Are the existing mechanisms and instruments available to the institutions of the EU sufficient to achieve effective harmonisation of Member States' direct tax regimes?

Abstract

This thesis examines the various mechanisms and instruments available to the institutions of the EU with a view to determining whether they could enable the EU to achieve an effective harmonisation of the Member States' direct tax regimes. It considers the division of competence on direct tax matters as between the Member States and the EU and the evolution of the EU's policy and attitude towards direct tax harmonisation. It examines the contributions towards tax harmonisation of the 'hard' law legislative measures implemented so far, the Commission's 'soft' law initiatives, especially the Code of Conduct on Business Taxation, the Court of Justice's case law on direct taxes, the Commission's anti-tax avoidance initiatives and the Anti-Tax Avoidance Directive, and the Commission's controversial application of its State aid powers. The thesis concludes that a substantial degree of direct tax harmonisation is desirable to eliminate obstacles to the functioning of the internal market and distortions to the conditions of competition in the internal market caused by disparities between Member States' tax systems. It recognises that only very limited progress towards harmonisation has as yet been made, and that whilst the existing mechanisms available to the EU could be sufficient to bring about an effective harmonisation this can only be achieved, if Article 115 continues to be employed as the legal basis for direct tax legislation, with the unanimous consent of the Member States, which at the present time is problematic. In this connection it recommends that consideration is given to the employment of Article 116 as an alternative to Article 115, the former requiring only qualified majority voting as opposed to the unanimity required under Article 115. The thesis recommends legislation at EU level to implement a common EU-wide corporate tax system. It considers that whilst the proposed Common Consolidated Corporate Tax Base (CCCTB) Directive incorporates elements of such a system, its consolidation and formulary apportionment component is over-ambitious at this stage of the Union?s development, and in any event is not critical to achieving the substantial elimination of obstacles and distortions. The EU-wide VAT system is critically examined as a potential model for implementing a direct tax system.