The document provides information about the euro currency and the European monetary union in 3 paragraphs: 1) The euro is the official currency of the European Union and is used by 19 of its member states. It was introduced in 1999 and adopted in 2002 to increase economic integration and stability across the EU. 2) The Maastricht Treaty led to the creation of the euro and outlined convergence criteria for EU members to qualify for the eurozone. The European Central Bank was established to implement monetary policy for the eurozone. 3) Implementing the euro involved complex financial and economic changes across many markets and sectors. Member states transitioned from national currencies to the euro at different speeds, while ensuring contracts and obligations were

1. EURO CURRENCY

2. PRESENTATED BY :SOUMITA PATRA 67DIPTAKSHYA BANARJREE 76AVIJIT BHATTACHARYYA 91SOUMALYA SEN 120SREEJI S NAIR 100

3. INTRODUCTIONEuro is the official currency of the European Union.

4. Eleven member states have adopted it collectively known as Eurozone.(Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, etc.)

5. Taking official estimates of 2007 GDP, the Eurozone is the 2nd largest economy in the world.

6. The euro was introduced to world financial markets as an currency in 1999 and launched coin and Banknote on 1st, January 2002.

7. All nations that have joined the EU since the 1993 implementation of the Maastricht Treaty

8. The euro sign (€) is the currency sign used for the euro the official currency of the European Union(EU).

9. The design was presented to the public by the European Commission on 12th December , 1996.

10. The international three-letter code (according to ISO standard ISO 4217) for the euro is EURMaastricht TreatyAlso known as Treaty on European union

11. Signed on 7 February 1992 between members of European community

12. Led to the creation of EURO.EUROPEAN MONETARY UNIONEMU is the agreement among the participating member states of the European Union to adopt a single currency and monetary system.

13. Eleven countries have been selected as the members of EMU. As part of the EMU, these eleven countries now make up the world's second-largest economy, after the United States

14. Greece and Sweden, failed to meet the convergence requirements in time to join the EMU in the first round. Sweden failed to satisfy two of the conditions:

15. laws governing Sweden's central bank were not compatible with the Maastricht Treaty and the currency exchange rates in Sweden were not sufficiently stable for the previous two years. Greece failed to meet all of the requirementsEuropean Monetary Institute:The European Monetary Institute (EMI) was the forerunner of the European Central Bank(ECB).

16. It encouraged cooperation between the national banks of the member states of the EU

17. Further budget constraints are required in countries ( Italy and Belgium) meet the requirements of the pact.

18. CONVERGENCE CRITERIAPrice stability: Inflation rate should not exceed 1.5% that of three best performing member state.

19. Annual government deficit: the ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3%

20. Government debt: the ratio of gross government debt to GDP must not exceed 60% at the end of the preceding financial year.

21. Long-term interest rates. In practice, the nominal long-term interest rate must not exceed by more than 2 percentage points that of, at most, the three best-performing Member StatesSWITCH TO THE EURO AT VARYING SPEEDSBanking for individuals will probably switch to Euros at a last stage Done largely in local currency up to final changeover

22. Corporate banking may well start using earlierAdoption of Euro in corporate sectorPlan of large companies to adopt euro as company currency

23. Expected their customers and suppliers to use Euros in transactions

24. Internationally oriented medium sized companies will probably also turn quickly to new currency in many of their functions

25. Smaller domestically oriented companies, self employed and households will keep more or less to national currency until euro coins or notes and coins are introducedPublic sector in Germany brings up rearGerman public sector didn’t planned to switch to euro until end of 2001

26. Possible to make non cash payments in Euro ex. tax

27. Companies were particularly concerned to pay income and corporation tax returns in DEM until 2001

28. Preferred to use Euro right earlierShortening of cash changeover phase in GermanyIn order to minimize the burden on the retail sector

29. Banks and retailers continue to give out DEM coin they receive as can be used for any vending machineTHE LEGAL FRAMEWORK FOR THE CURRENCY CHANGEOVERBased on two regulations First regulation Based on article 235 of the EC treaty took effect on June 20th ,1997 applied to all EU countriesThe existing contracts will remain in force with all rights and obligations provided no other agreement has been made after the advent of new currency

30. Neither investors nor debtors holding long term contracts will enjoy advantage or suffer disadvantage through changeover of currencySecond regulationBased on article 109 of the treaty-on the introduction of the euro was passed during the May 1998

31. Established principle that who wants to use the euro can but no one can be forced to

32. Determines the legal status of euro vs. the national currencies

33. Euro EG opened company,stock exchange,accounting&currency law to the Euro

34. Paved way for changeover on the financial markets & exchangesthat lead companies to adjust their accounts,equity capital structures

35. THE EUROPEAN CENTRAL BANKEUROPEAN ECONOMIC AND MONETARY UNION (EMU):EMU consists three stages 1ST Stage(1 July 1990 to 31 December 1993):The Treatyof Maastricht in 1992 establishes the completion of the EMU as a formal objective and sets a number of economic convergence criteria, concerning the inflation rate, public finances, interest rates and exchange rate stability.

