Future of the EU Tax Mix with Dr. Irma Mosquera Valderrama

In July 2025, I had the opportunity to interview Dr. Irma Mosquera Valderrama, Full Professor of Tax Governance at Leiden Law School (Leiden University) and EU Jean Monnet Chair Holder on EU Tax Governance. Since September 2024, she has also been one of the representatives on behalf of the European Association of Tax Law Professors at the EU Platform for Tax Good Governance. Dr. Irma Mosquera Valderrama provides her academic (personal) views on the future of the EU tax mix. A lightly edited transcript from that interview is below. In her view, the EU’s lack of a clear and coherent direction in taxation shows the failure of the EU to generate legitimacy and trust among EU citizens, EU countries, and third, non-EU countries, in addition to the failure to increase the competitiveness of the EU in the global economy.

Sean Bray: How would you characterize the EU tax mix?

Irma Mosquera Valderrama: From my perspective, and when I see more of what is happening now in the EU and in the last couple of years since the 2008 financial crisis, with all the discussion on BEPS (base erosion and profit shiftingProfit shifting is when multinational companies reduce their tax burden by moving the location of their profits from high-tax countries to low-tax jurisdictions and tax havens.), fair taxation, highly digitalized business, taxation of wealth, and Pillar Two, I find it a little confusing.

It is not clear what the direction of the EU is. In the 1990s, it used to be a little more about business taxation—for instance, how we make sure that the EU will be attractive for businesses (small, medium enterprises, and multinationals). Since the international tax developments introduced after the 2008 financial crisis, the EU and EU institutions have changed their direction to follow these international tax developments. The result is initiatives to promote the exchange of information and administrative cooperation among tax administrations, to tackle aggressive tax planning by multinationals (including the introduction of the BEPS Project and the EU Anti-Tax Avoidance Directives), to achieve fair taxation worldwide by introducing the EU list of non-cooperative jurisdictions, and to address undesired tax competition by introducing the Pillar Two Directive, among others.

We also have a 2021 proposal with the UNSHELL Directive. After several technical discussions, compromise texts and notes, and re-drafting, the EU Council concluded in May 2025 that this proposal should not be continued, mainly due to substantial overlaps between this proposal and the Directive in Administrative Cooperation DAC 6. So, in my view, there are a lot of projects but no clear direction for what the EU tax policy is.

For instance, in EU discussions, they say we need to have wealth taxation. We need to have a corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax.. We need to achieve fair taxation. We need to achieve the simplification of tax rules and regulations. We need to deal with the multinational enterprises and the small and medium-sized enterprises, but how are we going to do all of that? It’s a package that lacks a little bit of clear direction.

Sean Bray: What improvements do you think need to be made in the medium term for a healthy, stable fiscal position?

Irma Mosquera Valderrama: I think it would be important to still think about what happens after COVID. What are the consequences for business, for enterprises? What is being done now? Because there was a moment of urgency, and we forget that COVID happened less than four years ago.

At the same time, it’s not clear how the EU is dealing with current challenges, such as climate change and EU competitiveness. One of the problems with the current EU initiatives, such as the Carbon Border Adjustment Mechanism (CBAM) and the Pillar Two Directive, is that these proposals may result in different outcomes than were initially intended. For instance, CBAM wants to encourage cleaner industrial production in EU countries and reduce carbon emissions. However, non-EU countries are also taking their own measures to respond to CBAM. In addition, CBAM does not consider the different levels of development of countries and their attempts at decarbonization. Furthermore, the EU should consider how to reduce carbon emissions from data centers due to the growth of AI and digital transformation, which is not addressed by CBAM. Therefore, in my view, the approach to carbon emissions should not be one-sided from the EU towards non-EU countries, but holistic and comprehensive to reduce carbon emissions in all sectors, as well as to achieve environmental sustainability.

Another example that is currently being discussed is the implications of the new side-by-side system of the Pillar Two Directive due to the United States’ response to the Pillar Two Directive, which has also been acknowledged by G7 countries. This new development may render this directive ineffective in dealing with tax competition. Due to these developments, Germany has recently questioned the usefulness of the Pillar Two Directive.

