Direct Tax Consequences of a Member State Leaving the European Union: Brexit and European Integration

Abstract

This article was drafted shortly after the formal announcement of the results of the Brexit referendum and aims to provide a Contrary to the political narrative, the author's research has shown that European integration is not limited to EU membership status. Moreover, in what concerns direct taxation, there are several entities and instruments (apart from the European Union and its instruments) that have been shaping the provisions of European direct tax codes already for several decades. Limitation of direct tax sovereignty is not a prerogative of the European Union. Moreover, as globalization intensifies, additional elements will be removed from the margin of discretion of the Member States
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Contrary to the political narrative, EU limitations to sovereignty do not stop at the geographic boundaries of the European Union. Some limitations have a broader scope, either unilaterally (through EU measures that are aimed at impacting states or taxpayers located outside of Europe) or conventionally (through agreements that bind other states to EU measures).

Contrary to the mainstream view, EU membership is not an absolute condition for access to EU measures in the field of direct taxation. Between the EU membership status and pure third-country status, there are several ways of integration. Any country leaving the European Union may, if the European Union so allows, continue to participate in parts of the EU experience in the field of direct taxation.

Leaving the European Union is an option that any Member State may exercise at any given moment. It may increase direct and compliance tax costs. It may even decrease the overall competitiveness of a state. Nonetheless, having the possibility of leaving the European Union is no more than an expression of the democratic nature of the European Union and an expression of the rule of law on which the European Union was founded. Any leave will have consequences both for the state that leaves and for all other Member States. It is up to each state (and the European Union) to adopt the measures considered more suitable for obtaining the best position out of this new scenario. This chapter aims to be a contribution to the debate that, if already lengthy, is only at its beginning.

Keywords: Taxation, Tax law, European taxation

JEL Classification: K33, K34, F13, E62, D78, E62, F02, F23, F42, H20, H22, H23, H25, H26, H87, O19, O23, O24