Tax competition and tax harmonization have become a hot issue after the latest accession
of ten countries to the European Union as on 1st of May, 2004. However it has been debated vigorously at the various international and national forums at least since the OECD report published in 1998. The European Union went through a few stages of tax harmonization and the major achievements were accomplished. But the problem of tax distortions and of harmful versus fair competition in taxation systems is coming back. There are many dimensions of this debate: economic, legal, constitutional, administrative,
and political. One may say that only comprehensive approach to this debate is appropriate. My objective is much more modest. The main objective is to provide analysis of the current progress on tax harmonization in the EU from the economic point of view, and to discuss the future prospects in this field.