Tax Analysts Blog

We’re Not in Kansas Anymore, Toto

Posted on Sep 9, 2016

There’s an old expression in politics, “where I stand depends on where I sit.” In the world of international taxation, this can mean that when sitting in the U.S., it is easy to express outrage over the European Commission’s state aid investigations into tax rulings that EU member states issued to U.S.-based multinationals. But it also means that when viewed from a seat in Europe, those investigations are not only acceptable, they are necessary to preserve the integrity of the single market.

This week I participated in the 26th Annual Economic Forum in Krynica-Zdrój, Poland, an annual economic forum attended by thousands of influential people, 95 percent of whom do not live in the United States. In that context, the folks who say that travel is broadening are understating its effects.

Here is a thumbnail sketch of the dichotomy I'm talking about.

American professionals who work to make sense of the shifting European tax landscape have come to view the European Union and its various operating arms – particularly the European Commission – as a monolithic force.  And they would be right. After all, the commission and its Directorate General for Competition are united in pursuing investigations into whether member states granted illegal state aid to specific multinationals, many of them U.S.-based. And Americans rightly see those investigations conducted by a unified Europe as a threat to U.S. national interests.

But that observation does not paint a complete picture. Because within Europe, not just in central and eastern Europe, the EU is monolithic only in the sense that European power is concentrated in Brussels. Whether that monolith reflects the national interests of all (or even any) EU member states is very much up for debate, whether in Paris or Prague. In short, when it comes to addressing many of the challenges facing the continent, viewed through the lens of countries like Poland, Lithuania, and other EU states on the eastern fringe of the alliance, the European Union seems like a union in name only. Opinion leaders and government officials in these states debate whether it even makes sense to think about a concept like “European values.”  In fact, many Europeans rail against the bureaucracy in Brussels with greater energy than Americans who complain about the mess in Washington.   

This attitude seems to prevail not just in issues of security, immigration, energy, commerce, and borders. It extends to the tax world as well. In one discussion here this week, representatives of the Polish government and industry groups discussed how they fight tax evasion achieved through the shadow economy. They talked about how organized crime groups exploit open borders to avoid taxation on bootlegged tobacco and alcohol. And the biggest offenders are bringing these untaxed products into Poland through other EU member states. To an outsider, Poland’s concerns suggest that the EU either cannot or will not act to protect one member state from illegal activity launched from another member state. In contrast, federal law enforcement authorities in the U.S. work with their counterparts in the states to fight interstate tax evasion.

A blog post cannot fully capture the many ways – in both the tax and nontax realms – in which the EU is viewed differently, depending on where one is sitting. But one thing is certain: Until American thought leaders and tax policymakers start talking with and listening to their counterparts in Europe, the current round of conflicts will only grow more severe.

For more tax talk, follow me on Twitter @JusticeTwo

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