Part 1 - AL-Tax

International Taxation Handbookhand, taxation is increasingly shifted to the immobile factor, labor. In thiscase, coordinated action at the EU level could be needed. This was therationale behind the 1996 informal ECOFIN Council in Verona, which ledto the 1997 fiscal package (see Aujean, 2005).2. There are tax obstacles to the implementation of the Single Market andcommon action is required to tackle them because action at national levelcould lead to an inefficient allocation of resources.3. There are tax externalities that can be better tackled at the EU level.4. Even though the delimitation of the EU’s powers limits its role in stabilizationand redistribution, cooperation at the EU level may actually helpMember States to preserve the resources needed to achieve these policiesat the domestic level by coordinating their tax policies.5. Because of the existence of a common monetary policy, there may be a needfor multilateral surveillance on the impact of taxes on economic output andstability.The EU involvement in taxation issues is somewhat limited. This is reflectedin the Treaty and in particular the subsidiarity principle. The Treaty delimits thescope of action of the EU in tax matters, restricting it mainly to issues of multilateralsurveillance, the proper functioning of the Single Market, competition issues intax state aid, tax discrimination, and ad hoc tax measures to attain specificobjectives of the Union (e.g. environmental or social objectives). Article 5 of theEC Treaty introduces the concepts of subsidiarity, which limits the range ofaction of the European Commission in regard to fiscal issues by stating that:‘In areas which do not fall within its exclusive competence, the Community shalltake action, in accordance with the principle of subsidiarity, only if and insofar asthe objectives of the proposed action cannot be sufficiently achieved by theMember States and can therefore, by reason of the scale and effects of the proposedaction, be better achieved by the Community.’As taxation is not an exclusive competence of the Community, both principles ofscale of action and proportionality contained in subsidiarity apply. This reducesthe European Commission proposals to the minimum necessity to remove distortions.Furthermore, harmonization generally takes place by means of directives,which, pursuant to Article 249 of the EC Treaty, are only binding as to the resultto be achieved (as opposed to regulations which are binding in their entirety), thusleaving a certain amount of leeway for the Member States when they transposethem into national law. These restrictions, and the political difficulties linked tothe fact that any EU decisions on tax matters still require unanimity among all176