When is a group a group?

The European Union (EU) has long recognized that corporate tax differences dis-tort, to some extent, trade between and investment across the borders of member states. While significant differences remain, convergence of important aspects of corporate tax regimes has occurred. Other studies have considered convergence of tax rates, systems and elements of individual company tax bases. This paper evaluates EU rules concerning a key element of corporate tax base calculation: tax group recognition. Functional recognition of tax groups — for substantial tax reliefs, for miti-gation of double taxation and for anti-avoidance purposes — has implications for the calculation of effective corporate tax cost. Structural recognition employs dis-tinct tax group 'concepts' that may influence choice of organizational structures. Both aspects of recognition may create economic distortion. Although many differences persist, some convergence of group substantial tax reliefs toward a de jure near-complete control concept is observed. Relief of double taxation on inter-corporate dividends tends to employ a de jure permanent participation concept. Anti-avoidance legislation adopts a broader concept, usually de facto common control. The forces promoting convergence, including EU accounting harmonization, are identified. More explicit and consistent use of tax group concepts would, the paper concludes, improve EU direct tax harmoni-zation initiatives.