Europe has built a system of free movement for goods, capital and people. Yet it still taxes and administers cross-border activity. The result is a quiet but persistent penalty on firms that want to scale across borders, on workers who live and invest internationally and on administrations trying to enforce rules in a digital economy.
The solution is not a European Taxpayers' Code — as proposed by the European Commission — nor it is a full harmonization of rates. It is tax interoperability: common technical and operational frameworks that allow national tax systems and authorities to function seamlessly across borders.
Four steps can be taken to deliver immediate gains for companies of all sizes, including startups and scale-ups: common minimum standards for digital tax services, shared data formats and interfaces, stronger capacity to use that data effectively, and clearer definitions and valuation rules for internationally mobile assets.
These measures would not replace structural reforms. They would reduce friction already today and would make deeper initiatives, including a future 28th Regime, easier to implement and more effective.
The costs of European fragmentation
The most basic symptom is the sheer divergence in compliance burdens. For a medium-sized company, annual time spent on tax compliance can range from around 50 hours in Estonia and Luxembourg to above 400 hours in Bulgaria.
That gap shapes decisions on where to incorporate, where to hire and whether to serve customers in different countries from a single headquarters. Fragmentation hits smaller firms hardest because fixed compliance costs do not scale down. For startups seeking pre-seed and seed funding it is also a growth constraint, as founders and investors consider the complications of dealing with different national tax systems long before a company matures.
The same pattern appears in value-added tax and invoicing. Businesses face different registration rules, invoice formats, filing frequencies, audit requirements and, increasingly, national e-invoicing. That pushes firms into setting up different arrangements in each country and discourages cross-border commerce.
Fragmentation is even more costly when the tax base is mobile and digital.
Crypto-assets are the clearest example. Member states still differ on classification, timing of taxation, reporting requirements and enforcement capacity. That creates unequal treatment and incentives to locate activity in the most lenient regime.
Conservative estimates suggest that realized crypto capital gains in the EU were around €16 billion in 2024, translating into roughly €4-5 billion in potential tax revenue under current national rates.
Wealth and asset-based taxation raise a similar single market problem.
Differences in definitions, valuation practices, exemptions and information verification — including access to cross-border asset data — matter more when wealth can be structured and moved across borders more easily than administrations can coordinate.
Four steps to aid European companies
Brussels treats tax coordination as politically radioactive: it requires unanimity, touches on sovereignty and generates inflammatory headlines. All true. But this reflex has become an excuse for inaction in areas where European Union involvement is both feasible and economically justified.
What common rails would make national tax systems interoperable?
First, set minimum standards for digital tax services across the EU. Taxpayers and firms should be able to rely on secure digital identity, e-filing and e-payments, regardless of where they operate.
Second, standardize key data formats and interfaces, starting with VAT and e-invoicing. Cross-border activity should not require maintaining 27 incompatible workflows. Common data fields and APIs would cut costs and support enforcement.
Third, strengthen the capacity to use exchanged data, especially for crypto-assets. Exchange is meaningless if some administrations cannot process, cross-check and act on it.
Finally, for asset-based taxes, promote narrow common definitions and valuation principles. This would reduce legal uncertainty and arbitrage for mobile tax bases, while leaving rates and redistributive choices at national level.
If Europe wants scale, it must remove the penalties for scaling. Tax interoperability will never be a crowd-pleaser, but this is where competitiveness is quietly won or lost. The choice is between a single market that works in practice and one that exists in speeches.
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