Europe’s had a common market for over thirty years. The Single Market means there is free movement of goods between EU Member States (and some non-EU countries, such as Switzerland); we are allowed to work anywhere, offer and accept services across borders, and can also transfer and invest money into other Member States. However, some argue that these “four freedoms ” have also resulted in injustice, for example when different wages or tax rates apply across the continent. They believe it would be fairer if the same tax rates were introduced throughout the Single Market.
Tax is, of course, the responsibility of national governments. However, the Single Market has long since meant many regulations are adopted at the European level, not the national level. The Brexit process had demonstrated just how interconnected the European economy is – and how much we all benefit from the Single Market.
What do our readers think? We had a comment sent in from Metz. He says that taxes need to be harmonised, at least within the euro area: “How can you have a common currency, but then not set the same rules?”
To get a response, we put Metz’ question to Florian Toncar, financial policy spokesperson for the liberal German Free Democratic Party in the Bundestag. Would he agree with Metz?
It is okay that we have different taxes in different EU Member States, but we must aim to introduce the same corporate tax for companies. Businesses need the same tax base. This could prevent tax loopholes that companies have exploited in the past, for example: to transfer a company’s profits abroad in order to save taxes.
Of course, it can be an advantage to introduce a more attractive tax system than other Member States. Tax competition is completely legitimate. But work needs to be done to ensure that there are no more tax loopholes at the expense of everyone. The European Commission has also intervened many times and has punished both companies and states that have benefited from these loopholes.
For a different perspective, we also spoke to Alejandra Almarcha, political advisor to the Young European Federalists (JEF). What does JEF say about tax harmonisation?
As federalists, we believe some kind of tax harmonisation in the EU is needed: not only for the Eurozone, but for the Single Market as a whole, too. However, different solutions are relevant for the two areas.
The Single Market, to function correctly, requires that companies and trade in goods and services to be taxed to some extent in the same way. As an example, we have the issue with “the tax base of a value-added tax (VAT)”. VAT was developed with the objective I mentioned before in mind, but now we have to be able also to tax properly company profits, their incomes, for which we would also need a common minimum rate of taxation. That would avoid that companies can shop for the best rates and, again, disrupting the working of the Single Market. Unfortunately, what we have is excessive tax competition in the Single Market.
In the case of the Eurozone, it would also be beneficial from a common income tax, if this cannot be achieved for the whole EU, more or less the whole Single Market. But the Eurozone also needs its own specific solutions, such as an EU Financial Transaction Tax or other forms of taxation of the financial and banking sectors. These common taxes are needed as part of the common rules for the Capital Markets Union and the Banking Union, which in turn reinforce the Eurozone.
Should all Europeans pay the same tax? Should taxes be harmonised at the EU level, or should they stay at the national level? Let us know your thoughts and comments in the form below and we’ll take them to policymakers and experts for their reactions!