Analysing taxation trends across the EU

Since 2016, the Annual Report on Taxation (ART) is the only report by the European Commission that looks in detail at tax systems and taxation policy. Through the ART, the Commission presents current trends, indicators and progress on tax policies in EU Member States and at EU-level. But how is it made and what does it mean for the current policy debate? How can it be useful to businesses and EU Member States? What makes this year’s edition different? Find out from this issue's interview with Ana Xavier, Marie Goppelsroeder and Benedetta Guerzoni, key experts behind the publication.

On 3 July, the Commission launched the new Annual Report on Taxation, analysing the state of play of taxation and tax systems in EU Member States. The report informs stakeholders on the challenges faced by different types of taxes and tax bases. It also looks at how the design of taxes can affect different economic agents and their behaviour. The report looks at recent reforms in tax systems as well as the relevant developments in the main indicators used by the Commission to assess taxation policies at both Member State and EU Level.

Accompanying the launch of the report, the 3rd edition of the Annual Report on Taxation event took place on 4 July. Under the theme of “Building strong foundations for growth: EU Tax Policy for lasting prosperity”, some of the brightest minds in taxation discussed how our tax systems can shape jobs and the impacts of tax compliance costs.

Why does the European Commission (DG TAXUD) produce the Annual Report on Taxation (ART)?

The Annual Report on Taxation (ART) is a flagship publication of DG TAXUD and the only Report by the Commission that looks in detail at tax systems and taxation policy. We have been publishing the ART, previously titled ‘Tax policies in the European Union’, since 2016. Through the ART, we aim to describe in a clear and accessible manner the current trends and the main indicators used by the Commission to assess progress on tax policies in EU Member States and at EU level. Many of these indicators on taxation trends are produced in-house based on ESTAT data and with the crucial contribution of EU Member States. In addition, the ART informs stakeholders of recent tax reforms and tax-related developments, both at national level and at EU level, as well as the performance of EU tax administrations. This is based on a unique annual joint questionnaire with the OECD. The ART can also include a focus on selected aspects that we consider particularly relevant within the tax policy context, also depending on DG TAXUD’s and the Commission’s priorities.

What influence does this report have on the policy debate? What can it mean for businesses/EU MS?

The ART presents a sound, factual and indicator-driven basis for discussion on the present and future of EU tax policy. It also focuses on the impact that long-term structural changes (e.g. population ageing, globalisation, digitalisation including AI, green transition) may have on tax revenue, on the tax mix and on our tax policy priorities. In addition, it contributes to a better understanding of tax policy decisions in the EU, and it provides policymakers with insights that can help them improve the functioning of our tax systems. 

In the last three years, to increase the outreach of the ART and its contribution to the policy debate, we have also organised a half day-conference to launch the report, present its main highlights, and give policy experts and academics the opportunity to zoom in and discuss selected topics of the ART. This year’s event, titled ‘Building strong Foundations for Growth: EU Tax Policy for Lasting Prosperity’, took place on 4 July and looked at the role of taxation on labour market participation and at tax compliance costs.

What makes this year’s ART different from previous ones?

The 2024 report debuted a new structure, including a feature chapter, the topic of which is intended to change each year.

This year we decided to focus on the relationship between taxation and competitiveness, and how tax policy contributes to a competitive and prosperous EU economy. Competitiveness is a topic that has recently gained major traction within the Commission’s agenda, as displayed by the President’s decision to task Mario Draghi with the preparation of a report on the future of European competitiveness. It is also strongly highlighted in the President’s Political Guidelines for the 2024-2029 Commission. 

This year’s ART shows that tax policy is an important element in bolstering competitiveness of the EU single market. Let's take labour taxation. Labour taxation including social contributions remains the largest source of revenues and potentially one of the most important tools to reduce income inequality. In view of population ageing and labour/skills shortages, it is important that the design of labour taxation does not discourage labour market participation, notably of low-wage and second earners as we still observe in several Member States. We need to count on everybody to be competitive! Interestingly, while the share of labour taxation has remained the same over the years, the share of environmental and property taxation has declined. This evolution does not seem in line with the call to shift some of the tax burden to sources that impact less on employment and production. Then let’s come to corporate taxation. We can see that tax rates have declined significantly in the last decades in support of firms. EU Member States also provide a variety of tax support and faster depreciation schemes, for example to increase R&D and more recently green investment. At the same time, this is done in a fragmented way, resulting in companies facing relevant costs to comply with so many different tax systems. Excessive fragmentation may deter cross-border activity and firm growth, thereby reducing EU competitiveness.     

We plan to choose a different topic for the ART 2025, also taking into account the policy priorities of the new Commission’s mandate.

Which challenges have you encountered when you developed the report and how did you and the team overcome them?

The ART covers a broad range of topics, that naturally require the involvement of many colleagues in-house. Coordinating this work and ensuring a timely execution of all the different steps was sometimes very challenging, especially when different workstreams and deadlines overlapped at the same time. In addition, the ART benefitted from the contribution of several Commission’s DGs, and this warranted an extra effort to ensure a fully consistent final product. 

Those challenges were overcome thanks to a constructive cooperation among the various parties involved, as well as a solid team work . We would like to thank once again all the different colleagues, across directorates and the various hierarchical levels, that offered their input and expertise to ensure a timely publication of the ART 2024. We also received an excellent support, on procedural and publication-related aspects, from colleagues in our communications unit.

Would you recommend the ART as a summer reading?

First of all, we hope that everybody will be able to use the summer break as a moment to relax and disconnect from work-related matters :) Having said that, reading the ART (not necessarily during the summer) can be a great opportunity to learn more about EU tax policy and EU tax systems, and to frame our individual efforts within a broader policy context.

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