The current work of the EU Commission on tax simplification of EU rules and regulations does not address these problems above, and therefore, a more holistic approach linking tax, sustainability, and geopolitical developments is required. It may well be a matter of legitimacy. And maybe a matter of being transparent and being open or accountable. Those are also issues of governance that need to be taken into account by the EU. I think of the spending side: I see a lot of problems right now for citizens and businesses believing and understanding what the European Union is doing, and what the European Commission is doing, and how this is linked to enhancing EU business competitiveness.

There are many examples that show the lack of coherence and holistic approach towards EU goals, and that is one of the problems in the EU. In raising revenue, but also on the spending side, what are we doing? I just feel like if you are European and you are in the European Union, now it’s very difficult to feel like Europe is really helping all Europeans. In addition to that, we also have the EU standard of tax good governance that deals with non-European countries. Non-EU countries, including small island developing states, are asking why we need to do this. What is in it for me? It seems like these standards provide the carrot and stick approach, so either you comply with the EU criteria mentioned in the trade and economic partnership agreements, or you are mentioned on the list, which results in EU aid being suspended, among other consequences. Another problem is that only non-EU countries are mentioned on this list, which does not make this standard legitimate for these countries.

These concerns have also been addressed in the past in one article where I analyzed the challenges of EU direct taxation in the 2020s and the change of direction in EU taxation since the 2008 financial crisis. To analyze this change of direction, I use the analogy of a Darrieus turbine. I argue in this article that direct taxation in the EU is like a Darrieus turbine: relatively good efficiency, but it shows poor reliability, as it depends on external power to start, and it tends to be fatigue-prone due to the wide variation in applied forces during each rotation. The main reason for this analogy was that the tools to manage this change in wind direction are similar to a Darrieus turbine, which generates electricity, but it has failures in its design that make this turbine unreliable. As in the Darrieus turbine, the EU is facing obstacles regarding what makes the changes in the EU susceptible to extreme wind conditions. There are also difficulties in starting up, which depend on external forces, resulting in poor reliability and a tendency to be fatigue-prone due to the wide variation in applied forces during each rotation.

The first element is that, in general, this turbine—like direct taxation—has a relatively good efficiency. For instance, this is the case for introducing the Anti-Tax Avoidance Directive (ATAD 1 and 2) and the changes to the Directive in Administrative Cooperation. These instruments are applicable not only to EU countries, but also to third, non-EU countries. As in the Darrieus turbine, however, direct taxation is not protected from extreme wind conditions. The wind conditions in direct taxation are decided by the OECD, G20, and countries such as China, India, and the United States, which are very active in these organizations. These wind conditions also lack coordination. For example, in the taxation of highly digitalized businesses, there are several multilateral (Pillar One, UN First Protocol to the Framework Convention) and also unilateral initiatives (digital service tax, etc.), which create problems for the self-starting of these initiatives within the EU and at the international level. For instance, the implementation of these rules and the trade retaliations from the United States for countries with a digital service tax is an example of the difficulty.

The second element is the introduction of the EU Standard of Good Tax Governance, including the list of non-cooperative jurisdictions, which has shown the poor reliability of these initiatives because civil society and the EU Parliament are questioning EU countries’ compliance with the list of non-cooperative jurisdictions. Third, non-EU countries are also questioning the usefulness of the standard of fair taxation in the EU based on the Code of Conduct of Business Taxation, which is not enforceable within the EU by its own nature. This fact requires further analysis regarding the value of this Code of Conduct and on the need for changes to this process on black-listing and negotiations of the Standard by the EU vis-à-vis third, non-EU countries.

The problems in the design of the Darrieus turbine make this turbine susceptible to being fatigue-prone due to the wide variation in applied forces during each rotation. This fatigue can result in cracks at stress levels that can lead to failure, damage, or the destruction of this turbine. In the EU, the different proposals and changes to these proposals show the wide variation in applied forces and that there are cracks in these initiatives. A more recent example is the position of Germany regarding the Pillar Two Directive and the position of the EU regarding the work carried out by the UN, including the usefulness of the UN Framework Convention and its two protocols.

