Guide

Taxation law in Europe

European tax policy

The European Commission's tax policy aims to enhance economic integration by designing taxation so that it supports the European Single Market. This is done by:

  • reducing harmful tax competition by removing tax obstacles and distortions, where they affect the four freedoms of the European Union (EU) Treaty (the free movement of goods, capital, services and people)
  • greater efficiency in the markets through harmonisation, transparency, simplification, and improved tax collection

The EU has so far made progress in harmonising:

  • VAT
  • excise duties
  • the reporting of cross-border trade by businesses
  • the exchange of information by tax authorities

The EU tax package

The EU tax package was designed to reduce tax competition between EU member states.

The three components of the tax package are:

  • A Code of Conduct to eliminate harmful tax competition in business taxation. This is an agreement between member states to:
    • avoid setting unusually low tax rates on selected business activities
    • avoid granting tax benefits to non-residents
    • avoid granting tax advantages in economic areas where there is no real activity or areas that are isolated from the domestic economy
    • keep tax systems transparent
  • The EU Savings Tax Directive, which is not applicable to businesses
  • The EU Interest and Royalties Directive, which removed taxation of interest payments made between one branch of a company and another in a different member state. The law applies in full in the UK, but the newer EU members have a transitional period in which to implement it.