Europeanizing Corporate Taxation to Regain National Tax Policy Autonomy

As a reaction to the German corporate tax reform, the English and Dutch governments also announced tax reductions. This demonstrates once again that tax competition is a very serious constraint on national tax policies. All over Europe, politicians argue that tax competition compels them to reduce tax rates to maintain their locational advantages for international investment. While governments thus admit that they are pressured to lower taxes because of tax competition they insist, on the other hand, upon maintaining their national sovereignty in tax policy matters. Arguing that tax sovereignty is an essential part of their statehood, member states of the European Union have, in the past, always refuted any attempts to even partially harmonise direct taxes in Europe. Member states’ insistence on tax sovereignty is counter-productive because, although they formally have the exclusive legal competence over tax policy, in fact, their actual capacity to design their tax systems according to national political preferences has long been taken from them. Under conditions of an open economy, national political autonomy to organize a socially fair and efficient taxation system can only be regained if the states do not simply adapt themselves to tax competition individually, but by regulating tax competition collectively on the European level. To achieve this, it is necessary to harmonize certain aspects of European tax policy. A Europeanization of corporate taxation does not contradict national tax policy autonomy. To the contrary, it is a prerequisite for real national tax sovereignty.