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Home State Taxation

Results of consultation

On 7 July 2003, the Commission’s Taxation and Customs Union Directorate-General published the summary report PDF document English - 52 KBfrançais - 59 KBDeutsch - 54 KB  on the outcome of the Commission’s Taxation and Customs Union Directorate-General consultation PDF document English - 146 KBfrançais - 167 KBDeutsch - 161 KB on "The experimental application of Home State Taxation to small and medium-sized enterprises in the EU".


The Commission in its October 2001 Communication identified several steps which could be taken to remove individual tax obstacles to cross-border trade in the Internal Market and the Commission and Member States are currently considering these. However, the Commission also concluded that in the longer term Member States should agree to allow EU companies to use a single consolidated base for computing tax on their EU-wide profits. The Commission considers that the existence of fifteen separate sets of tax rules for calculating the taxable base in the Internal Market, in addition to creating compliance costs, causes numerous problems such as the absence of relief for losses in cross-border situations, transfer pricing and double taxation. The Commission Communication presented a number of options to achieve such a single tax base. These options included:

  • Home State Taxation - where a multinational group would be able to opt to calculate the taxable profits for all its EU operations according to the tax rules of the Member State where its headquarters are based, i.e. its 'Home State'; and
  • a Common (Consolidated) Tax Base - where a multinational group would be able to opt to calculate the taxable profits for all its EU operations according to a new common set of tax rules applicable across the EU.

"Home State Taxation" pilot project for SMEs

The concept of "Home State Taxation", discussed at length in the Commission Communication and study of October 2001, involves allowing businesses to opt to compute their consolidated tax base at EU level according to the rules of the Member State where their headquarters are based. The paper on the basis of which the Commissions' services have launched the present consultation floats the idea of a pilot scheme allowing SMEs to benefit from such a system and discusses in detail the relevant technical points and alternative possibilities. The suggestion is that SMEs as a group would particularly benefit from a home state taxation system because of the specific tax problems they encounter when engaging in cross-border and international activities. For instance, tax compliance costs in an international context seem to be regressive in relation to the size of the company and are often, therefore, disproportionately high for SMEs. The administrative tax formalities and book-keeping requirements are relatively harder to sustain for SMEs than for larger enterprises. Furthermore, the absence of rules in many Member States allowing the offsetting of cross-border losses hit SMEs particularly hard, especially as regards start-up losses that almost by definition occur in the first years of an international investment.

Tax experts from business and accountancy/tax advisor federations as well as from the business world gave strong support to this idea of a pilot scheme at a workshop which the Commission hosted on 17 December 2002 .

For further information on ongoing work: