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Political uncertainty in the EU

Political uncertainty in the EU

Integration versus sovereignty, and what it means for tax.

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Lead Tax Partner, KPMG Economics & Tax Centre

KPMG Australia

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Contrast between bricks and mortar

For people outside of the European Union (EU), understanding its workings can be complicated and challenging. But this should not be surprising, given the conflicting views within the EU itself. For some, the EU should be on a path to a federation of European states. For others, the ideal is a trading union of independent sovereign nations. This ambivalence existed at the start of the European project in 1957 and has been successfully negotiated to date.

But recent developments are bringing this tension to a head – most clearly with the UK’s decision to exit the EU. With the European Commission’s launch of the public consultation on the future of Europe in 2017, the citizens of Europe are considering a range of scenarios for the EU – from continuing its current path, to radical shifts in approach by either retrenching to focus only on the single market or by integrating much further. This consultation will be the foundation for a course of action to be rolled out in time for the June 2019 elections for the European Parliament.

For the tax regimes of each EU member state and the EU as a whole, each scenario has significant implications. The scenario ultimately chosen will have broad impacts on, among other areas:

  • corporate tax bases and rates (including anti-abuse rules)
  • indirect tax bases and rates
  • taxation of the digital economy
  • State aid rules and enforcement
  • EU tax haven blacklisting and impact on third countries
  • public country-by-country reporting
  • mandatory disclosures
  • exchange of rulings
  • EU budget financing via value added tax (VAT) or common consolidated corporate tax base (CCCTB)
  • coordination of country-specific tax recommendations through the European Semester process
  • EU code of conduct for business taxation enforcement
  • EU financial transaction tax.

These taxation issues are intrinsically linked to the major issues the EU faces in the areas of migration and refugees, the debt crisis and EU funding, unemployment, and emerging populist and national governments. At the same time, the global context in which the EU operates is quickly changing.

With the EU at the center of important geopolitical shifts, the leaders of international businesses need to think through and prepare for an array of possible implications. The discussion in these pages aims to deliver an informative and insightful analysis of the future direction of the EU and what this might mean for the business environment and the direction of tax policy.

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