Dr. Mosquera Valderrama describes the EU’s tax policy as “a little confusing,” citing the multitude of projects and initiatives without a clear, overarching strategy. She notes a significant shift in direction since the 2008 financial crisis, moving away from promoting business attractiveness to following international tax developments. This has led to a focus on administrative cooperation, anti-tax avoidance measures, and combating tax competition, often resulting in a fragmented approach.
She points to the example of the UNSHELL Directive, which was abandoned due to overlaps with an existing directive, as an illustration of the lack of a clear plan. Similarly, she highlights a disconnect between the stated goals of wealth taxation, corporate income tax, and simplification, and the practical implementation of these concepts.
Challenges to a Healthy Fiscal Position
According to Dr. Mosquera Valderrama, the EU must adopt a more holistic approach to address current global challenges. She contends that initiatives like the Carbon Border Adjustment Mechanism (CBAM) and Pillar Two have unintended consequences. CBAM, for instance, may not effectively reduce carbon emissions and fails to consider the varying development levels of non-EU countries.
Regarding Pillar Two, she notes that the United States’ decision to implement a side-by-side system may render the EU directive ineffective. This has even led some EU members, like Germany, to question the policy’s usefulness. Dr. Mosquera Valderrama emphasizes that these issues stem from a lack of a comprehensive approach that links taxation with sustainability and geopolitical developments.
To illustrate this point, she uses an analogy of a Darrieus turbine. While efficient in some ways (like the implementation of the Anti-Tax Avoidance Directive), the EU’s direct taxation system is prone to unreliability and “fatigue” because it depends on external forces (like the OECD and G20) and is subject to wide variations in applied forces. This results in a lack of reliability and “cracks” in the system, which can lead to initiatives failing if countries do not fully commit.
The Role of Fairness and Legitimacy
Dr. Mosquera Valderrama argues that the concept of fairness is an undefined but central theme in many current tax discussions. She points out that while the EU and OECD use terms like “fair taxation,” there is no clear definition of what this means, which makes it difficult to implement and measure. The focus on fairness, she says, often distracts from technical discussions about tax systems and incentives.
She delves into the concept of legitimacy—specifically input, output, and throughput legitimacy—to analyze the EU’s tax governance.
- Input legitimacy relates to the participation and representation of countries in the decision-making process. The EU’s list of non-cooperative jurisdictions, for example, is problematic because it only targets non-EU countries, undermining its legitimacy.
- Output legitimacy concerns whether tax standards are truly effective and beneficial for countries. Dr. Mosquera Valderrama questions if the EU’s standards genuinely help developing countries raise revenue and achieve sustainable development goals.
- Throughput legitimacy refers to the transparency and openness of the decision-making process. She highlights a lack of transparency and accountability in the peer review process for BEPS standards.
She concludes that the EU needs to increase its legitimacy and trust by adopting a more global and coherent approach, especially with regard to its relationship with developing countries and its role in global tax negotiations. This means moving beyond just providing aid to offering technical expertise and engaging more actively and transparently in global forums like the United Nations. The EU’s current passive and reserved stance in UN tax discussions suggests a missed opportunity to be a more influential global player.