Regulatory and Taxation Reform: The European Perspective

Regulatory and Taxation Reform Lessons from fiscal federalism The EU experience The EU experience Value Added Tax Corporate taxation and savings revenues taxation Corporate taxation and savings revenues taxation Lessons for Brazil Regulatory andTaxation ReformThe EuropeanPerspectiveBy Magali VerdonckForum of Federations: An International Network on Federalismwww.forumfed.org•Federalcountries in Europe (ex: Belgium)–Problems linkedto incometaxation–Problems linkedto mobility and environmentaltaxation•EuropeanUnion–Problems linkedto theVAT–Existence of externalities–Needfor coordination between independentStates•Limitsof the comparison–Geography –Population–Area–GDPLessons fromfiscal federalism•Threegoals are to be reached when designingfiscal organization:–Assuring enoughfiscal revenues for each level–Limitingfiscal externalities(dependson the degreeof mobilityof the taxbase)–Minimizingmanagement costs(compliance andadministrative costs)TheEU experience•Why did the debate take solong to start?–Fiscal policy isan important elementof national sovereignty–The decision process is unanimity between the MemberStatesTheEU experience•Why did the debate become sourgent ?–Free movementsof goods, services, capital andpeople since1993–Introduction of the common currency–As a consequence: more concentrated activities, more mobile taxbases, distortionsin theallocation of investments andfiscal revenue distortionsValue Added Tax•Presentsituation:–Destination-basedtaxation–Partial harmonization–Absence of fiscal competition through firmsbut…•Evaluation:–A lot of cheatingby firms–A lot of cross-border shopping•Solution:–A return to an origin-basedtaxation withmore harmonizationCorporatetaxation and savingsrevenues taxation•Presentsituation: –MemberStates are totally sovereign–No coordination atall•Evaluation:–Distortionsin theallocation of investments–Distortionsin fiscal revenues–Lossof fiscal revenuesCorporatetaxation and savingsrevenues taxation•Solution : the “Tax Package”–Definition, identification and elimination of “ring-fencing” harmful fiscal measures w.r.t. corporate taxation–Information exchange on savings of non-residents•“Soft law” approachLessonsfor Brazil•VAT race-to-the-bottom suggests needfor minimum harmonization•Mobile taxbases are usuallyof federal competence•A reflexionon tax assignment shouldgo toghether witha reflexionon intergovernmental and equalization transfers(what isnot possible in EU)