Tax Harmonisation and Legal Diversity in the European Union: Balancing Fiscal Sovereignty and Market Integration

Abstract

European Union (EU) is grounded on the two principles, both being integration of the market and sovereignty of member states, a combination that is the most evident in the field of taxation. The following paper examines the conflict that is becoming real to the dream of the EU to have a single-market without hustle and the fiscal sovereignty of separate states which is being passionately defended. The problem here is that, despite the fact that the EU law is creating free movement across the borders, it does not harmonies the direct taxation, only the order of competitive fiscal federalism. This asymmetry in the law permits tax competition, because member’s states have the ability to promote mobile capital and company by adopting different taxation policies, which could lead to an outcome of the race-to-bottom scenario demise to the base of national revenues and market deception essentially. The capacity to raise, administer and allocate resources is what is referred to as fiscal sovereignty as one of the crucial attributes of national government and of democratic responsibility. However, the single market is crippled by uncoordinated systems of taxation internalizing inefficiencies and favoring aggressive tax avoidance schemes that would shatter a level playing field. The EU on its part has responded with a conglomeration of action to level competition in taxation that is disastrous without necessarily going into the process of harmonization as the political will mostly lacks.