36. The treaty enters into force on the 1 November 1993.2nd stage(1 January 1994 to 31 December 1998):The European Monetary Institute is established as the forerunner of the European Central BankOn 16 December 1995, details such as the name of the new currency (the euro) as well as the duration of the transition periods are decided.

37. New exchange rate mechanism (ERM II) is set up to provide stability between the euro and the national currencies of countries that haven't yet entered the eurozone

38. The 11 initial countries that will participate in the third stage from 1 january 1999 are selected.

39. On 1 June 1998, the European Central Bank (ECB) is created3rd Stage(1 January 1999 and continuing)From the start of 1999, the euro is now a real currency, and a single monetary policy is introduced under the authority of the ECB.

40. ECB FUNCTIONING MECHANISMECB working procedures are segregated into three parts:1. GOVERNMENTAL2. EXECUTIVE SECTION3. GENERAL BODY

41. FUNCTIONS OF EUROPEAN CENTRAL BANK (ECB) To maintain Price stability

42. Implement the Monetary policy

43. Issuance of euro banknotesECB’S MINIMUM RESERVE SYSTEMThe main features of the minimum reserve system, which was specified in November 1998 are:The reserve base will comprise bank deposits, debt securities issued and money market paper. Repos, deposits and debt securities with a maturity of more than two years will not be subject to minimum reserve requirements.

44. The reserve ratios will be in the range of between 1.5% and 2.5%.REASON BEHIND MINIMUM RESERVEThe ECB expects a stabilization of money market rates, with the help of reserves

45. Minimum reserve are seen as a means to create a structural liquidity shortage thus strengthening the role of the ECB as a supplier of liquidity.

46. Minimum reserves are intended to improve the control of monetary expansion by increasing the interest-rate elasticity of money demand.THE DISTRIBUTION OF ECB PROFIT80% profit distributed to the participating central bank

47. 20% allocated to the ECB’s reserves.IMPLICATION OF FINANCIAL MARKETSConsequences for the bond marketsOutstanding bonds denominated in currencies of participating countries, in ECU. Bonds issued by governments, banks, company and other issuers.

48. It will be equivalent to 50% of the dollar bond market and 130% of yen bond market Scope for financing and investment provide new opportunities for market participantsThe three largest country make up more than three-quarters of the aggregate bond marketGrowth of overall market being neglected as the countries continue to consolidate the government finances.

49. Yields not uniform Highly liquid segment maintained by a single borrower compared to the U.S bill market Yields determined by monetary and fiscal policy

50. The development of economy and international capital flows due to inflation expectations Yields differential between sovereign issuers will small

51. Countries were expected to revalue were rewarded with lower yields EMU having no currency risk and credit standing will be the main risk factor Individual countries have no longer control on their own money supply

52. Benchmark bonds Highly liquid at the lowest possible yields

53. Appropriate yield premium

54. Existence of highly developed future market

55. Issue of trading bonds and coupons separately

56. Pre-announcement of issues in a regular calendar and low tax ratesNew issuers and market segmentsDebt Issuance by states government

57. Public Sector issuers

58. Supranational institutions and foreign issuers

59. Sovereign borrowers from emerging economies Corporate bondsFrance is only which has corporate bonds

60. There is no difficulties for European investors

61. Increased Demand from Institutional investorsCurrency changeover in the bond markets ECU claims and liabilities will be converted to euros at the rate of 1 ECU= 1 euroNew reference interest rates EURIBOR is replaced by FIBOR, PIBOR and EONIA

62. ECB calculates overnight rate(EONIA) charged by references bankConsequences for the equity marketsSecond largest equity market all over the world

63. Japan is leading country

64. Pronounced differences in accounting, legal and tax regulationA “big bang” in asset allocation Households, institutional investors and public institutions have already begun to change Rising of capital and increase in occupational pension fundsThe changeover in the equity marketsShare capital and the par value of share redenominated in euros

65. Public company’s should have share capital of at least 50000euros Convert par value share into eurosConsequences for the futures and options marketsExisting will modernized and new ones will be launched

66. Products become more standardized and transparent

67. Liquid and trading volume increase and costs will fall

68. Electronic trading is the another benchmarkCompetition between the financial centers “Home” currency will disappear and national regulatory system come under pressure London Stock Exchange and Deutsche Borse AG announced an alliance which will allow customers to trade on both exchanges

69. OPPORTUNITIES OF MONETARY UNIONBroader Investment & Financing Opportunities

70. Greater Role in International Currency System

71. Doesn’t Affect Purchasing Power

72. No Bail-Out of Member States

73. Boost Growth & Employment in the Long Term

74. Easier Travel & Money Transfer in EU

75. Companies to Benefit in Multiple Ways

76. Political StabilityEURO’s INTERNATIONAL ROLENo Hedging Costs within EU

77. Euro v/s USD

78. Investment & Reserve CurrencyONE EUROPE ONE TAXFORMATION OF A COMMON TAX BASE IN THE EUROPEAN UNION

79. HARMONISATION CORPORATE INCOME TAX IN THE EUThe European Commission’s plan to submit the proposal is the outcome of a working program launched in 2004 and which represents the conclusions drawn from the findings of an extensive study published in 2001.The European Commission has launched several platforms for comprehensive harmonization solutions starting from 1962 till date.The Commission’s certain moves are described in the following reports:Neumark Report (1962)

