The Future of EU Tax Differentiated Integration

Tax is a microcosm of the issues surrounding differentiated integration in the EU and the post-Brexit landscape. The UK could seek to diverge from EU rules, avoid the EU’s desire for a level playing field and distance itself from regulatory alignment by becoming a form of tax haven. This could extend to VAT and customs duties, in relation to which the UK could seek to avail itself of the opportunity to increase its flexibility on VAT rates and alter the tax base. The EU’s contrary desire not to turn a partner into a competitor, provides an opportunity to offer some flexibility to the UK in order to maintain a close relationship. These issues as to how far to diverge and how far to align relate to the fundamental issues of state sovereignty and territoriality. This paper drawing from historical sources considers the role of tax harmonisation in the EU in the context of the minimum harmonisation mechanism for differentiated integration.