The European Parliament has formally spoken in favour of simplifying tax rules and tackling fragmentation through harmonising taxes. The goal is to support the European Union’s competitiveness, economic integration, and the development of the bloc’s capital market.
The European Parliament’s plenary session approved its own legislative initiative titled “The role of simple tax rules and tax fragmentation in European competitiveness” on Thursday, 9 October. The initiative, which addresses how complex and fragmented tax systems across EU member states reduce the bloc’s overall competitiveness, passed the plenary vote by a wide margin of 499:66, with 53 abstentions.
Citing Draghi, Letta
The report, which featured MEP Michalis Hadjipantela (EPP/CYP) as rapporteur, emphasised that inconsistent tax policies create legal uncertainty, red tape, risks of double taxation, and difficulties in claiming tax refunds, all of which impede cross-border investment and economic activity within the Union.
Citing major studies such as the Draghi report on EU competitiveness and the Letta report on the single market, the legislation highlights the urgency of coordinated EU-level actions to reduce tax fragmentation. The Draghi report warns of a “slow and agonising decline” in EU productivity if decisive policy changes are not implemented, including the removal of unnecessary tax-related barriers to cross-border investing.
More specifically, disparities in the treatment of capital income and the complexity of tax rules are flagged as key obstacles. The initiative calls on the Commission and member states to explore further harmonisation or simplification measures to foster a more integrated and competitive European economic area.
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Overlaps, contradictions, compliance costs
The proposed legislative instrument is a consultation procedure directive based on Article 115 of the Treaty on the Functioning of the European Union (TFEU) and the European Parliament’s Rules of Procedure. The Commmitee on Economic and Monetary Affairs (ECON) led the work. It seeks to address regulatory burdens, particularly for small and medium-sized enterprises, by reducing overlap, contradictions, and compliance costs across the tax framework.
The proposal also underscores the importance of maintaining fair and robust taxation systems that generate revenues to finance public services throughout the EU’s regions. Simultaneously, it strives to ensure that tax systems do not hamper growth or investment.
The underlying ambition is to create a tax environment simpler, more transparent, and less fragmented, enabling companies and citizens to engage in cross-border economic activities without undue obstacles and reducing the possibilities for tax evasion, avoidance, or aggressive tax planning.
No law, but an impetus
Thursday’s move marks a political statement that can influence the legislative agenda but does not itself create binding law. It is to serve as a platform to coordinate responses across member states to tax fragmentation hindering competitiveness.
The text is now to enter the official parliamentary record and can feature in follow-up parliamentary scrutiny, including questions to the Commission and committee hearings. The next steps depend on how the Commission and Council respond politically and legally, but the Parliament’s voice lays down a marker aiming to shape EU tax policy discussions and reforms going forward.