80. Programme for harmonization of Direct taxes(1967)

81. Van den Tempel Report (1972)

82. Proposal for a Directive to harmonize Corporation Tax (1975)

83. Ruding Report (1992)

84. Bolkestein Report (2001)PROBLEMS IN TAXATION Different Measures of Tax Burden Macro-economic parameters vs. company specific data Actual parameters vs. Notional parameters High Compliance CostEconomic DistortionPolitical Issues

85. ROADS TO REFORMEvaluations of any proposal on the harmonization of corporate income tax or its assessment base will differ depending on the objectives of taxation reform and on what it is supposed to deliver. The objective of tax neutrality i.e., efficient and incentive-neutral taxation, is a general requirement of any regime. Investment decisions should not be distorted. And it is equally important to avoid double taxation or no taxation of incomes.Indirectly linked to this is the aim to ideally simple and transparent taxation. This should involve the minimum possible compliance costs for companies and the minimum possible administrative costs for the tax authorities. Moreover, in order to determine the basis of taxation for the Member States involved, intra-group transactions within the corporate groups have to be simulated by means of transfer pricing systems.It is also necessary to secure to the states, appropriate share of the tax base and guarantee them tax revenues. For each State uses the part of its tax receipts to provide public goods that companies also use.

86. Theoretical Solution TO THE PROBLEM ?Source Principle: When a State levies taxes only on income obtained within its jurisdiction, it is the Source Principle Residence Principle: When a State taxes the worldwide income of a taxpayer resident within its jurisdiction, we use the term Residence Principle. Consistent implementation of the residence principle combined with the imputation of subsidiaries’ income to the parent company would theoretically be a possible alternative to CCCTB.This option would retain the separate calculation of profits , and differences in the tax rates would not give rise to distortions in Investment decisions.

87. Common consolidated corporate tax base (ccctb)The COMMON CONSOLIDATED CORPORATE TAX BASE (CCCTB) Basic Concept: It is a proposal comprises creation of a uniform EU-wide tax base permitting the consolidation of profits and losses. So far the European Commission envisages offering companies the CCCTB as an additional option, enabling them to choose between the previous national system and the new regime. The total profit calculated this way would then have to be allocated by means of an apportionment system.(i.e., with reference to certain key variables)to the Member States were the corporation is active.

88. STARTING EFFECTS OF CCCTB 1.The European Commission plans to submit a proposal by the end of 2008 on harmonizing the corporate income tax base. Helps the multi jurisdictional corporations as they can apply it as an alternative Taxpaying scheme. 2. The Companies could potentially cut their tax compliance ( as per certain accepted standards) cost. 3. CCCTB involves a considerable curtailment of the Member States Tax autonomy (independence). - This requires unanimity among the member states 4. The CCCTB concept is not a self-contained approach; rather, it allows various methodological designs. 5. The CCCTB requires an allocation mechanism with which to ‘share out’ an enterprise’s consolidated tax base among Member States. 6. An apportionment formula involves incentive effects for both companies and Member States. 7. It safeguards the principles of taxation at source.

89. ALLOCATION MECHANISM:THE MOST TRICKIEST PORTIONThe European Union wants to fairly divide the tax base among the Member States.It is necessary to apportion the tax base because companies operating under a CCCTB regime combine the profits of all their subsidiaries. Since this will enable full offsetting of profits and losses, all else being equal, overall tax revenues are likely to fall.VARIOUS ALLOCATION APPROACHES:Benefit Factor Formula- Profits should be allocated to relative use of public services provided by the StateFactor Location Formula- Apportionment of Profits should be based on the where Physical Factors of Production are located.Source of Profits Formula- Apportion Profits based on where the economic activities has taken place.

90. MACRO- VERUS- MICRO FACTORSMACRO FACTORS- CONSUMPTION & GROSS DOMESTIC PRODUCTMICRO FACTORS- CAPITAL, PAYROLL & TURNOVER/ SALESBoth alternatives have their advantages and drawbacks. The European Commission gives preference to an apportionment formula based on MICRO-FACTORS following the UNITED STATES & CANADA as the role models for the Tax System.

91. LIMITATIONS OF CCCTBHigh Administrative costs for the Participating Countries- Have to administer two system in tandem.Third Country regulations impose heavier administrative burden- Parallel Use of Different SystemNo incentive-neutral taxationTax Competition intensifiesReal impact on tax revenues are in vagueRestriction on the Member States’ Autonomy

92. CONCLUSION :The concept for a CCCTB is a good idea, provided the Member States are prepared to accept the loss of their autonomy.The main problem is with the international taxation i.e. the equitable sharing of tax revenues among the Member States.Achieving a consensus between 27 Member Countries for the common tax base will be difficultTax legislation is subject to constant changes and developments. Ideas for new products and innovative technologies creates a need to adjust taxation systems.Last but not the least, it is to be seen that how corporate income tax is integrated into Income tax in general

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