These problems and concerns from EU countries should be addressed, or the result could be failure of the EU initiatives because countries will not commit to these initiatives. Some third, non-EU countries may decide to comply on paper with these initiatives, resulting in mock compliance because the changes will not be enforced in practice. Therefore, I recommended in 2020 that the EU institutions and EU countries evaluate which changes are needed to provide a balance between the need for competitiveness and generating legitimacy and trust for countries and taxpayers. This recommendation is still applicable to the EU, and even more important today, in light of the new developments in the United States, the new role of the United Nations in tax cooperation, and the current developments following the adoption of the EU Green Deal.

Sean Bray: What effect has the BEPS Project had on international tax competition? What effects could come about within the EU due to Pillar Two implementation?

Irma Mosquera Valderrama: I make a distinction between BEPS and tax competition because, in principle, BEPS was about the profits, profit shifting, base erosion—and was not dealing with tax competition issues per se. And that’s one of the problems that we have, because only what is harmful tax competition will be included in the BEPS in Action 5.

We see that a lot of countries are now introducing these minimum standards on BEPS in more than 145 jurisdictions. We are talking about multilateral instruments. But if we see what happens in BEPS from the moment they started with the project in 2013, and in 2015, with the BEPS inclusive framework, we see that there are problems of legitimacy and inclusiveness for developing countries, as it has been highlighted by countries, regional tax organizations (e.g., ATAF), civil society, and scholarship. The result is the discussion initiated in 2022 with a UN General Assembly Resolution on the promotion of inclusive and effective international tax cooperation at the United Nations. Following this resolution, the Terms of Reference for a UN Framework Convention to achieve a fully inclusive and more effective international tax cooperation were drafted and adopted by the 2024 UN General Assembly Resolution. In addition to this Framework Convention, two protocols will be drafted: protocol 1 on the taxation of income derived from the provision of cross-border services in an increasingly digitalized and globalized economy, and protocol 2 on the prevention and resolution of tax disputes. The text of this Framework Convention and two protocols is currently under discussion at the UN Intergovernmental Negotiating Committee in a Member State-led process from 2025 to 2027.

But then the question is, will the BEPS Inclusive Framework, the UN Framework Convention, and its two protocols be successful in achieving inclusive and effective tax cooperation? I think that BEPS helped countries and tax advisors change their mindset a little. So, it was not only about raising revenue or attracting investment, but also about tackling base erosion and profit shifting by multinationals. However, there is still a lot of work to be done for the BEPS Inclusive Framework to be effective in tackling aggressive tax planning. As I have addressed in the past in the framework of the GLOBTAXGOV Research project, there are input (participation, representation in the decision-making process) and output legitimacy (outcome effective to tackle aggressive tax planning and achieve the sustainable development goals) deficits of the BEPS Inclusive Framework, despite the number of countries committing to this BEPS Inclusive Framework. The lack of input legitimacy was also acknowledged by the OECD, resulting in the creation of a co-chair (from a developing country) of the BEPS Inclusive Framework.

Furthermore, in another article, I investigated the introduction of the BEPS 4 Minimum Standards and its peer review process in seven countries participating in the BEPS Inclusive Framework, concluding that “there is throughput legitimacy deficits (i.e., lack of transparency, openness, inclusiveness) in the peer review process and that they should be addressed by the OECD and countries participating in the BEPS Inclusive Framework.” In some cases, there was no clarity about whether and how the BEPS 4 Minimum Standards were implemented, and in some cases, there were delays in their implementation without any reason. Therefore, I recommended that the OECD Secretariat and the BEPS Inclusive Framework improve the governance of the peer review process. This could be done by ensuring that the process has more accountability, transparency, and inclusivity, and is open to all stakeholders.

The discussion of the legitimacy of the OECD vis-à-vis non-OECD countries, including developing countries, has resulted in the current process at the UN Framework and its two current (under discussion) protocols.

The problem that we do have is that now we say, well, if we are dealing with this, then let’s deal with something else. And the something else is tax competition. And in my view, tax competition with Pillar Two, by the EU adopting the Directive on Pillar Two, and having other big countries that are not going to do it or may not do it, then the EU is limiting itself. To this, there is a question of legitimacy about the way Pillar Two was adopted. I remember two years ago, an EU official said, well, if we do not get a unanimous agreement on the EU Directive for Pillar Two, we will make use of the adoption of this directive through enhanced cooperation. At that time, Hungary and Poland were vetoing the adoption of this directive. But thereafter, we got an agreement with Hungary and Poland having other kinds of retribution (the EU acknowledged these countries’ compliance with the rule of law and released the COVID aid, and so forth). This situation also shows the lack of legitimacy considering that this directive came into place.

