Tax Harmonization in the EU: Insights on Political and Legal Fusion Under Neofunctional Rationale

Abstract

The traditional narrative is that direct taxes in EU remain non-harmonized since decisions in this domain originate solely from intergovernmental bargains, often exemplified as failure of legal, political and economic integration. The article reviews this conventional notion that European tax harmonization process draws truly on national choices of Member States. The study does not out rightly discard the national role in pooling EU-level tax mandate but rather seeks to assign it a temporal dimension under neofunctional integration model. Considering the intergovernmental decision-making in isolation, akin to that of traditional nation-state in the global arena, may create a misleading conception in the EU context. While European Member States might seem to be the sole actors of EU-level tax policymaking, yet there exist other players that shape or even push members’ decision-making processes. To this end, the study seeks to capture the key developments instrumental to the legal, political and economic fusion in the European construct. It concludes that (direct) tax policy domain – a symbol of fiscal sovereignty of Member States and unspoken supranational regime in EU law – is also not impervious to neofunctional political rationale and consequential processes of law-creation.