Comparative Study of Tax Harmonization and Tax Coordination in Federal Countries

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The purpose of this report is to examine tax harmonization and tax coordination. The following points have been found.1. The manner of vertical tax coordination differs considerably according to the federal countries, In the USA, tax coordination is achieved by deduction of state taxes from federal tax liabilities, in Canada by the federal-provincial tax collection agreements, in Switzerland by the restriction of the federal government s power in the Constitution.2. The manner of horizontal tax coordination also varies widely. In Switzerland, intercantonal double taxation is avoided by the exemption method. If both federal and state governments can levy their own taxes, the problem of double taxation among federal and state level occurs. This problem can be avoided by tax harmonization. In Germany and Canada, tax harmonization in which the same tax base is adopted by both federal and state level is accompanied by horizontal coordination, that is, a system of revenue-sharing or equalization payments.3. The examination of tax harmonization and tax coordination teaches us that, in Japan, redistribution of income tax among central and local governments is necessary in order to establish the accountability of local governments and, in such a case, tax harmonization and tax coordination is important in order to achieve efficient fiscal arrangements.