But as long as we do not have, for instance, the United States adopting Pillar Two, we may not have any success in this. Time has shown that the United States has been successful in creating its side-by-side system next to the OECD Pillar Two and the EU Directive. And, at the same time, you see that European countries and non-European countries, including developing countries, are struggling with the complexity of the Pillar Two rules, and the application of the QDMTT, UTRP, and STR rules, among others.

But the question is how countries, including EU countries and developing countries, can still attract investment by having a minimum (15 percent) tax rate. If the source country does not introduce the 15 percent rule, the country where the multinational is located (residence) will do it. But is this fair if the multinationals are mainly located in developed countries? Will the developed countries transfer some of their taxes to the developing countries?

So, with this kind of discussion on the minimum tax rate, it is difficult to address the true problem, which is the role of tax incentives, and whether tax incentives are still necessary to attract foreign direct investment and to enhance competitiveness. I find it difficult because the tax rate diverts attention from countries to discuss what makes a good tax incentive, and to properly think about what type of incentives are needed, how transparency of tax incentives can be enhanced by including tax expenditureTax expenditures are departures from a “normal” tax code that lower the tax burden of individuals or businesses through an exemption, deduction, credit, or preferential rate. However, defining which tax expenditures grant special benefits to certain groups of people or types of economic activity is not always straightforward. reports, and so forth. So, it takes a little bit of discussion because once you go to countries and you start talking about tax incentives and what needs to be done, the only thing government officials are worried about is how to implement Pillar Two because that’s what they’re being forced now to think about. So, in my view, there is still a lot of work to be done, and that’s one of the reasons why we are having the current negotiations for a UN Framework Convention and its two protocols, because the countries are not happy with the way that international tax cooperation is taking place. But it is unclear is the UN will be able to solve the underlying problems. Because that’s also another problem. You see how difficult it is sometimes to reach an agreement. Time will tell, since the UN process just started, and it is expected to end by 2027.

Sean Bray: What should the EU’s role in the future of international tax system policymaking be? How will this role affect domestic tax policy in the long run?

Irma Mosquera Valderrama: I think internally the EU still has the problem of unanimity, and also that in direct taxation, the rules are introduced through a directive that needs to be transposed into national legislation. So, in that sense, all initiatives that the EU is going to take in terms of direct taxation will be limited by these two features. And that means that you will have to negotiate with the countries for unanimity. And at the same time, the directive gives more power to the other countries to do more because with the directives, you can do more, but you cannot do less.

One very good example was when the EU implemented DAC 6, following  BEPS action 12 (disclosure of aggressive tax planning arrangements). Because it was very difficult to define what a reportable tax arrangement was. And therefore, there were a lot of uncertainties regarding what reportable tax arrangement the tax intermediary may or may not notify. The result is more uncertainty for business, intermediaries, and tax administration in general.

Now, with Pillar Two, we do have some rules. The EU says we do not want to deviate so much from the OECD. I do believe, because of these limitations, the EU will say, well, if it comes from the OECD, then we, the countries, are already members of the OECD, so therefore we can implement it easily. But then I think that there is a lot of pressure also, for instance, in the role of the EU Parliament and its FISC subcommittee saying we need to be more transparent. So, there is a political issue there, to be more transparent. We need to tackle tax havens, including some European countries as tax havens.

So, this also brings more politics to the tax discussions because the fact that the EU Commission must go there and explain, “actually, what we mean is this and this,” to the EU Parliament and its FISC subcommittee. Sometimes there are discussions that are parallel: one at the EU Commission level, and another one (public hearings) at the EU Parliament FISC subcommittee level. If one example can illustrate this, it is the 2021 EU Parliament resolution to reform the EU list of tax havens to include EU countries. In this resolution, the EU Parliament highlights the lack of transparency of the EU listing process, and calls for a formalization of the role of the Parliament in relation to the Code of Conduct Group, “including with regard to governance and the criteria of the listing process, such as through an opinion-giving process.” In another 2022 resolution addressing the taxation of highly digitalized businesses (Pillar One), the EU Parliament urged the Commission to revisit the prospect of unilateral action (digital service tax) in case of no agreement being reached on Pillar One by 2023. Until now, the EU Commission has not followed this recommendation.

