By Pieter Cleppe
Taxation has traditionally been regarded as one of the core prerogatives of national sovereignty within the European Union. Member states determine their own tax rates, structures, and revenue priorities, reflecting domestic political choices and economic models. Yet over the past decade — and particularly since 2020 — the EU’s role in shaping tax policy has gradually expanded. This shift has not taken the form of a single sweeping reform, but rather a series of directives, court rulings, and coordinated initiatives that together are reshaping the fiscal landscape across the bloc.
The debate is no longer about whether taxation remains a national competence — it formally does — but about how much practical discretion member states retain in an increasingly interconnected European and global economy.
Global Minimum Tax and the EU’s Role
A key development in recent years has been the implementation of the global minimum corporate tax agreed under the auspices of the Organisation for Economic Co-operation and Development (OECD). The agreement, endorsed by more than 140 jurisdictions, establishes a minimum effective tax rate of 15% for large multinational enterprises. Its aim is to reduce profit shifting and tax base erosion by ensuring that companies pay a baseline level of tax regardless of where profits are booked.
Within the EU, this agreement was transposed into law through a directive requiring uniform implementation across member states. While international coordination was the starting point, the EU’s legal mechanism ensures consistency in application across all 27 member countries. In practical terms, this means national parliaments have had to adjust domestic legislation to comply with the common framework.
Supporters argue that EU-level coordination strengthens Europe’s bargaining power globally and prevents a “race to the bottom” in corporate taxation. Critics, however, note that once tax standards are embedded in EU directives, the margin for national experimentation narrows. The debate is therefore less about the global agreement itself and more about the institutional path through which it is implemented in Europe.
The Anti-Tax Avoidance Framework
Another important component of EU tax coordination is the Anti-Tax Avoidance Directive (ATAD). Adopted in response to concerns about aggressive tax planning, ATAD sets minimum standards in areas such as interest limitation rules, exit taxation, controlled foreign company (CFC) rules, and hybrid mismatches.
Although member states retain flexibility in implementation, the directive establishes common guardrails. This has led to greater alignment of corporate tax rules across the EU, even if headline rates continue to differ.
For multinational firms operating in several EU countries, the increased harmonisation can reduce complexity in some areas. At the same time, businesses and tax practitioners frequently point to interpretive challenges and administrative burdens associated with aligning domestic systems to shared standards. The result is a more integrated regulatory environment, albeit one that still reflects diverse national legal traditions.
Currently, tax measures must be adopted unanimously by EU countries.
We are launching a debate on reforming the decision-making process on taxation.
Find out the 6 reasons why we suggest a transition to #QualifiedMajority ↓ pic.twitter.com/CIECLKX0nt— European Commission (@EU_Commission) January 15, 2019
Excise Duties and Public Health Policy
Excise taxation has also become an area of renewed EU attention. The revision of the Tobacco Excise Directive has sparked extensive discussions among member states. This directive regulates the regulatory framework for tobacco and nicotine taxation in the EU. In January, the Cyprus Presidency of the Council of the EU drew up a new draft compromise for raising minimum rate of excise duty and extending the scope of EU-wide minimum excise duties, for the first time, to newer nicotine products such as electronic cigarettes, heated tobacco products and nicotine pouches.
This proposal is an clear improvement compared to the one tabled by the European Commission, slightly softening the increase in some areas and granting a transitional period.
However, making tobacco and nicotine products drastically more expensive would obviously hurt purchasing power of consumers, particularly in poorer EU member states, so it should not surprise to see opposition coming mostly from them. At the same time, this would fuel illicit tobacco trade. The experience of France, which has among the highest excise duties on tobacco of the EU, is telling. A few years ago, it decided to considerably hike these taxes in a bid to reduce smoking rates. Unsurprisingly, France also has the largest illicit tobacco market in the EU. A 2024 KPMG report highlights that about 43% of all cigarettes consumed in France are untaxed. Belgium had similar experiences, with falling revenues after the government increased taxes.
