Creating tax cartels would be detrimental to the EU

A picture showing the logo of Apple Inc. and some euro coins
The European Commission and some member states are discussing a “European taxation” system under which, they hope, global internet companies would pay higher taxes in Europe (source: dpa)

The following is the second in a series of comments by Prince Michael of Liechtenstein on Europe’s “cartels”

According to European Union rules, matters of taxation are under the purview of the member states. Sticking to this rule is essential for the EU to avoid being held hostage by a high-tax cartel that is always pushing for excessive public spending.

The history of the EU’s internal market amply demonstrates that friendly competition does not lead to a harmful race to the bottom.

Recently, “just taxation” has become a hot topic in the EU corridors of power, after a debate was held on taxing global internet giants like Amazon, Apple, Facebook, Google and others. The European Commission and some member states are eager to develop a “European taxation” system. Such a concept, however, would require unanimity among member countries. Not all of them subscribe to the approach, fortunately. Any solution of this kind, even when specifics of a given case seem to justify it, would constitute a dangerous precedent undermining the principle of tax sovereignty.

Brussels’ arms twisting

The countries that are now proposing an “internet tax” have been proponents of stronger tax “harmonization” in Europe – an issue which is also on the Commission’s agenda. Implementing these proposals would transform the EU from a market in which there is healthy internal competition, to a tax cartel.

European Commission President Jean-Claude Juncker has proposed that decisions on this issue – which he claims are important for the development of the internal market – be passed with only a qualified majority. Clearly, a loss of sovereignty on taxes by the EU members could be the result. Luckily, such a fundamental rule change would require unanimity.

Still, there is a danger – clearly manifest in precedents such as Brussels’ reaction to the Irish “no” vote on the Treaty of Lisbon – that undue pressure can be applied to EU members that refuse to “comply.”

If this tax “harmonization” project goes ahead, the resulting cartel may seem advantageous to some of the member states. In the longer run, though, the loss of competition will be highly detrimental to the EU’s fiscal discipline – rewarding the countries which already have been weak in this respect – and add another disruptive factor to the Union’s framework.

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