TAX HARMONIZATION IN THE EUROPEAN UNION - DENOTATION AND POSSIBILITIES

Different tax systems distort trade and factor movements between the member states of a single market. Abolition of trade barriers among the members of the customs union does not necessarily mean that a common, perfectly competitive market has been completed. Impediments to the smooth functioning of the competitive markets for commodities, services and factors of production are still many. Differences between the tax systems of the members of the single market are one of the most important of these impediments and one of the most difficult to alleviate. Tax harmonization is one aspect of the drive to a single market within the EU, removing distortions to trade between its members. Therefore, during market integration it becomes necessary to introduce policies aiming at tax coordination and harmonization. The European Union never had the intention to apply overall tax harmonization. Tax sovereignty is one of the basic components of national sovereignty, and the difficulties in the field of tax harmonization are compounded by deep-rooted differences in economic and social structures, different perceptions on the role of taxation, difference in the acceptability of various taxes, the technical complexity of tax harmonization, and the complications arising from the enlargement of the Community; thus calling for mutual recognition and equivalence as the starting point. However, a high degree of harmonization is desirable in the indirect tax field because indirect taxes may create obstacles to the free movement of goods and services within the single market.