Company taxation in the internal market : how can there be a more effective system through constant co-operation between member states

Abstract

Taxation is the core of national autonomy. Tax revenues make it possible for governments to function effectively and fulfil their agendas. A country’s fiscal framework, also reflects the country’s direction, in prominent areas of public expenditure such as health and education. Through these policies a legal system is developed for businesses across the country which will eventually influence consumption and savings. In the area of direct taxation, the absence of tools available to offset cross-border losses, which leads to double taxation, remains the colossal obstacle for the proper functioning of the Internal Market. Cross-border loss relief, nowadays is a necessity due to the constant trade between Member States, at all levels. This has resulted in the paradox, that on paper there is one market, while, in reality there is a manifold of tax systems. Cross-border trade, also tends to make it easier for one to use legal means to pay the minimum tax possible (Tax Avoidance), or worse, to not pay the taxes due (Tax Evasion). Such problem cannot be solved by one country in isolation. As a result of this, in an attempt to have a more legitimate fiscal framework at EU level, constant co-operation between Member States is necessary to help and assist each other, to prevent and shut down tax avoidance and tax evasion setups. One way of making sure that there is a more effective system, for governments, companies and citizens is by ensuring fairness. This tends to be a difficult task, even at a national level. However the problem escalates when it comes to cross-border activities. As a principle, a fiscal framework should not give a particular business an unfair advantage, based on which country they operate in. Co-operation between Member States is necessary as tax laws in one country should not make way for people to evade tax in another country.