Part 1 - AL-Tax

Chapter 9EU’s objective is to ensure that states’ tax regimes do not contain discriminatoryrules that might distort the allocation of resources and the movement of peoplewithin the EU. In other words, the EU should coordinate members’ tax systems.What are the EU countries’ feelings on coordination? As mentioned earlier,European countries are torn between the middle- to long-term objective of coordinationand the need in the shorter term to stimulate their own economy, evenat the cost of taking resources from its own partners. On the one hand, most countriesare aware that tax competition taken to the extreme could excessively reducerevenue, thereby leading to an under-provision of public goods. For this reasonmany EU members (in particular, most of the older members) are willing to cooperateand set a minimum tax rate on mobile factors. On the other hand, countriesare still reluctant to lose control over fiscal tools by delegating part of their powerto the EU. To give an idea of this mixed and even contradictory feeling, let us lookat Italy’s White Paper for Reform of the Tax System (Italy’s Council of Ministers,2001). The White Paper claims the will to coordinate Italy’s system with aso-called ‘European tax model’. In particular, it states that ‘the reform has oneprincipal objective: To harmonize our tax system with the most efficient ones,implemented by industrialized countries, in particular the members of theEuropean Union’. Quite surprisingly, however, the paper also expresses the willto pursue its objectives in the ‘logic of tax competition’.With regard to the EU’s attempts to coordinate direct taxation, the 1980s sawthe failure to introduce a single fiscal system for the whole Community. Only in1990 were three important Directives introduced: The first concerning mergersand acquisitions (90/434/CEE), the second on double taxation of distributedincome between parent corporations and their foreign subsidiaries located inother states (90/435/CEE), and the third (adopted as a convention) aimed at eliminatingdouble taxation on dividends (90/436/CEE). These laws could becomethe pillars upon which a EU federal tax system could be founded. However,much has to be done to ensure a coordinated environment.The European Commission is aware of members’ mixed feelings about competitionand coordination. However, it forcibly points out that the fact that companiesmust conform to 25 or more different tax regimes remains the present causefor most existing tax problems in the internal market, as well as high compliancecosts. In Communication COM (2001) 582 final, the European Commissionstressed the need for more corporate tax coordination. This communicationdid not give any quantitative evaluation of the benefits that could arise fromincreased coordination. 5 On the contrary, it rationalized such reform on negativeterms, observing that the strong mobility of capital could cause excessive competition217