Tax confusion in the EU

The expansion of EU has led to an increase in tax competition. The more recent members have a clear preference for indirect taxes (i.e. VAT), instead of direct taxes, while EU policies push new and old members to collect more taxes. However things change constantly. 

It is true that a country conducts an unfair tax policy if it implements principles contrary to the generally accepted ones, whether they lack of transparency or benefiting companies without an actual presence in the country.

The existence of a healthy competition is necessary. Without it, immigration to the lesser-taxed countries will increase and as a result, tax-heavy nations will suffer a diminution of revenue, which reduces their capacity to provide public goods and services. Furthermore, companies’ wealth would be concentrated in the lesser-taxed countries, creating a problematic economical balance.

Fundamentally, this issue is actually a tax and economic policies competition and not simply a tax competition.

Taxation as well as public expenditures are components of public finances. Therefore, instead of harmonize taxation one may try to harmonize public expenditure. In this way we may have a double positive effect. On the one hand, a country would be in a position to face its needs and public expenses and on the other hand, taxpayers would not suffer additional fiscal charges. Of course, such a harmonization would not benefit all countries involved. Only the major economies would gain the benefits, while the smaller ones would only lose their ability to attract people and capital.

Tax competition supports the growth of the most effective companies, rewards innovation and improves the situation for the consumer.

In theory, a coordinated tax system may eliminate discrimination and double taxation, prevent unintended non-taxation and evasion and reduce compliance costs associated with being subject to more than one tax system.

Keep in mind that the basic rule in tax law is that whatever is not prohibited is allowed.


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