Text 3 The problem of Tax Harmonization

Pre-reading task

Read the following text, then explain its title

Taxation is one of the hot topics at the EU summits. The European Commission's efforts to stamp out "unfair" tax competition ran into opposition, notably from Britain. But it turns out that this might have been for the best. A recent research suggests that imposing common taxes on capital income would do all of the EU's member countries more harm than good.

The system of tax harmonisation is based on the economic theory. If an entrepreneur is trying to decide where to start a company, the tax rate he pays on capital income will be one of the factors he has to consider. It might influence his return on investment.

The EU tax rates vary across jurisdictions. Imposing equal rates would ensure that the entrepreneur's decision rests only upon factors that are central to his company's prospects.

It has suggested that capital benefits from "agglomeration": in other words, a cluster of capital in the same place is very useful. When companies bunch together, obtaining services, strengthening infrastructure and sharing knowledge all become easier.

Countries must be integrated enough to make agglomeration feasible. To understand how agglomeration might have affected tax competition in the EU, the member countries are divided into two groups: the core and the periphery. The core is made up of France, Germany, Italy and Benelux. The periphery consists of Greece, Ireland, Portugal and Spain.

Countries on the periphery would be forced to raise rates. Countries in the European Union's core, whose rates might already be depressed by tax competition with each other, would have to cut taxes (and public spending) even further.

Growth in information technology, falling transport costs and continuing economic integration will eventually do away with the benefits of agglomeration, not just in Europe, but worldwide. Come the moment when capital becomes fully mobile around the world, tax harmonisation may have its day.

Text-study

I. Learn the following words

To stamp out – подавлять, уничтожать;

capital income – доход от капитала;

tax rate – ставка налога;

to impose – облагать налогом;

dispersed – распространенный;

agglomeration – укрупнение, интеграция;

feasible – осуществимый, реальный.

II. Answer the following questions

1. What is the system of tax harmonisation based on?

2. Why is it the tax rate on capital income that an entrepreneur has to consider first of all?

3. What could be the results of imposing equal tax rates within the European Union?

4. What are the factors that influence the entrepreneur's investment decisions?

5. What does capital benefit from, according to these scientists?

6. How might agglomeration affect tax competition in the EU?

7. How does the author describe the effect of integration in the EU countries?

8. What is today's trend in tax differences?

9. What could be the consequences of setting a harmonised tax rate within the EU?

10. What are the factors that could eliminate the benefits of agglomeration?