CUSTOMS AND TAXES IN THE

EUROPEAN UNION

SANDEEP PADHI
11LLB057
SEMESTER X

INTRODUCTION

The European Union (hereinafter refer to as EU) is a unique economic and political partnership
between 28 European countries that together cover much of the continent.
The EU was created in the aftermath of the Second World War. The first steps were to foster
economic cooperation: the idea being that countries which trade with one another become
economically interdependent and so more likely to avoid conflict.
The result was the European Economic Community (EEC), created in 1958, and initially
increasing economic cooperation between six countries: Belgium, Germany, France, Italy,
Luxembourg and the Netherlands. Since then, a huge single market has been created and
continues to develop towards its full potential.

CUSTOMS
Due to the EU customs union there is free trade in Europe.
1. customs duties at the borders between EU countries are a thing of the past
2. a uniform system of customs duties on imports from outside the EU. Customs officers both keep
trade flowing, and perform a wide range of tasks to protect Europeans.
3. The customs union is a single trading area where all goods circulate freely, whether made in the
EU or imported from outside. A Finnish mobile phone can be dispatched to Hungary without
any duty or customs controls.
4. Duty on goods from outside the EU say TVs from South Korea is generally paid when they
first enter the EU, but after that there is nothing more to pay and no more checks.
5. Despite this, customs work in the EU remains vital, given the sheer volume of incoming goods.
6. EU customs services:

handle nearly 16% of total world imports over 2 bn tonnes of goods a year

process well over 270 million declarations annually.1

How customs protect EU citizens

1 Nibusinessinfo.co.uk
3

Counterfeit goods seized by customs

Customs protection includes enforcing rules that protect the environment and health &
safety (e.g. refusing entry to contaminated foodstuffs or potentially dangerous electrical
appliances)

ensuring exports of sensitive technology (which could be used to make nuclear or

chemical weapons) are legitimate

tackling counterfeit goods and piracy in the interests of health and safety, as well as the
jobs of those who work for legitimate manufacturers

ensuring anyone travelling with large amounts of cash (or equivalent) is not laundering
money or evading tax

helping police and immigration services fight trafficking in people, drugs, pornography
and firearms all factors in organized crime and terrorism

protecting endangered species, e.g. checking trade in ivory, protected animals, birds and
plants

protecting European cultural heritage by watching for smuggled art treasures.

Preventing fraud- Another major task of EU customs is to tackle fraud, which deprives
governments of tax revenue for vital public spending, in particular: false certificates of
origin claiming that goods come from a country subject to a lower import tariff, fraudulent VAT
declarations and payments reporting fictitious trade, evasion of excise duties on items such as
cigarettes.

Data on trade flows- EU customs officers also collect statistics as a basis for:
a. deciding whether goods are competing unfairly with EU products
b. detect economic trends.

TAXATION
The EU does not have a direct role in raising taxes or setting tax rates. The amount of tax to be
paid is decided by government, not the EU. The EU's role is to oversee national tax rules to
ensure they are consistent with certain EU policies, such as:

promoting economic growth and job creation

ensuring the free flow of goods, services and capital around the EU (in the single market)

making sure businesses in one country don't have an unfair advantage over competitors in
another

ensure taxes don't discriminate against consumers, workers or businesses from other EU
countries.

Furthermore, EU decisions on tax matters require unanimous agreement by all member

governments. This ensures that the interests of every single EU country are taken into account.2
VAT & excise duties
For some taxes, such as VAT or taxes on petrol, tobacco and alcohol (excise duties), all 28
national governments have agreed to broadly align their rules and minimum rates, to avoid
distorting competition across borders within the EU.

Corporate & income tax

For other taxes, such as company and income tax, the EU's main role is to ensure that principles
such as non-discrimination and free movement in the single market are followed. Increasingly,
a coordinated EU approach is needed among all member countries to do this, as well as tackle
common challenges such as tax evasion.
Tax revenue
The EU also has no say in how countries spend their tax revenues. However, due to the
increasing interdependence of EU economies, countries that overspend and go into too much
debt could jeopardize growth in their neighbors and undermine the stability of the euro zone.
To minimize this risk, EU countries try to coordinate their economic policies closely, partly
based on recommendations from the Commission. Some of these recommendations refer to
national tax policies, seeking to make them fairer, more efficient and more growth-friendly.
Tax in the single market

Breaking down tax barriers

Personal and company taxes are mainly the responsibility of the individual EU countries.
However, under EU rules, they should not create barriers to mobility in Europe. Individuals who
move to another EU country, or companies who invest across borders, can face taxation in two or
more countries or struggle with complicated administration.
There are treaties in place between most EU countries designed to eliminate double taxation but
they may not cover all taxes or all cross-border situations, and may not be applied effectively in
2 Ec.europa.eu/taxation_customs/index.en
6

practice. The Commission works in several ways to resolve these problems. This ranges from
proposing coordinated solutions to governments to if necessary taking legal action if there is
discrimination or breach of EU law.3
Standardized taxation of goods & services
The single market allows goods and services to be traded freely across borders within the EU. To
make this easier for businesses and avoid competitive distortions between them EU countries
have agreed to align their rules for taxing goods and services.
Minimum tax rates are in place for VAT and excise duties, along with rules on how these taxes
should be applied. Governments are free to apply their own national rates above the EU
minimums if they wish.
The Commission is currently working to reform the EU VAT system, to make it simpler, more
fraud-proof and efficient in the revenues it delivers to national governments.

Fair taxation across borders

Tax evasion & avoidance
The tax laws of one country should not allow people to escape taxation in another. Given the
cross-border nature of tax evasion and avoidance, EU-wide action is essential.
In recent years, substantial progress has been made. The EU now has an action plan, and several
initiatives in place or under development such as rules on information exchange between EU
countries and a quick reaction mechanism to combat VAT fraud.
The EU also pays particular attention to fair company taxation. Loopholes between different
countries' tax systems allow certain companies to engage in 'aggressive tax planning', to
minimize their tax bills. Close coordination and information sharing between tax administrations
aims to prevent this.
EU governments should also ensure their corporate tax regimes are open and fair, and not
designed in a way which might unfairly lure firms away from other EU countries, or otherwise
erode the tax base there. To this end, they have signed up to a code of conduct pledging not to do
this.
Financial transaction tax
3 Chemie.fu-berlin.de.eu(Last accessed on 23-02-16 at 5:00pm)
7

Eleven EU countries are currently developing a common system for taxing financial transactions,
as a way to ensure the financial sector makes a fair contribution to the cost of the recession, of
which it was a major cause (and since which it has received substantial amounts of government
support).
The plans are designed to generate significant revenue, despite the high international mobility of
financial transactions.4

4 Gtai.de.eu
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