The EU’s role in the global governance of direct taxes

Abstract

Traditionally, states have been reluctant to give up competences to set tax policy to a supranational level. Nevertheless, over time the EU has succeeded in establishing some common tax policies across its Member States. While the harmonisation of the value added tax already took off in 1967, direct tax policy (i.e., personal and corporate income taxes) only started to be regulated in the 1990s (see Annex) and the degree of harmonisation today is still lower. EU directives on direct tax policy mainly regulate the taxation of cross-border flows (such as dividends, interest, and royalty), harmonize anti-avoidance rules, and implement administrative cooperation and dispute resolution procedures. As will be discussed further below, the EU also strives to implement common direct tax policies directed at third countries. However, important aspects such as tax rates and many aspects of the tax base remain unharmonized up to date. This leaflet summarizes the role of the different EU institutions in taxation, situates the EU within the wider universe of global tax governance and discusses in detail the EU’s policy towards third countries. Finally, it provides an overview over the main current challenges.