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Coordination of Tax Policy


To ensure the smooth functioning of the internal market, and in particular the free movement of goods, services and capital, Member States must also comply with certain minimum standards in the framework of their taxation policies. Progress in tax harmonisation and coordination is extremely difficult, however, and often involves lengthy negotiations between Member States owing to the unanimity requirement.

Common provisions on the minimum rates and tax base for VAT and excise duties, with which Member States must comply, have been in force for many years. However, there are still many exceptions and special arrangements, which can cause distortion of competition and obstacles to trade between Member States. Against this background, the reform strategy for indirect taxes seeks primarily to simplify and modernise the current tax provisions and ensure they are applied more uniformly in the Member States. In addition, cooperation between the tax authorities is to be further improved in order to reduce the risks of tax avoidance and fraud.

The European Union has also for some time now been seeking to enhance coordination of national provisions in the area of direct taxes, although — in contrast to the situation for indirect taxes — there is no legal basis for this in the EU Treaty. For example, a code of conduct for business taxation was adopted, according to which Member States roll back existing measures that constitute harmful tax competition and refrain from introducing any harmful tax measures. Furthermore, directives were adopted to eliminate multiple taxation of companies operating in several Member States. The directive on taxation of savings income, which entered into force on 1 July 2005, is another example of coordination on direct taxes.

Companies operating across European borders have to contend with a large number of different tax regimes, which incurs high costs both for the companies themselves and for public administration. Consequently, a project which could be carried out in the medium term involves creating a common consolidated tax base for companies. The details are currently being examined at the technical level in order to determine how best to proceed.

 

Date: 20.12.2005