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

This work aims to explore the main distortions arising from the economic double taxation of distributed profits in three member states of the European Union: Portugal, the United Kingdom and the Netherlands. It presents a comparative analysis of the tax implications of this form of double taxation from a legal point of view. To this end, both domestic laws and international tax treaties are analyzed, inward and outward investment is covered and dividend income tax burdens are ascertained having regard to those taxes that directly influence the effective dividend income tax rate. The results of this analysis are assessed in light of the tax principles of neutrality, efficiency, nondiscrimination under EU law and the objectives of fair distribution of revenue between member states, simplicity and prevention of tax evasion. The author concludes that well-accepted tax principles, such as the principles of worldwide taxation and vertical equity, operate less efficiently within the overall tax system. Instead, the source principle is gaining momentum, with simplicity and neutrality aims prevailing over distributional criteria. From a theoretical point of view, therefore, the principle of capital import neutrality is of growing importance as compared with the principle of capital export neutrality. Furthermore, it is suggested that problems remain with regard to the balence between debt financing and equity financing, unless an exemption system is in place, further complicated by the more favourable treatment given to capital gains. Neither classical nor imputation systems, the author concludes, provide a satisfactory answer to these problems.