Article 116 - The Commission lays down a marker for a possible route to tax harmonisation

Article 116 of TFEU gives the EU the power to override any tax provision of a Member State which "is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated" (TFEU Art116).

It seems that those Member States which have taken a lower tax route to economic development such as Ireland, Malta and Cyprus could find themselves in the cross hairs of this back door to tax harmonisation. The sustainability of their regimes in a post Covid world of inflated public borrowing will most certainly be thrown into sharp relief. As the frugal North is asked to pay for the Covid ravaged South, and suffers an increased tax burden as a result, it seems improbable that low tax jurisdictions will be tolerated within the boundaries of the EU. 

A sector of the tax profession have been telling us for years that tax harmonisation is the impossible dream and that the EU will not be able to get it past the Member States. However, Article 116 allows for a form of negative harmonisation and once that project is complete one wonders what will be left of tax sovereignty for an individual member state.

As Field says in the article, “The likelihood is that the Commission will eventually get its own way and tax regimes will eventually be harmonised. The Commission probably doesn’t know when or how, but it’s clearly signalling it’s up for the fight.”

Subscribe to more insights from our experts at Hassans Subscribe now!