Another example of different approaches, different speakers, and different outcomes is the recent public hearings on Pillar Two and decluttering organized by the EU FISC subcommittee. These discussions are also being addressed at the EU Platform for Tax Good Governance (September/December 2024 and March 2025). Furthermore, if we see what the role of the EU with respect to the UN framework and the discussion at the UN is, I found that it’s now very passive because, in principle, if you follow the discussions from the UN, the EU countries were opposing it. Thereafter, the EU abstained when voting on the UN Terms of Reference for a Framework Convention, and currently it participates in the intergovernmental negotiations, but still with some reservations. Therefore, it is not really clear what the EU countries and the EU Commission are doing. So, they just did something because they needed to do it. But the question is, will the EU be an important player in those UN developments? I don’t think so.

I think more will be about the countries. Some countries that are already very active at the UN Tax Committee—for instance, the Netherlands—participate in their national capacity, but these countries may be more interesting or more helpful or more useful in these discussions. Also, other non-EU countries, such as countries from the African Group, India, and China, among others may be more active. The United States decided in February 2025 to leave the intergovernmental negotiations and invited other countries to follow its lead. In my view, with the UN focusing more on protocol 1 and 2 (workstreams II and III) rather than on the text of the Framework Convention (workstream I) which is mainly (as of July 2025) focusing more on the (substantial) commitments for the protocols, the countries in these UN intergovernmental negotiations will miss the opportunity to develop a governance framework to ensure legitimacy, garner inclusive and effective participation, and enhance capacity building. Peter Hongler and I have addressed these in our comments to the consultation on UN workstream I.

So, you need a lot of negotiators and an understanding of what this UN Framework Convention and its protocols will look like. You need people with different expertise and this is what a country like the Netherlands, for instance, can provide as their staffers have a lot of experience in investment treaties, tax treaties, and international negotiation. However, in the EU, the idea is more to help with capacity development—for instance, by contributing to the Addis Tax Initiative—but the EU could do more than that, by offering support and technical expertise to developing countries to participate in these UN intergovernmental negotiations. So, it is not a matter of abstaining, or just being present but without any commitment. EU institutions and EU countries can help other countries, but this requires more engagement in the UN intergovernmental negotiations.

So, the EU commitment should be global, and not only with aid, but with support in negotiations. Since 2024, there has been a new mandate for the EU Platform for Tax Good Governance, but how will this Platform also help developing countries? Especially considering that the UN Framework Convention and its two protocols will be developed, will be made, will be written one way or the other.

I’m very curious what is going to be the role now of the EU, the EU Commission, and the EU Platform of Tax Good Governance. To my knowledge, until now, it’s not that strong. It’s more the US, for instance, or India, or China. But the EU has not been so successful as such, as a supranational entity. One example that also shows this is the dissatisfaction of some EU countries with the new (July 2025) US-EU trade deal.

Sean Bray: What do you think would make the future of the EU tax mix fairer internally and externally?

Irma Mosquera Valderrama: Actually, that’s a very good question because in the last two years we wrote an article on tax fairness, and we need to discuss fairness for BEPS and developing countries. Before discussing the fairness of BEPS, we need to define fairness first. And we look at it from a philosophical, economic, legal perspective, and so forth. More recently, every time I’m discussing international tax, either here in the Netherlands or somewhere else at a conference or teaching in another country, it becomes an issue of fairness.

In the EU tax mix, Tax Foundation says efficiency over fairness. But I have the feeling that all the discussions we are having are about fairness. When you come back to Pillar Two, it’s about fairness. When you talk about BEPS implementation and the BEPS review, it’s about fairness. And I find that every time fairness becomes more of the underlying concept that no one defines but everyone has to consider, and we don’t know what we need to do with it. So, for me, the EU needs to be very clear about what fairness is and what it wants to achieve.

