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The EU and Tax
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Tax is almost always an emotive subject and it is certainly one of the more sensitive areas discussed at EU level.  But the European Commission is not aiming for complete harmonisation of EU Member States' tax systems. The general rule is that there should only be action at EU level where action by individual Member States could not provide an effective solution.

The focus of the Commission's tax strategy is on enabling companies and individuals to operate freely in and benefit fully from the Internal Market. Companies should be allowed to compete fairly while harmful tax competition should be prevented, neither companies nor individuals should encounter tax barriers when operating across national borders within the EU and consumers should not be taxed twice when buying goods in a country other than their country of residence. The Commission also wants to ensure that taxation systems support Community goals such as the goal set by the Lisbon European Council of making the EU the most competitive economy in the world by 2010.

EU Member States have very different tax systems. They have autonomy in deciding on their own income tax and corporation tax rates and systems, although they must respect Community rules including on fair tax competition, non-discrimination and state aids as well as EU Directives relating to those areas.

Click on the relevant link for more information on:

Personal Tax

Company Tax

In the case of VAT and excise duties, more harmonisation at EU level is needed and much has been achieved in order to prevent cross-border distortions of competition.

In May 2007, the European Commission launched the "Taxes in Europe" database, an on-line information tool covering the main taxes in force in the EU Member States. Access is free for all users. The system contains information on around 500 taxes, as provided to the European Commission by the national authorities. Click here to find out more about the database.

VAT

With regard to VAT, Member States must normally apply a minimum tax rate of 15 per cent to all supplies of goods and services. However, for goods and services included in a specific list (mainly goods and services of a social or cultural nature) Member States may, if they wish, apply a reduced rate of at least 5%. In addition, certain Member States have retained separate rules providing for rates below the minimum rate in certain areas. Member States have also agreed not to apply VAT at a rate over 25 per cent. Member States may apply a reduced VAT rate to supplies of natural gas, electricity and district heating subject to Commission approval and to certain labour-intensive services up to 2010 subject to Council authorisation.

EU citizens are entitled to buy goods and services for their personal use in another Member State under the same VAT rules as apply to nationals of the country concerned, with some exceptions. They can take their purchases home with them without having to pay additional VAT.

The principal exceptions are the purchase of new means of transport, certain distance purchases, goods subject to excise duties that are not for personal use and business-related purchases.

The VAT rules governing motor vehicle taxation make a distinction between new and used cars. ‘New’ cars (i.e. vehicles of under six months old or with less than 6 000 km on the clock) bought in another Member State are subject to VAT in the Member State of destination, which is, in principle, your country of residence and the country where you are going to register the motor vehicle.   The seller must prepare an invoice exclusive of taxes and you must pay the VAT in your home country. On the other hand, ‘used’ cars (i.e. vehicles over six months old or with over 6 000 km on the clock) will be taxed differently, depending on whether the transaction is between private individuals or involves an intermediary. In the first case, no VAT is payable. In the second case the seller will invoice you with the VAT. (For taxes other than VAT on motor vehicles, see “car taxes” below).

As regards distance purchases, when you place an order with a firm located in another Member State, VAT is included in the price and the merchandise will be sent directly to you.  However, when the seller assumes responsibility for shipment, the VAT rate applicable to your purchase — depending on the circumstances — may be either the rate that applies in the Member State you reside in or that of the seller’s Member State. The rate applicable – which depends on the vendor's total turnover each year in the Member State of destination (or on the option taken by the vendor to submit the sales to VAT in the Member State of destination) – will not affect the price you have agreed to pay for the merchandise, since this price will have been offered and accepted by the seller inclusive of VAT.

For more information, including rates of VAT in EU Member States please consult the following webpage:

http://www.ec.europa.eu/taxation_customs/taxation/vat/how_vat_works/index_en.htm

Excise duties

Excise duties are indirect taxes on the consumption or the use of certain products. In contrast to Value Added Tax (VAT), they are mainly specific taxes, i.e. expressed as an amount per quantity of the product.  EU Member States are required to apply EU excise duty rules to three types of products: alcoholic beverages, manufactured tobacco products and energy products (motor fuels and heating fuels such as petrol and gasoline, electricity, natural gas, coal and coke). 

These EU rules lay down minimum rates of duty that Member States have to respect for each kind of product. Above those minima, Member States can freely fix their own rate levels.

EU citizens are entitled to buy goods for their personal use in another Member State under the same excise duty rules as apply to nationals of the country concerned. They can take their purchases home without having to pay additional excise duties.

However, if tobacco products or alcohol purchased abroad and brought home are not for personal use, the Member States of residence of EU citizens have the right to levy excise duties on tobacco products and alcoholic beverage.

The indicative quantities below are recognised generally as intended for personal use.

  • 800 cigarettes
  • 400 cigarillos
  • 200 cigars
  • 1 kg of tobacco
  • 10 litres of spirits (+ 22 % alcohol content)
  • 20 litres of apéritifs or intermediate products (e.g. sherry)
  • 90 litres of wine, 60 of which may be sparkling wine 
  • 110 litres of beer

If an EU citizen is carrying a larger quantity of such goods, he or she may be asked to prove that they are intended for personal use at events which justify the purchase of such large quantities e.g. weddings.

See here for further information on the rules that apply when travelling within the European Union.

Travellers entering the EU from other countries benefit from increased savings when importing goods into the European Union in their personal luggage with effect from 1 December 2008. See here for information on the rules that apply when entering the European Union.

Car Taxes

Member States are entitled to levy taxes other than VAT on vehicles provided that those taxes do not give rise to border-crossing formalities in trade between Member States.

