Corporate taxation in the EU: From politicization to policy change


Recently, the European Commission announced plans for ‘a robust, efficient and fair tax framework’ that should get business taxation up to speed with the 21st century. It includes proposals for a single set of corporate tax rules in the EU with ‘fairer allocation of taxing rights between Member States’, greater public tax transparency and a digital levy. Why so many big plans for corporate tax reform in the EU, and why now? We argue that they should be understood as the logical outcome of a wider trend that originated about 10 years ago. Over the past decade, the European Union’s (EU) corporate tax policy has undergone a substantive change and seen increased levels of coordination. In the 1990s and 2000s, EU corporate tax policy formed part of a broader ‘market-making’ integration agenda. This changed in 2012 with the Commission’s ‘Action Plan for a more effective EU response to tax evasion and avoidance’, which included new market-correcting measures aimed at transparency and ‘tax fairness’. Importantly, the form of the adopted measures also changed from a soft-law approach towards a more hierarchical mode of governance that increasingly relies on hard-law and coercive mechanisms. In our article for JCMS, we explain this policy change by exploring the recent politicization of corporate taxation in the EU. In a politicized context, the proactive agency of EU supranational actors in close interplay with non-governmental organisations (NGOs) emerged as the driving forces behind this change.

First, we are interested in capturing how the politicization of corporate taxation unfolded. Politicization is generally understood as a process where issue salience increases, a growing range of collective actors are involved, and their respective positions become more polarized. The financial crisis and its aftermath had a major impact in this regard. Governments were not only facing an acute need for public revenues, but also growing feelings of injustice and public outcry over tax abuse during times of significant budget cuts and other austerity programmes.

A series of prominent tax scandals put the spotlight on tax havens, and not just remote tropical islands. The work of investigative journalists exposed the central role of EU member states, such as Luxembourg and the Netherlands in the tax avoidance schemes of multinationals and rich individuals. Among the many tax scandals, a true game changer was Lux Leaks:  it was made public in November 2014, only a few days after Jean-Claude Juncker — considered by many as the mastermind behind the Luxembourg tax system — took office as President of the Commission. For the first time, these revelations pointed out the wrongdoings of not only the usual suspects (multinationals and tax advisors) but also EU member state governments, legislators, and tax authorities. In the public eye, these entities were no longer seen as victims but as partners in crime.

A growing range of actors in the corporate tax policy arena problematized issues of tax competition, avoidance, and injustice, thereby increasing polarization. While until the mid-2000s, EU corporate taxation was mostly a concern for business and expert communities working closely with the Commission, this is no longer the case. The previously dominant view represented by business interests, prioritizing the removal of tax barriers and increasing efficiency, is now challenged by a constellation of increasingly knowledgeable and engaged NGOs, such as Eurodad, the Tax Justice Network and Oxfam.

In a next step, our article therefore explores the agency of these social forces as well as the Commission and Parliament as supranational actors to better understand how they (re)acted within the politicized context. Tax activists and NGOs capitalized on several institutional opportunities. They started to get invited as members of EU expert groups, and increasingly responded to public consultations. Both the Commission and Parliament actively strengthened the tax research capacity of tax activists and NGOS, for example by organizing trainings. The establishment of the EU tax observatory in 2021 – led by French economist and tax justice advocate Gabriel Zucman – is the latest joint initiative facilitating the institutional access of NGOs. New discursive opportunities also emerged. NGOs’ ideas of tax transparency and fairness have grown in popularity: long dismissed as being unreasonable, measures such as the public disclosure of tax-related information by multinationals (known as country-by-country reporting) are now becoming reality.

It is clear that the Commission and Parliament actively opened up new opportunities. At the same time, both institutions were also enabled by the politicized environment to push for a different policy agenda. The Commission reframed its tax policies to align with the increasing salience of tax evasion and tax avoidance. It also strategically started to publicly name and shame member states that obstructed negotiations in the Council or whose tax regimes facilitated tax avoidance. The Parliament, simultaneously, went through its own process of knowledge building by setting up special investigation committees. Through their expertise and committee work, forces within the Parliament strategically supported the Commission’s agenda and pressured the member states in the Council. The Parliament, on several occasions, also nudged the Commission into developing an ambitious approach. This closer relationship between the Parliament and the Commission was facilitated by the congruence between the ambitions of the forces within the Commission in this specific field and the rather progressive ambitions in the Parliament. Moreover, the actors share a pan-European, supranational logic (in contrast to the intergovernmental character of the Council). This resulted in a new constellation, with the Commission and Parliament joining forces against the Council.

This process of ‘politicization at the top’, originally developed by Vivien Schmidt,  was crucial in overcoming the inertia characteristic of the EU in the taxation field  ̶  typically associated with the unanimity requirement in the Council. It played a key role in the mechanism linking politicization to actual policy change. As such, our article shows that politicization does not have to be a constraining factor often resulting in disintegration, populism, and Euroscepticism. It can also lead to the introduction of progressive elements in the further deepening of European integration. Corporate taxation is still a highly politicized topic, and the current global health crisis and political-economic consequences of the Covid-19 pandemic have only reinforced this process. At least when it comes to taxation, nothing but political will is standing in the way of a progressive way out of the current crisis.

This blog draws on our article Policy Change in Times of Politicization: The Case of Corporate Taxation in the European Union



Aanor Roland is a PhD Researcher in political science at the University of Bielefeld. Her research focuses on the evolution of EU corporate tax policy since the crisis.

Twitter: @AanorRoland

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Indra Römgens is a PhD Researcher at Radboud University in Nijmegen. She is working on a research project titled “The politics of corporate tax harmonization in the EU”.

Twitter: @IndraRomgens

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