Personal income harmonization process

Abstract

PURPOSE: The aim of the research is to determine whether harmonization of personal income taxation in the European Union countries is possible and desirable.

DESIGN/METHODOLOGY/APPROACH: The paper objective requires a comparative analysis of personal income taxation systems in the European Union countries, taking into account the specificity, common features and differences in income tax constructions in the surveyed countries as well as the areas, possibilities and potential directions for harmonizing this form of taxation. The main research method was induction. Moreover, the paper uses two general research methods, namely analytic and synthetic methods, characterized by detailed presentation of the reality research.

FINDINGS: The first is to determine whether harmonization of personal income taxation in the European Union countries is possible and desirable and the second is to find out the main reference points for transformation of an individual’s taxation system in European Union Countries. The assessment of the possibility and desirability of harmonizing this form of taxation has been limited (range of research) to personal income of individuals who do not conduct any form of business activity and it reflects the short and long-term run.

PRACTICAL IMPLICATIONS: The specificities and different models of taxation of personal income in the EU and the different systems of integration of taxation with pension contributions make it impossible to standardise and harmonise this form of taxation. From a legal point of view harmonization is possible, but from an economic point of view it is not advisable. In addition, different wage levels, the way the minimum subsistence level is calculated and different tax allowance and exemption systems do not allow for effective harmonization of personal income tax.

ORIGINALITY/VALUE: The results reflect that despite the lack of Directives to regulate the rules of taxing personal income, the rules are emerging spontaneously and tax burdens are slowly equalizing. This process is the result of competition between EU member state tax systems— nations extensively are utilizing the construction of the personal income tax to utilize the stimulating functions of the tax system, which in turn impacts the possibilities open to spontaneous PIT harmonization.