26 November 2024 – Brno, Masaryk University
Annotation of the workshop:
The workshop – dissemination event on the Pros and Cons of EU Tax Harmonization (from Czech, Slovak, Polish, and Hungarian Perspectives) aims to present ideas about EU tax harmonization in the Czech Republic, Slovakia, and Hungary. All presenters are respected experts in the European region in taxation and public revenues. They summarize the benefits and disadvantages of the EU tax harmonization in general and from the perspectives of the countries they are coming from. They also offer some solutions de lege ferenda and trends in European tax harmonization.
Cooperation vs Competition in Taxation
What is the relationship between cooperation, i.e., the harmonization tendencies of the European Union in the area of taxation, and competition between the tax systems of individual EU Member States? In spite of the fact that the free movement of persons, goods, services, and capital is the most important goal of the EU, and taxes play a crucial role in the process of harmonization, the national political and economic interests and historical and cultural tradition are the arguments for tax competition. From a historical perspective, it is also visible that gradual integration in the area of taxation is not only possible and acceptable but is also a fact, specifically in the legal regulation of indirect taxes. The need for unanimous consent in tax harmonization in the area of direct taxes regulation is also an issue to be investigated. It is necessary to pay attention to the definitions, as taxes on motor vehicles are considered indirect taxes by the EU but direct taxes according to most EU Member States. No matter that EU Member States mostly prefer independent and non-harmonized tax systems, it is evident that there are successful harmonization initiatives, mainly in the area of tax administration and tax administration cooperation, fight against tax havens, ambition to tax multinational online platforms and cooperation in the recovery of arrears.
Content of the workshop
The workshop took place on Tuesday, 26 November 2024. Four leading tax law experts in their countries were asked to present their contributions. More than 20 students from all V4 Countries accepted the invitation for the event. The section started with the opening note by Michal Radvan, who presented the topic from broader perspectives and introduced the speakers.
The first presenter, Anna Vartašová, representing P. J. Šafarik University in Košice, Slovakia, summarized the positives and negatives of the EU tax harmonization. As the most critical negatives, she defined opacity of regulation and over-regulation, the complexity of legislation, and resulting disoriented taxpayers. These negatives mean an increased administrative burden and also higher compliance costs. Among the negatives, Vartašová also mentioned the limitation of tax sovereignty and circumvention of direct legislation by CJ case law, a long legislation-adopting time. She also dealt with the “enabling” of tax avoidance/evasion and the corresponding tax gap that can discourage honest taxpayers. Among the positives, she mentioned easing of international (EU region) trade, protection of taxpayers (EU freedoms – free movement & prohibition of discriminatory treatment of non-residents), lowering cross-border tax compliance costs, fighting tax avoidance/evasion, raising of tax compliance level and better tax collection due to exchange of information. Her findings were supported by many graphs and tables dealing with the VAT tax gap, the CIT tax gap, the effectiveness of information exchange, etc.
The second presenter, Michał Mariański, represented the Faculty of Law, UWM in Olsztyn, Poland. He opened the floor with several questions:
· Do we really need tax harmonization?
· What is the difference between harmonization and unification?
· Can we say that the differences between tax systems are some impulses for development/changes?
· Can we consider harmonization as a tool that can limit the concurrence between the national legal systems?
· If harmonization, what model should we apply – French/German/ American or mixed?
Mariański defined several groups of regulation in the area of indirect taxes (value-added tax, excise duties, indirect taxes on the raising of capital) and direct taxes (corporate income tax, personal income tax, common provisions). He discussed the concept of harmonization and concluded that it is not unambiguous and covers several stages, from coordination to unification. He explained that the differentiation of corporate income tax rates between countries is justified by differences in the size of markets and distances from sales markets. This view currently dominates economics and means there is no need to completely unify the corporate tax structure used by EU member states. However, many arguments favor the limited harmonization of corporate taxes, which consists of unifying their tax base. Unifying the tax base would increase the transparency of decisions regarding allocating capital between individual countries.
