EU tax policy aims to create a harmonized tax system to eliminate barriers to free movement of goods and ensure fair competition within the internal market. It focuses on indirect taxation like VAT and excise duties, as well as coordination of direct taxes to prevent tax evasion and distortion. Challenges such as tax fraud, which costs EU countries up to €1 trillion, necessitate stronger cooperation among member states to safeguard public services and ensure economic fairness.

1. TAXATION

2. WHAT IS EU TAX POLICY AND WHY
DO WE NEED IT?
The internal market was to be “characterised by the abolition, as between MSs,
of obstacles to the free movement of goods, persons, services and capital” to merge
national markets, and there was to be “a system ensuring that competition in the internal
market is not distorted”.

3. WHAT
IS EU
TAX
POLICY
AND
WHY
DO WE
NEED
IT?
There arose the possibility that abolished customs barriers to trade could be replaced by
internal taxes which would continue to discriminate against imports from other Member States
(MSs).
If different taxes were levied on a different basis or at different rates across the market, this
would produce obstacles to the free movement of goods and services, thus frustrating the ultimate
goal of achieving “a genuine internal market”.

4. WHAT
IS EU
TAX
POLICY
AND
WHY
DO WE
NEED
IT?
Clearly, an economic union and an internal market required a
harmonised tax system.
*Tax Harmonization- equalization of tax bases and/or tax rates

5. OBJECTIVES
OF
TAXATION
Funding
Government
Equity
Distribution
Macroeconomic
Stabilization
Behavioral
Change
Growth and
Competitiveness

6. WHAT STEPS IS EUROPE TAKING TO
PREPARE?
EU TAX POLICY
Main priorities:
 elimination of tax obstacles to cross-border economic activity
 the fight against harmful tax competition and
 the promotion of greater cooperation between tax administrations in ensuring control and
combating fraud.

7. WHAT
STEPS
IS
EUROP
E
TAKING
TO
PREPAR
E?
The tax policy of the European Union has two wings:
 Indirect taxation
 Direct taxation
*According to the Treaty, tax measures must be adopted unanimously by the Member States. While tax policy is
greatly influenced by the case law of the European Court of Justice, the European Parliament has only the right to be
consulted in this regard, except in budgetary matters, for which, as co-budgetary authority, it shares decision-making powers
with the Council.

8. Indirect Tax
• are not levied on income or property
• that indirect taxes on consumption are charged in the country in which the goods and services are consumed
• includes VAT, excise duties, import levies and energy and other environmental taxes
• Customs duties are a form of indirect taxation. That is why, following the removal of customs barriers in a
common market, Member States could be tempted to replace them with fiscal barriers, i.e. with internal taxes.

9. Value Added Tax is:
a general tax
a consumption tax
paid to the revenue authorities by the seller of the goods
(taxable person), but actually paid by the buyer to the seller
as part of the price.
I
N
D
I
R
E
C
T
T
A
X

10. The principle of the common system of VAT is:
• proportional to the price of the products and services irrespective of the number of
transactions, which have taken place at the stages preceding that to which it is applied.
• amount of the tax is recovered at each sale
• paid to the State by the seller in each transaction. However, the latter does not bear the
burden of the VAT, as his purchaser has advanced the full amount of the VAT to him. Tax paid
at previous stages, on deliveries made or services rendered to the taxable person, and the tax
paid on imports, is deductible from the turnover tax of that taxable person. Given this
deductibility of taxes already paid, VAT is neutral from the point of view of domestic
competition, i.e. it does not favour vertically integrated undertakings, as did the cumulative
multi-stage taxes. But VAT is also neutral from the point of view of international competition,
since it cannot favour domestic products. Calculation of the tax paid is easy, as it appears on
all invoices and documents accompanying the product.

11. During transitional VAT arrangements, the Member States shall apply a standard VAT rate of
at least 15. However, the standard VAT rate varies between 15 and 27% in the twenty-eight Member
States.
In fact, in mid-2014 the standard VAT rate was:
• 15%, in Luxembourg;
• 18%, in Malta;
• 19%, in Germany and Cyprus;
• 20%, in France, the United Kingdom, Bulgaria, Austria, Estonia and Slovakia;
• 21%, in Italy, Spain, Belgium, the Netherlands, the Czech Republic, Latvia and Lithuania;
• 22%, in Slovenia;
• 23%, in Poland, Greece, Ireland and Portugal;
• 24%, in Romania and Finland;
• 25%, in Denmark, Sweden and Croatia;
• 27%, in Hungary.

12. All the higher VAT rates existing in several Member States have been abolished, leading to a significant fall in
consumer prices in some sectors, such as automobiles.
The Member States however enjoy the option of applying, alongside the normal rate, one (or two) reduced VAT rates,
equal to or higher than 5%, applicable only to certain goods and services of a social or cultural nature. Examples include:
• Foodstuffs
• pharmaceuticals
• passenger transport services,
• books, newspapers and periodicals,
• entrance to shows, museums and the like,
• publications and copyright,
• subsidised housing,
• hotel accommodation,
• social activities and
• medical care in hospitals.

