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10/09/20

Harmful tax competition

OVERCOMING UNFAIR FRUGALITY

Harmful tax competition is neither new nor limited to Europe. Fuelled by globalisation and the digital revolution, it has been a cause for concern since the 1990s. One might have thought that the European project, and in particular the single market, would have protected Member States from these unfair practices. However, the European Union’s inability to harmonise corporate taxation, with a few exceptions, has opened the door to the development of harmful tax competition.

There is no consensus on this issue. The states that benefit from this competition are attached to their fiscal sovereignty, which gives them competitive advantages and makes them attractive to foreign investment. The others, who are in favour of dismantling harmful tax regimes, come up against the unanimity rule imposed by the Treaties on Council decisions on tax matters.

However, the proliferation of tax scandals (Lux Leaks, Panama Papers, Paradise Papers, etc.) has highlighted the scale of the phenomenon and revived initiatives to combat unfair tax competition, which reveals a breakdown in solidarity between European Union Member States.