He concluded, i.a., that one of the main tasks of the European Union is to create a common internal market and to create conditions enabling the realization of the “four freedoms” (freedom of movement of goods, services, capital, and persons) and a system ensuring undistorted competition. To achieve the main objective of the European Union, it is necessary to harmonize the tax systems of all the Union countries and, in the future, to create a uniform tax system for the Community.
Mariański also mentioned a proposal for a new EU directive “Business in Europe: Framework for Income Taxation”, also known as the BEFIT Directive. Its main objective is to establish common rules for calculating the tax base for CIT purposes for entities paying taxes in the European Union. He believes that the BEFIT Directive is another element on the way to harmonizing the collection of income tax on the intra-community market.
Gabor Hulkó from Széchenyi István University in Győr, Hungary, defined several benefits of EU tax harmonization for Hungary: enhanced integration into the EU single market, reduction in tax avoidance, simplified tax compliance for businesses, and stabilization of revenue sources. On the other hand, he also sees several negatives, mainly loss of competitive advantage in connection with the global minimum tax, reduced fiscal sovereignty, economic disparities within the EU, administrative and legal challenges, and impact on SMEs.
Hulkó presented some possible solutions, i.a., gradual implementation, diversification of competitive tools, sector-specific incentives, exchange of information, and focus on SMEs.
Michal Radvan (Faculty of Law, Masaryk University, Czech Republic) highlighted the benefits of tax sovereignty. He stated that fiscal policy is conditio sine qua non for the proper functioning of every state. As taxes sensu lato are the crucial source of public budget revenues, the power to levy taxes is an essential part of the sovereignty of every EU Member State. Every government needs to retain decision-making power over how to spend tax revenues and how to finance public goods and services according to its primarily political intents, and every government needs enough power to create an adequate mix of taxes and to use optimal tax rates as one of the instruments of domestic economic policy. According to Radvan, the structure of tax systems is based on historical consequences and traditions, and different economies and economic backgrounds are also reflected in taxation. Sociological aspects and economic conditions may also play an important role when adopting tax law regulation. He highlighted the importance of competitiveness issues.
Dealing with the necessity of tax harmonization, Radvan talked about the free movement of goods and services as the basis of an internal EU market, where taxes are reflected in the prices of goods and services. The difference in taxation and the resulting tax competition between individual EU Member States is a disruptive element negatively influencing the internal market and its smooth running. The other good reasons for tax harmonization are globalization and development in the volume of international trade, growth in the number and importance of multinational companies and their subsidiaries, transfer of capital and persons, increasing efforts by taxpayers to avoid taxes, especially in the international context, the need to fight tax avoidance, and the effective sharing of information about taxpayers and their tax duties. In these areas, the EU should play a crucial role. His conclusions are pretty much the same as the conclusions of other speakers and are summarized in the conclusions below.
Conclusions
It is possible to conclude that tax competition might be a tool for catching up with economically more developed Western European countries. EU Member States should have the power to impose taxes to autonomously redistribute the proceeds of these taxes at their own discretion and need. EU Member States should use tax rates as one of the instruments of domestic economic policy with regard to specific economic backgrounds and development and historical consequences. Low tax rates could serve as an incentive to use low-taxed profits for reinvestment in the EU Member States instead of sending them abroad. The EU’s task should be to prohibit tax discrimination, i.e., tax neutrality. The EU should focus on the elimination of tax obstacles to cross-border economic activity, the fight against harmful tax competition and tax evasion, and the promotion of greater cooperation
between tax administrations in ensuring control and combating fraud. Tax coordination and harmonization at the EU level can also solve new problematic issues such as the taxation of electronic businesses, demographic trends, and pension system reforms, taxation of artificial intelligence, etc. Tax harmonization can limit threats such as overexploitation of foreign capital and excessive protection of the national markets. Fair taxation of every taxpayer based on economic stimulation should be supported by sharing information between tax administrators so that the fight against tax evasion and tax avoidance can be effective.
New initiatives significantly amending substantive tax law are not coming from the EU but from the OECD. The two most important examples are:
· The initiative to combat base erosion and profit shifting (BEPS), which emphasizes the need to ensure that taxes are paid where profits and value are generated;
· The minimum effective taxation of large (multinational) corporations of 15% replaces any debates concerning the common consolidated corporate tax base.
