Tax policy in the European Union consists of two components: direct taxation (tax on income), which remains the sole responsibility of member states, and indirect taxation (tax on spending), which affects free movement of goods and the freedom to provide services. With regard to direct taxation, member states have taken measures to prevent tax avoidance and double taxation. However, the level of taxation depends on the member state and not the EU. Tax policy ensures that competition between member states on the internal market is not distorted by differences in indirect taxation rates and systems. Unless an indirect tax creates a distortion in the internal market, the member state is free to set its own policy as well.

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