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revenues in OECD countries continue to grow as a percentage of GDP. These figures contradict the so called 'race to the bottom' in Europe and show that states can still collect tax revenues and even to an increasing extent (Lupi, 2008)

This fear is based on international efforts to harmonize tax systems based on the defensive proposal of France and Germany, in 2004, establishing a uniform, standard rate of taxation of corporate profits in the European Union. Similarly, Article 111-70 of the draft Constitutional Treaty provides that the economic policies of the Member States should contribute to the objectives of the Union, providing the legal basis for the ECJ (European Court Justice) to require Member States to fiscal harmonization in broad scale

It should also be understood that tax harmonization is costly. The taxation causes three types of distortions (Bettendorf et all, 2009):

First, distortions within the tax system, secondly, distortions between regions or multinational State formations such as the European Union, third, distortions between these clusters and the rest of the world. Excessive taxation can hurt the economy making it unemployment more attractive from work and redirecting resources to lower economic efficiency

Tax harmonization in the European Union could compensate the second of the distortions mentioned above, but simultaneously increasing the other two.

Tax Harmonization in the context of the internal market

The importance of tax harmonization for the Single Market

Although fiscal policy remains closely linked to national priorities and constraints. Gradually, the EU tax extended to direct taxes (for which the Treaty of 1958 did not contain any indication).

The harmonization of fiscal policy requires from Member States not only to refrain from measures of negative tax discrimination against other members, but requires positive measures, legislative and administrative, to unify the characteristics of national tax systems similar in order to deal with tax issues uniformly across Europe (McLure, 2005)

After all, by achieving this goal, growth and employment is promoting and overall integration of the internal market. Failure to achieve this, however, will result in sub-optimal allocation of investment resources within the EU and weaken the international competitiveness of European economies (S?rensen, 2001).

The international tax competition makes it difficult to promote harmonization at a European level. In this context of the erosion of the tax burden to businesses because of the increasing international mobility, the agreement to reduce tax rates across Europe is difficult for those countries that traditionally impose high charges in the capital and not applicable for those countries that chose drastic to cut them as an aggressive policy to attract investment.

Harmonization of corporate taxation in the EU & recent developments

The harmonization of corporate taxes at a very early stage. Although all the relevant EU measures can be effectively integrated into a single general direction, the size of the actual outcomes is still far below the requirements of a well functioning internal market.

As it happens in the international level, the observed delay may well be explained by the persistence of the Member States to addre