The Role of Taxation in the Mediterranean Financial Integration

Taxation is one of the most significant factors affecting financial integration. It involves custom duties, withholding taxes applied to the free flow of capitals running from one country to another, or the conditions under which an investment that a business of a certain country does on the territory of another can be taxed in the latter jurisdiction. The paper addresses the impact of taxation in the Mediterranean area, considering, in particular, the effect of direct and indirect taxes in the flow of investments. In this respect, however, the fiscal integration of the two main areas the Mediterranean region is divided into (North and South) are remarkably different. While the European Union appears a homogeneous area seen from outside, with an harmonized Value Added Tax system, uniform custom duties and relevant aspects of direct taxation sharing general rules and principles, a lot remains to be done. For what concerns the interaction with third Counties, free movement of capital is the only provision clearly and positively set also to the advantage of individuals and legal bodies resident or belonging to them. In a perspective of integration there is a basic approach that requires the implementation of a common system of rules applicable to specific income only, but the main way is the harmonization of the VAT system even in neighbour countries of the Mediterranean and the sharing of the same principles to prevent double taxation.