Direct tax harmonisation is anathema to small economies within the EU

Abstract

Purpose: The purpose is threefold: (i) to analyse whether the freedom to decide on tax matters is the only real tool left by which small economies can retain flexibility for the purposes of competing in a global economy; (ii) to evaluate whether the approximation of Member States’ systems of taxation is desirable or not; (iii) to understand whether a common front can exist between small EU economies as regards direct tax harmonisation. Design: A qualitative research approach drawing from legal constructivism has been taken, using intensive, elite, semi-scheduled interviews as the main technique. Findings: Seen against the purpose of the study, the findings show (i) that market size in particular, matters. Given the way in which Member States share competences with the EU, small economies defined by a small market size have limited macroeconomic and even microeconomic tools to ensure stable and sustainable growth. The freedom to decide on direct tax matters is critical in that respect. (ii) From an EU perspective, small economies recognise that a good balance between the needs of individual Member States and a ‘good’ international tax system must be achieved. Tax competition and tax transparency can coexist. (iii) Finally, a common ground on certain aspects may actually exist between some small economies in the background, but not all. Conclusions: (i) As important as this freedom may be, there are other important aspects that condition an economy’s competitiveness. (ii) From an EU perspective, instruments like the CCCTB, that promise transparency, but which implicitly restrict competition, are not likely to receive wide approval. (iii) The unique traits of each Member State, especially the level of sophistication of their systems of taxation, necessitates that they take a personal view of EU tax policy development. Value: It is hoped that in trying to achieve its purpose the study contributed in shaping an international tax system that meets both the needs of individual countries and the criteria of a good tax system.