Coordination of Tax Policy

The main goal of the EU tax policy is to ensure the smooth functioning of the internal market, in particular the free movement of goods, services and capital. This involves removing tax obstacles to cross-border economic activity, securing a level playing field in the EU market, fighting against harmful tax competition, and taking action to combat tax fraud. The tax policy also aims to promote other general EU policy goals, such as growth, job creation and competitiveness, as well as the EU objectives in the environmental and energy areas.

Harmonisation of tax rules at the EU level is driven mainly by the needs of the Single market and has the character of minimum standards. Provided that they respect Community rules, Member States are free to choose the tax systems that they consider most appropriate.

Decisions on taxation matters are made unanimously, which reflects the importance Member States attach to their sovereignty in this area. The unanimity requirement makes progress in tax harmonisation and coordination particularly difficult. Adoption of measures is often preceded by lengthy negotiations between Member States that may extend over several years.

A higher degree of harmonisation and coordination has been achieved in the area of indirect taxes, which have an immediate impact on the free movement of goods and supply of services. Common provisions on the minimum rates and tax base for VAT and excise duties have been in force for many years. However, there are still many exceptions and special arrangements, which can cause distortion of competition and render the system too complicated. A number of initiatives, currently underway, seek to simplify and modernize the tax provisions and ensure they are applied more uniformly in the Member States. New proposals are also increasingly geared towards promoting environmental protection, notably in the area of excise duties.

Direct taxation is, in principle, the sole responsibility of Member States. However, when designing their tax systems, Member States have to observe and safeguard provisions of the EU primary law. The amount of the existing secondary legislation is much smaller in the area of direct taxation than in the area of indirect taxation. A few directives were adopted in the past, affecting mainly areas important for international transactions and trade. A code of conduct for business taxation is also in place, requiring Member States to roll back existing measures that constitute harmful tax competition. However, the code of conduct was not adopted in the form of a directive.

Several new initiatives to further promote co-ordination of national direct tax systems in the EU are currently being discussed. Work is also progressing on a proposal that would allow companies to use EU-wide rules to calculate their corporate tax base (common consolidated corporate tax base).

Last update: 16.8.2011 16:02

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