Member States may grant exemptions if the vehicle is transferred from one Member State to another as a result of the transfer of the owner's normal residence.

The Commission has prepared a notice for citizens setting out the tax consequences of transferring cars across borders. It addresses only the cross-border aspects of car taxation. Cars are an important means of getting around and, therefore, of exercising the right of freedom of movement their users are guaranteed under the EC Treaty. Many citizens take the car when they leave their MemberState temporarily or settle permanently in another Member State. Others buy or hire a car in a MemberState other than their own. 

For further information please consult the following webpage:

http://www.ec.europa.eu/taxation_customs/taxation/other_taxes/passenger_car/index_en.htm

See also website of the Irish Revenue Commissioners at: http://www.revenue.ie/

Taxation of  money, property, and other forms of wealth

In principle, you can spend your money or invest or borrow wherever you think you can get the best bargain within the European Union. However, this does not absolve you from your tax obligations. Thus it is useful to know the tax rules that apply to the financial services you intend to make use of.

In the absence of European harmonisation of taxes on interest, dividends, appreciation and property, tax rates between the Member States of the European Union may differ substantially. However, double taxation is quite unusual because there are a large number of bilateral agreements between the Member States. Under these agreements the Member States agree that the right to impose taxation be granted to only one country or, where the right is shared, that the taxes levied in the first country be taken into account in the second.

Member states have also signed up to a common directive on savings taxes in a bid to combat the ongoing problem of tax evasion across Europe. The EU Savings Taxation Directive came into force on I July 2005, along with agreements that the EU has concluded with Andorra, Liechtenstein, San Marino, Monaco and Switzerland and that the individual EU Member States have concluded with the 10 dependent and associated territories of the UK and the Netherlands (Anguilla, Aruba, the British Virgin Islands, the Cayman Islands, Guernsey, the Isle of Man, Jersey, Montserrat, the Netherlands Antilles and the Turks & Caicos Islands).

The directive means that every member state will ultimately have to provide information to other member states of all interest paid to residents of other states. For a few years, Belgium, Luxembourg and Austria will apply a withholding tax that will gradually increase to 35 per cent instead of providing information. However, the withholding tax will not be applied if the taxpayer presents a certificate from his tax authority that confirms it is aware of the investment made abroad. The directive applies to most investments from cash savings to government and corporate bonds to pooled investment funds and other debt securities.

The Agreements between the EC and Switzerland, Andorra, Liechtenstein, Monaco and San Marino provide for a retention of withholding tax at the same rates as applied by Belgium, Luxembourg or Austria.  All relevant Member States' dependent or associated territories (the Channel Islands, the Isle of Man and the dependent or associated territories in the Caribbean) will provide for the same measures as those of the Directive, i.e. they will apply a system of information reporting or, during the transitional period of the Directive, levy a withholding tax on the same terms as Belgium, Luxembourg or Austria.

Harmful tax competition and state aid

EU Member States have agreed on a Code of Conduct for business taxation which is designed to detect measures which unduly affect the location of business activity in the Community by being targeted merely at non-residents and by providing them with a more favourable tax treatment than that which is generally available in the Member State concerned. For the purpose of identifying such harmful measures the Code sets out the criteria against which any potentially harmful measures are to be tested.  Under the Code Member States are required to refrain from introducing any new harmful tax measures ("standstill") and amend any laws or practices that are deemed to be harmful in respect of the principles of the Code ("rollback") of taxation in the country concerned.

The tax systems in Member States must in any event be in line with Community State aid rules. Any tax benefits which distort or threaten to distort competition by favouring certain undertakings or the production of certain goods is incompatible with the common market, in so far as it affects trade between Member States.

2006 and beyond…

There are ongoing discussions at technical level on the idea of allowing companies to use a single EU-wide method of calculating their taxable profits on their EU-wide business activities. Central to the establishment of this consolidated tax base would be an agreement on sharing the base or taxable profits between the relevant Member States where the companies have activities.  The Commission believes that a consolidated corporate tax base would eliminate the current costly inefficiencies of twenty seven separate sets of tax rules. Member States would retain full sovereignty over their tax revenues as they would continue to set their own national tax rates. However, this idea is still under development and a formal proposal has not yet been made. The European Commission plans to present its legislative proposal in 2008. The Commission has suggested that if agreement between all twenty seven Member States on such a consolidated tax base is not possible, it might be preferable to go for agreement only between a smaller group of like-minded States under the mechanism of closer co-operation (“enhanced co-operation”) provided for in the Nice Treaty.

Another focus for 2006 is on reducing distortions created through tax fraud and tax evasion as well as encouraging tax incentives for research and development. Another forthcoming report will aim to clarify the interaction of EU law and Member States’ bilateral arrangements to prevent double taxation of individual’s or companies’ income or capital.

With regard to VAT, the Commission has made a proposal to the Council to set up a one stop shop to simplify VAT compliance for traders. Another Commission proposal would ensure that EU traders are not discriminated against by introducing a system whereby VAT on supplies of services is charged where the consumer is based, thus forcing non-EU suppliers to also charge VAT when supplying services to EU customers.

The European Commission also has a proposal on the Council table to end vehicle registration tax which in Ireland has proved very unpopular with many motorists. Under the proposal set out on 5 July 2005, car registration taxes would be abolished over five to 10 years, to be replaced by annual road taxes and fuel taxes (so that the tax burden would remain the same but would be related to the use of a car rather than its acquisition). Under the proposal Member States would also be required to give credit if the car had already been subjected to registration tax in another MemberState or refund a portion of registration tax if the car was permanently exported or transported to another Member State.




Last update: 22/03/2011  |Top