13. Excise duties
 taxes on the sale or use of specific products.
 They are usually applied as an amount per quantity of the product
e.g. per kg / per hl /per degree alcohol / per 1000 pieces etc.
 All revenue from excise duties goes entirely to the Member States.
I
N
D
I
R
E
C
T
T
A
X

14. Moreover, within the overall context of a tax scheme, excise duties constitute flexible components,
which can easily be manoeuvred if further tax revenue is needed.
As they are separate taxes, excise duties can easily be adapted to the various economic, social and
structural requirements.
Lastly, they can be levied specifically in order to reduce consumption of certain products:
• tobacco products and alcoholic drinks, for public health reasons, and
• petroleum products for reasons of environment linked energy savings and reduction of energy dependence.

15. *In the EU, Member States must apply excise duties to:
• Alcohol
• Tobacco
• Energy

16. When the Excise Duties Must be Paid
• commercial transactions
- the excise duty is paid in the Member State of consumption
*Products which have already been released for consumption and which are transported to
another Member State will be subject to excise duty in the Member State of destination.
• private individuals
- who buy excise goods for their own use, the tax is paid in the Member State of origin
i.e. where they buy the goods
• distance selling:
- sale to a private person in another Member State.

17. Direct Tax
• taxes that are levied on income, wealth and capital, whether personal or corporate
• which does not affect the commerce between the Member States and
• needs only coordination of company taxation and of the fight against tax evasion, in order
to prevent distortions of competition in the internal market and in capital movements.

18. • Whilst the harmonisation of indirect taxes was necessary from the outset to avoid obstacles to trade and to free competition
and later to make the removal of fiscal frontiers possible, the harmonisation of direct taxes was not considered
indispensable at the common market stage. It gradually became clear, however, that the free movement of capital and the
rational distribution of production factors in the Community required a minimum degree of coordination of direct taxes.
• In effect, the convergence of Member States' economic policies necessitates a coordination of the fiscal instruments used
by them. Likewise, the global competitiveness of European businesses requires that the taxation of companies operating in
several Member States does not place them at a disadvantage in relation to their competitors restricting their activities to
the purely national level. It does not affect the commerce between the Member States and needs only coordination of
company taxation and of the fight against tax evasion, in order to prevent distortions of competition in the internal market
and in capital movements

19. D
I
R
E
C
T
T
A
X
Company taxation
Aims at removing fiscal obstacles to:
 mergers
 divisions
 partial divisions
 transfers of assets and
 exchanges of shares
concerning companies of different Member States and to the transfer of the registered office of a European
company (Societas Europaea or SE) or a European Cooperative Society (SCE) between Member States.

20. In 1967, the Commission’s programme for the harmonisation of direct taxes sought to:
· remove all tax barriers to capital movements, a single market and the expansion of investment;
· ensure tax neutrality in corporate restructuring operations or cross-border mergers;
· create conditions of equal competition for investments by aligning tax incentives and the methods of
computing tax liability;
· remove differences between national schedular taxes and possibly in all taxes on company assets;
· introduce a uniform corporate tax base and method of calculating the taxable profits;
· approximate MS corporate tax rates;
· co-ordinate methods of inspection and collection; and
· eliminate double taxation that cannot be dealt with through harmonisation.

21. Fight Against Tax Evasion and Tax Fraud
Tax fraud and tax evasion represents a huge problem and affects each and every
European citizen. The problem knows no borders and can only be solved effectively with
concerted, joint effort.
D
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C
T
T
A
X

22. How big is the tax fraud and tax evasion problem ?
-Huge sums are being lost due to tax evasion and avoidance. Estimates go up to € 1 trillion.
How does tax fraud and tax evasion happen ?
This money is lost in a number of ways including:
-Tax fraud and evasion which illegally deprive public budgets of money.
-Tax havens which facilitate tax evaders and avoiders by storing money offshore, often unreported and untaxed.
-Aggressive tax planning by big businesses or individuals, which exploits the limits of the law with the aim of
minimising taxes paid.

23. How does tax fraud and tax evasion affect me personally ?
-Think of the new classrooms for your children, the new hospital for your grandmother, the new railway
lines and roads that could be funded if all that tax money could be recovered!
Why do we need to do more to fight tax fraud and tax evasion?
-Tax fraud and tax evasion limit the capacity of EU countries to raise money and implement their
economic and social policies. That could mean cuts in public services and a slower economy.

24. Moreover, tax fraud and tax evasion are fundamentally unfair. Why should you pay more tax or
sacrifice your public services because someone isn’t paying their fair share?
Lastly, European integration has brought many benefits to citizens and businesses. As a Union
of 28, we have a powerful advantage and if we act together we can stop tax evaders stealing from
the pockets of citizens and we can reclaim vast sums of money they are legitimately due.