Also problematic is the European Commission’s approach to treat less or non-harmful alternatives to cigarettes the same. For example, according to the UK government’s health department, “best estimates show e-cigarettes are 95% less harmful to your health than normal cigarettes.” The proposed EU regulatory update completely ignores the Swedish approach, whereby non-harmful or less harmful tobacco products, such as snus, are available and regulated, something which has led to a significant reduction in the number of smokers and, consequently, a significant reduction in smoking-related illnesses.
Several EU member states have reportedly welcomed the more realistic approach by Cyprus, arguing that an overly abrupt increase risks fueling illicit trade, eroding tax revenues and overwhelming national enforcement authorities. These governments consider a more gradual and flexible framework as essential to maintaining control over legal markets while avoiding unintended effects on national budgets, which tend to accompany drastic tax changes.
State Aid and Tax Rulings
Beyond formal directives, the EU has influenced taxation through competition law and state aid investigations. The European Commission has pursued high-profile cases involving tax rulings granted by member states to multinational corporations. These cases focus on whether selective tax advantages constitute unlawful state aid under EU law.
While such interventions are framed as efforts to preserve fair competition, they also extend EU oversight into areas traditionally managed domestically. The arguments of EU officials to dish out enormous fines on the basis of EU competition rules should be called opaque at best. Also the EU’s new “Digital Services Act” (DSA), which was used to impose a 120 million euro fine for Twitter / X, comes with arbitrary interpretation. Here, Elon Musk’s company was fined for allowing anyone to receive a blue verified check mark on their profile when they paid for it. In this way, EU bureaucrats argued, the platform would “deceive users” because twitter would not be “meaningfully verifying” who is behind the account, even if for every user it was evident that one could simply receive the check mark if one paid for it.
Ultimately, just like with digital services taxes, these kinds of costs tend to mostly end up being passed on to local consumers through higher prices.
"After the European Commission opted to politicise its competition policy, it may soon witness its competition policy being politically restricted, from the other side of the pond. Live by the sword, die by the sword."
— BrusselsReport.EU (@brussels_report) December 4, 2024
Digital Taxation and Future Revenue Sources
Taxation of the digital economy remains an ongoing area of discussion. Although the EU has not adopted a standalone digital services tax at the union-wide level, several member states have experimented with national measures. These initiatives were partly overtaken by the OECD global tax agreement, which sought to reallocate taxing rights in the digital economy.
At the same time, EU institutions have explored the possibility of new “own resources” — revenue streams that would help finance the EU budget directly. Proposals have included mechanisms linked to carbon pricing, corporate profits, and other bases aligned with EU policy priorities. While these discussions remain politically sensitive, they reflect broader debates about fiscal integration and the financial autonomy of the EU itself.
Tax Sovereignty in Practice
Formally, tax legislation at EU level generally requires unanimity among member states in the Council. This procedural safeguard underscores the continued importance of national consent. However, once directives are adopted, compliance becomes obligatory, and enforcement mechanisms ensure uniformity.
The practical effect is a gradual layering of shared rules on top of national systems. Corporate taxation, excise duties, information exchange, anti-avoidance standards, and administrative cooperation are increasingly coordinated. At the same time, personal income tax rates, social contributions, and VAT structures still vary significantly across the bloc.
The result is neither full fiscal union nor complete autonomy. Instead, the EU tax framework resembles a hybrid model: common minimum standards combined with national discretion above those floors. Along the way, the European institutions gain more control.
A Gradual but Noticeable Shift
Taken together, developments such as the OECD minimum tax implementation, anti-avoidance directives, excise harmonisation proposals, and state aid enforcement suggest a steady expansion of EU-level influence in taxation. This process has not abolished national sovereignty, but it has redefined how it operates in practice.
For some policymakers, deeper coordination strengthens fairness, transparency, and market stability. For others, it risks narrowing democratic control over fiscal decisions at the national level.
What is clear is that taxation in the European Union is increasingly shaped by shared rules and cross-border considerations. The future trajectory is clearly geared towards further harmonisation, instead of a renewed emphasis on subsidiarity.