Taxation in Europe: Towards more competition or more co-ordination

Tax to GDP ratios stand at around 40%in EU countries as compared with 25% in Japan and the US. This high level of taxation allows the funding of the European social model characterised with a high level of public expenditure and transfers. This article discusses how the European social model is at risk in a global world; it presents several strategies for European taxation: competition, unification, coordination. It provides a descriptive analysis of tax structures and trends in Europe. Tax competition plays more and more for higher earnings or wealthy people; so tax coordination is needed also for income taxation. Social contributions coordination is less useful as far as social contributions finance contributive benefits. The corporate taxation coordination raises two problems: the tax base and the tax rate. . Corporate taxation is not the most appropriate tool to attract firms to locate in less developed countries due to risks of profit shifting. Our preferred strategy would be to give more freedom given to Member States to subsidize their companies against some tax coordination by a clear recognition of the source principle and the introduction of minimum rates, depending on the level of development reached by the country.