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The correct functioning of the European Union Single Market requires the elimination of discriminatory or protective internal taxation of goods. This paper aims to provide an overview of developments in indirect tax harmonization within the European Union (EU).

The approach is to provide a history of tax harmonization and a description of the present functioning of the system within the EU.

The paper illustrates that through partial harmonization of indirect taxes (value‐added tax and excise duties) the EU has reached a considerable degree of fiscal neutrality. The attitudes of Member States suggest that closer harmonization (or even unification) of tax rates may not be considered.

The paper provides a summary of the progress of tax harmonization in the EU.