Taxes on the revenue of undertakings (firms, companies, businesses) and private individuals, which are not incorporated in cost prices or selling prices and the rate of which is often progressive, may be regarded as direct taxes. The treaty of Lisbon, following previous European treaties, does not deal with direct taxes and does not call for their harmonisation or even coordination. The two important categories of direct taxes are income tax and capital gains tax.

Whilst the harmonisation of indirect taxes was necessary from the outset to avoid obstacles to trade and to free competition and later to make the removal of fiscal frontiers possible, the harmonisation of direct taxes was not considered indispensable at the common market stage. It gradually became clear, however, that the free movement of capital and the rational distribution of production factors in the Community required a minimum degree of coordination of direct taxes. In effect, the convergence of Member States' economic policies [see section 7.3.1] necessitates a coordination of the fiscal instruments used by them. Likewise, the global competitiveness of European businesses requires that the taxation of companies operating in several Member States does not place them at a disadvantage in relation to their competitors restricting their activities to the purely national level. The Commission had tabled proposals to this end in 1969, right after the realisation of the customs union. The Council needed 21 years of debate (!) before it could approve these proposals, vital for transnational cooperation and company mergers in the single market.