Direct taxation is tax levied on people and property, and includes Income and Corporation Tax. At the moment, the European Union (EU) only has limited involvement in direct taxation. It does not set direct tax rates or collect taxes itself, and businesses pay tax on profits according to the rules applicable in their member state.
This means that businesses operating in different member states need to consider a variety of tax systems. The European Commission relaunched the Common Consolidated Corporate Tax Base (CCCTB) in October 2016.
Council Directive 90/435/EEC introduced measures to harmonise the tax regime for companies with subsidiaries in other member states. The Directive:
- removed taxes levied on interest, dividends, and royalties transferred between associated companies in different member states ('withholding taxes')
- removed double taxation of parent companies on the profits of their subsidiaries in other member states
Personal taxation in Europe
Direct taxation can also include personal taxation, which is levied on things like Income Tax and interest from savings. Broadly speaking, the European Commission believes that personal taxation is the responsibility of member states.
However, where tax conflicts with the free movement of goods, capital, services and people, it becomes an EU matter. In particular this concerns pensions, dividends, pay received by migrant and cross-border workers, and income from interest on savings, where recipients are located in one member state but receive the money in another.