The potential of direct taxation as a key issue for the European Union (EU) is high, as noted by the plethora of studies on taxation in the single market (Devereux and Pearson, 1989; European Commission, 1992; Bond et al. 2000; CEPS, 2000). Yet up until a few years ago, even the reader of the specialised textbooks on EU politics and policy-making would have hardly noted its presence. Over the last six years or so, however, the theme of harmful tax competition has reached the front page of the popular press. Not only has tax policy reached agenda status, but also, following a long period of inertia, in December 1997 ECOFIN, the Council of Economic and Finance Ministers of the EU, was able to agree on a comprehensive tax policy package. The latter includes a code of conduct against harmful tax competition in corporate taxation, the revision of fiscal aids in the light of competition policy, and a commitment to finalise directives on the taxation of savings and cross-border interest and royalty payments between associated enterprises of different member states.