Italy cannot overnight stop transferring resources from the rich North to the poor South, even if this causes tax evasion. Problems could also occur if countries use taxes to pursue conflicting political ends. Imagine, say, that one country used tax incentives to protect the environment while another used taxes to subsidize road-building. The commission is pressing governments to adopt a joint position on so-called green taxes. Tax inequalities mean the single market is ''significantly underperforming,'' according to Mr. Monti.
Companies still face a taxation minefield when they do business across national frontiers.
For example, they have to deal with more than 200 different special arrangements and options concerning value-added tax alone. In the face of strong opposition, the European Commission is standing firm on a decision to abolish duty-free purchases in the EU from next year, saying that they create important distortions in the market. The commission recently advised governments to abolish cross-border taxes on interest and royalties for companies within the same group. At present, these companies often have to pay taxes both in the countries from which such payments are sent and in those where they are received. The commission said that only payments in the receiving country should be taxed.