Because you say, for instance, we want a competitive, sustainable, and fair tax system, but what does that mean? And the EU is very good at using words like the OECD that sometimes do not have any meaning. So, in terms of fairness, I think that there is that underlying concept, and we need to take into account that most of the discussion we are having right now is about fairness without even knowing what that is, and then it’s not about the technicalities, it’s not about how you deal with the participation exemption, for instance, or how you deal with the double taxationDouble taxation is when taxes are paid twice on the same dollar of income, regardless of whether that’s corporate or individual income. as such, because it’s resident sourced, but it’s about the fairness, how you distribute the revenue fairly. So, it’s not about the principle itself. The principle is a measure to distribute fairly. But what does it mean? So then, in that sense, fairness is still very important.

Sean Bray: How should the EU make tax policy more legitimate in the lens of input, output, and throughput legitimacy?

Irma Mosquera Valderrama: I’ve been working a lot with input, output, and throughput legitimacy. And the reason is that when we look at the validity of international standards, either by the OECD or by the EU, you need to look at the validity in terms of what. And I thought it would be legitimacy. And then you look at the BEPS Project, but also you look at the EU standard of tax good governance. The question is to what extent did the countries participate and were represented on this and the EU standard? You may say, well, actually, the transparent exchange of information and BEPS were decided by the OECD, so the EU just took it. But the issue of fair taxation within the EU is one concept that has been developed by the EU.

And it started with the Business Code of Conduct. And then after you see that every time we talk about fair tax competition, fair taxation, fair taxes, but we don’t know what it means. However, the EU is using this concept of fair taxation to create a list of non-cooperative jurisdictions. So, the question is to what extent this fair taxation really has input and output legitimacy. If you say the output is good for you because it helps you to achieve the sustainable development goals for countries, the output is good for you because, for instance, if you have the EU standard of tax good governance, you can raise more revenue and achieve the 2030 Sustainable Development Agenda, and also the country can benefit from the trade and/or economic partnership agreement and EU development aid. However, it is not clear whether countries can really benefit from these agreements or aid, and if perhaps the solution of introducing BEPS, fair taxation, and transparency may result in more work for the tax administration, as well as the concerns regarding the legitimacy of the EU list of non-cooperative jurisdictions, which is currently only applicable to non-EU countries. Interestingly, in the February UN intergovernmental session on the UN Framework Convention, some small islands also addressed the legitimacy of the list of non-cooperative jurisdictions, and their effect on these islands that have limited resources and capacity to implement all these changes that are required by the EU.

We talk about the fairness of the tax system, the modernization of tax systems, public finance, and all this, but we don’t know what to do with it. So, in terms of output, it’s not clear whether these standards, either by the EU or by the OECD, even imported or exported, are really good for the developing countries. And one thing that we forget, and that I think that the EU, developing countries, and EU countries need to address, is policy coherence. Because if you look at it, the EU says this is a policy coherence for development. And we have some countries like the Netherlands and Belgium that also have a policy coherence.

So, they say how they want to do it for developing countries. But then, when you look at the country itself, like Ghana or Zambia, what does the country need? And there is a lack of country ownership in this policy coherence, so in the end, the EU decides what policy is needed to achieve sustainable development, but it should be about what the developing countries need and require. I think that we need to align EU policy coherence with the developing countries’ needs. That is not a political issue. It’s more about what the country needs and how it can achieve its sustainable development goals. And the policy coherence should consider the 2030 sustainable development agenda, and the 2063 African development agenda, because that’s something that we don’t consider in a comprehensive way.

So, this kind of work is also interesting to see in the input and output—how we link the two. And then if you talk about throughput, then the question is about the process. Of course, we also know how the EU decisions are being made with the directors and how the process is transparent.

To sum up, in respect of developing countries, to increase the trust of developing countries in the EU, the time is now for the EU to move from aid towards effective policy coherence, and to contribute to giving a voice to developing countries in international negotiations.

At the EU level, the EU needs to have a clear direction, which includes clear goals, objectives, and alignment between EU countries and EU institutions. The result will be more legitimacy and trust among EU citizens and EU countries, and more competitiveness for the EU in the global economy.

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