Neutrality as Tax Justice: The Case of Common Consolidated Corporate Tax Base under the EU law

The tax neutrality principle was defined as a tax system not influencing the taxpayers’ business decisions. Economists usually use ‘the no tax world’ as the baseline to decide if a specific tax measure is ‘neutral. If a taxpayer’s reaction to a specific tax is the same as if there is no such tax, then it is neutral. Such formulation of tax neutrality is inappropriate to evaluate taxation in a regional market as European Union. This paper estab- lishes a new normative framework for evaluating the EU corporate tax law reform project, the Common Consolidated Corporate Tax Base (CCCTB) Proposal, that aims to properly tax MNE taxpayers’ cross-border income by a pre-decided formula. The tax neutrality principle should be not be based on the no-tax baseline but interpreted as ‘faithfully reflecting the taxpayers’ economic activities throughout EU’. EU Member States should maintain proper fiscal autonomy to decide their actual administration inputs (the public benefit provided) and their own method to implement the EU level corporate group taxation (the subsidiarity principle). This trio-formulated neutrality concept falls between Rawls’ liberalism theory and Nozick’s libertarianism theory, closer to Liam Murphy and Thomas Nagel’s tax jus- tice theory. Such trio-combination also better regulates the interactions of the three actors in the EU internal market: EU, Member States and MNE taxpayers. This reformed neutrality is a more appropriate norm than one single economic or legal principle for the EU corporate tax reform