Taxation: 2021 Annual Report highlights the contribution of taxation towards a more innovative, business friendly and healthier EU

The European Commission has published the 2021 Annual Report on taxation, a yearly review of Member States’ tax policies and their contribution to the priorities of the EU, such as the twin digital and green transitions, social fairness and prosperity, or combatting tax fraud. Annual tax revenue in the EU was stable in 2019 across Member States, with slight reductions in the average tax burden on labour and average corporate income tax from 21.9% in 2019 to 21.5% in 2020. Member States have continued to introduce new tax measures to support innovation and productivity, address the corporate debt bias and reduce the time it takes to comply with taxes. The report found that while environmental taxation can be a useful policy tool to help achieve climate and environmental policy goals and contribute to the economic recovery, the report shows that it is still underused in many Member States. Several EU Member States have raised taxes on tobacco, alcohol, and soft drinks to improve public health. The report also highlights that most Member States have introduced some measures to tackle aggressive tax planning but much remains to be done, notably in view of the current crisis. The report also pointed out that the COVID-19 pandemic forced Member States and the EU to react with an unprecedented range of measures, including tax measures and direct support for households, businesses and the health sector. These helped cushion the impact of the crisis, providing liquidity to the hardest hit businesses and households and mitigating the adverse economic impact of the public health confinement measures introduced by Member States. Against this backdrop, taxation policies can be an integral part of policy measures to support the recovery after the COVID-19 crisis. The analysis described in this report is used in the context of the European Semester. The full report is available here.