Tax Analysts Blog

The Dissonance of European Tax Harmonization

Posted on Jan 26, 2016

During the lunch break at a tax conference in Lisbon last January, I was fortunate to be seated next to a brilliant tax professor from the U.K., Rita de la Feria. Shortly after we exchanged the usual pleasantries, she asked me a pointed question. Although it required little thought to answer, the question itself raised issues that have colored how I view recent events – including developments in international taxation – in Europe.

The question: Why do so many Americans, even those new to the country or born to immigrant parents, find it so easy to self-identify as American, while so few Europeans identify primarily as European?

To Americans the answer is simple. We are taught at a young age about the shared heritage (warts and all) that is the United States. We learn about the melting pot, the immigrant experience, and our common goals and aspirations as Americans, no matter our country of origin. Without ever having attended school in Europe, I cannot say that this experience is missing on the Continent. But I suspect that their earliest lessons about national identity teach what it is to be French, German, British, Polish, or Dutch – but not what it means to be European.

The fractious nature of the European alliance was on full display last summer, as many European Union countries adopted strictly national approaches to dealing with a refugee crisis of epic proportion. Some tried to impose quotas, some opened their borders, some erected fences, and some threatened to violate treaties and protocols. Still others either flirted with electing (France) or actually elected (Poland) extreme nationalist governments that rose to power on anti-immigrant, anti-Europe platforms.

While some in Europe would like to think that these divisions do not exist in the tax world, they are on display now more than ever. And one need not look very hard to find examples that jeopardize efforts to harmonize the nonexistent “European tax system.”

The most obvious example involves the European Commission’s expanding agenda of state aid investigations. While some view these investigations as a unified European assault on the aggressive tax planning practices of large multinationals, others see them as an aggressive supranational assault on the sovereignty of individual EU states. This dichotomy, most apparent in the commission’s challenges to rulings in the transfer pricing arena, leads observers to wonder whether the commission will eventually seek to control the tax policy of all the member states, over their objections.

These dissonances in tax policy resonate beyond the state aid cases. While some member states have expressed a desire to resurrect long-dormant (some might say extinct) proposals to adopt a common consolidated corporate tax base (CCCTB), there are many obstacles to overcome before even contemplating a European tax future that includes the CCCTB.

The proposed financial transaction tax represents yet another discordant note to achieving a harmonized European tax policy. A total of 10 member states (excluding the Netherlands, which recently denied being a part of the group) are pursuing a proposed financial transaction tax. But those with large financial centers, including the U.K., are certain to resist. No harmony there.

Which brings us to the ultimate threat to European tax unity, countries leaving the EU. U.K. Prime Minister David Cameron has promised to put Brexit -- shorthand for a U.K. exit from the EU -- to a vote of citizens, and they could decide against the EU later this year. To all the other dire predictions of calamity should Brexit come to pass, add the likely off-key end to efforts to harmonize taxes in Europe.

Read Comments (0)

Submit comment

Tax Analysts reserves the right to approve or reject any comments received here. Only comments of a substantive nature will be posted online.

By submitting this form, you accept our privacy policy.


All views expressed on these blogs are those of their individual authors and do not necessarily represent the views of Tax Analysts. Further, Tax Analysts makes no representation concerning the views expressed and does not guarantee the source, originality, accuracy, completeness or reliability of any statement, fact, information, data, finding, interpretation, or opinion presented. Tax Analysts particularly makes no representation concerning anything found on external links connected to this site.