IFA: Taxation Issues in a Federal State and Economic Groupings

One of the developments of the second half of the 20th century has been the formation of economic groupings to foster free trade among sovereign member states. These groupings fall short of being a political union as is the case with a federal state. However, in the area of taxation, there are issues that are common to both economic groupings and federal state with concurrent taxing authorities. The papers in this book were prepared for a panel discussing the subject at the 50th Congress of the International Fiscal Association held in Geneva in September 1996. The panel brought together participants from various parts of the globe. The federal states examined were the United States of America, Australia and Brazil. The European Union was the example of an economic grouping that was not a federal state. The discussions centred on four principles. The first was non-discrimination and the requirement that free trade could only be achieved if the individual member states were prohibited from using local tax measures to inhibit the free flow of goods and services within the zone. The second principle discussed is sometimes referred to as "locational neutrality", which would limit the ability of local taxing authorities to enact taxing measures which, for example, give tax incentives to enterprises of another member state and which result in distortions in the economy. The solution that is often advocated to avoid this result is harmonization of "national coherence". The third principle discussed was the enforcement and collection of taxes. The last principle discussed was the desirability of having the member states of the federal states or economic grouping uniformly bound by international commitments made by the central authority of the federal state or grouping.