign company (CFC) rules and the related emergence of IP boxes cast doubt on the positive effects the ECJ is assumed to have. Additionally, we show that the abolishment of IP boxes would strengthen tax neutrality in Europe. Overall, further research is needed to relate and harmonise economic and legal concepts of tax neutrality.

Keywords: European Court of Justice; Tax Neutrality; Effective Tax Rates; Controlled Foreign Company Rules; Intellectual Property Boxes (search for similar items in EconPapers)
JEL-codes: H21 K10 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-eur, nep-ger and nep-law
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:15055

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