Direct taxation and the single European market

After years of little or no progress, there are now important European Community developments in the field of direct taxation. Three measures were adopted in 1990 -- affecting parents and subsidiaries, mergers and divisions, and transfer pricing disputes. Others are likely to be adopted before the end of 1991 -- intra-EC payments of interest and royalties, tax losses of permanent establishments in different Member States, and relief on losses of subsidiaries. However, in return for achieving progress, Member States are likely to insist on flexibility and compromise before particular directives are adopted. This means that the laws which result may not be uniform in wording or effect. The differences will provide both opportunities and problems in tax planning. All EC companies with operations or affiliates in more than one EC country, and non-EC headquartered groups with European operations, should re-examine their structures, financing and tax planning. Where possible, action should be delayed until the relevant home laws have been passed. Where delay is impossible, flexibility should be the principal goal, to allow for changes later.