Part 1 - AL-Tax

International Taxation HandbookEuropean Act, a piece of legislation which provided that the European Community(as it was called at the time) would take measures to establish an internal marketbefore the end of 1992 by removing remaining tariff and nontariff barriers betweenits members. This internal market or ‘Single Market’ was based on what is knownas the four basic freedoms, i.e. freedom of movement for goods, services, labor,and capital. Another important step was reached in 1999 with the creation of theEconomic and Monetary Union and the introduction in most Member States ofthe euro as a common currency.In parallel to economic integration, the EU’s institutions and decision-makingprocess have become politically more integrated. EU policymaking rests on threemain institutions. The European Commission, representing the community-wideinterest, is the only body that can make legislative proposals; It also plays a roleas ‘Guardian of the Treaties’ by launching court procedures against Member Statesthat fail to transpose (or inappropriately transpose) EU legislation into their nationallaws or breach the rules of the Treaty. Secondly, the Council, comprised of the 25governments, votes (with different weights for different countries) to adopt, amend,or reject the proposed European legislation. Finally, the European Parliament,having increasingly gained power over time, is now fully part of the legislativeprocess in what is known as the ‘co-decision procedure’ with the Council. Besidesthese three main institutions, the European Court of Justice (ECJ) has been a growingforce for European integration, notably through its action in applying and interpretingEuropean legislation, as well as fighting discrimination. The EuropeanEconomic and Social Committee, representing social and economic interest groups,and the Committee of the Regions, representing the regions of Europe, have playeda role in the dialog with stakeholders by giving opinions (with advisory, not binding,status) on proposed EU legislation. Important economic policies have beentransferred to European level, notably monetary policy (which is in the hands ofan independent European Central Bank), competition policy (whose most importantlegislation and control functions are in the hands of the European Commission),and trade policy (for which the European Commission receives a mandate tonegotiate on behalf of the European Union and its Member States).8.3 The institutional design of andrationale for taxationInterestingly enough, the powers of the European Union in direct taxation are limited.Member States jealously retain most tax powers and concede only limited174