Counteracting harmful tax competition in the European Union

Abstract

One of the objectives in establishing the European Community (EC), the forerunner to the European Union (EU), was the acceleration of economic growth in member states. Economic growth is only possible where resources are allocated to their most productive use. As a result, the EC Treaty, the accord by which the EC was started, sets a goal of creating "an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured." The EC Treaty calls for the establishment of "a system ensuring that competition in the internal market is not distorted." The Treaty recognizes that competition can be distorted by protectionist trade policies, government subsidies, public procurement, as well as economic and monetary policies. To attain the goal of eliminating the distortions to the intercompany competition in the EC, the Treaty provides for "the approximation of the laws of Member States to the extent required for the functioning of the common market."