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EU Tax Policy Strategy
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The European Commission's tax policy strategy was most recently set out in
a Communication of 23 May 2001 on "Tax policy in the European Union - Priorities
for the years ahead" (COM (2001) 260). See also the press release IP/01/737
and frequently asked questions MEMO/01/193).
The Commission in this Communication reiterated its belief that there is no
need for an across the board harmonisation of Member States' tax systems. Provided
that they respect Community rules, Member States are free to choose the tax
systems that they consider most appropriate and according to their preferences.
In addition, any proposal for Community action in the tax field would take full
account of the principles of subsidiarity and proportionality. There should
only be action at EU level where action by individual Member States could not
provide an effective solution. Many tax problems might, in fact, simply require
better co-ordination of national policies.
Within this framework, this Communication established as a main priority for
tax policy that of addressing the concerns of individuals and businesses operating
within the Internal Market by focusing on the elimination of tax obstacles to
all forms of cross-border economic activity, in addition to continuing the fight
against harmful tax competition.
This focus on the taxpayer was linked to the Commission's general objective
of ensuring that tax policy supports wider EU policy goals, such as that established
at the Lisbon European Council of March 2000 of making the Union the most competitive
and dynamic knowledge-based economy in the world by 2010 and EU objectives in
the environmental and energy areas. Increased tax policy co-ordination would
help Member States to meet these objectives.
The Commission has since presented options for co-ordinated action to tackle
tax obstacles and inefficiencies in the company tax, VAT, excise duties, and
car tax areas. The Commission has also, as the Communication announced, become
more pro-active in taking legal action where Member States' national tax rules
or practices do not comply with the Treaty.
The Commission considers that retaining unanimity for all taxation decisions
will make it difficult to achieve any of the tax co-ordination necessary for
Europe and has made proposals for a move to qualified majority voting in certain
tax areas.
In addition, the Commission has started to make more use of non-binding approaches
such as recommendations instead of legislative proposals where appropriate,
as a way of making progress in the tax field. The route of closer co-operation
between sub-groups of like-minded Member States is also being explored.
The Commission has published regular analyses of the structures of tax systems
in EU Member States with a view to providing information to Member States and
the public on taxation trends in recent years.
The Commission is also of the view that more transparency and information exchange
would help to reduce the risk of financial and corporate malpractice. Furthermore,
more coherent EU policies concerning offshore financial centres should be considered
as a means of encouraging these jurisdictions to move towards transparency and
effective exchange of information.
The removal of tax obstacles in the area of financial services has gained importance
as part of the development and implementation of the Commission's Financial
Services Policy. The Clearing and Settlement Fiscal Compliance ("FISCO")
expert group, for example, has been set up and held its first meeting in Brussels
on 15 April 2005. It will advise on the removal of fiscal compliance barriers
to the clearing and settlement of cross-border securities transactions within
the EU.
Background
a) EC Treaty and tax legislation adopted to date
The EC Treaty, under Article 93, specifically provides for the Council, acting
unanimously on a proposal from the Commission and after consulting the European
Parliament and the Economic and Social Committee, to adopt provisions for the
harmonisation of Member States' rules in the area of indirect taxation (principally
Value Added Tax and Excise Duties) because indirect taxes may create an immediate
obstacle to the free movement of goods and the free supply of services within
an Internal Market. They may also create distortions of competition. A large
number of Directives and Regulations (i.e. "secondary legislation")
have already been agreed in this area on the basis of that Article. The Commission's
legislative strategy, particularly in respect of VAT as well as environmental
and energy taxation, has been clearly established.
As far as other taxes are concerned, Article 94 provides for the Council, acting
unanimously on a proposal from the Commission and after consulting the European
Parliament and the Economic and Social Committee, to adopt provisions for the
approximation of such laws, regulations or administrative provisions of the
Member States as directly affect the establishment or functioning of the common
market. Some recommendations and legislation have been adopted in the personal
tax, company tax and capital duty areas. See also passenger car taxation, Canary
Islands and dock dues in French Overseas Departments.
Member States have also adopted EU-wide legislation in the field of mutual
assistance and co-operation in tax matters, under Articles 93, 94 or 95 of the
EC Treaty.
Community legislation on taxation has also been adopted under wider provisions
of the Treaty:
- Article 293 of the EC Treaty requires Member States to enter into negotiations
with each other with a view to the abolition of double taxation within the
Community. This was the basis on which Member States adopted the Arbitration
Convention.
- Article 308 of the Treaty requires the Council, acting unanimously on a
proposal from the Commission and after consulting the European Parliament,
to take appropriate measures on the basis of a proposal from the Commission
and after consulting the European Parliament to attain one of the objectives
of the Community and the EC Treaty. The European Economic Interest Grouping,
a new legal entity created in 1985 to facilitate and encourage cross-border
cooperation, that was adopted under that Article involves specific tax arrangements.
The legislation providing for the European Company which was also adopted
under Article 308 does not contain tax elements.
But whether or not secondary EU legislation such as Directives and Regulations
exists, Member States' tax systems and tax treaties must in any event respect
the fundamental Treaty principles on the free movement of workers, services
and capital and the freedom of establishment (Articles 39, 43, 49 and 56 of
the EC Treaty) and the principle of non-discrimination. Moreover, in more general
terms, Article 18 of the Treaty provides that every citizen of the Union has
the right to move and reside freely within the territory of the Member States.
The Agreement on the European Economic Area extends to individuals and enterprises
of EEA States (Iceland, Liechtenstein and Norway) the principles of free movement
of goods, persons, services and capital, as well as of equal conditions of competition
and non-discrimination. However, secondary EU legislation does not apply in
these EEA States.
b) Tax Package:
The Commission at the informal meeting of Economics and Finance Ministers (ECOFIN)
at Verona in April 1996 proposed a new and comprehensive 'global' view of direct
taxation policy. The aim was to ensure that taxation policies were better geared
towards achieving important Union objectives, such as promoting growth and employment
and completing the single market, while at the same time protecting tax bases
against harmful tax competition. The Commission suggested that, even if the
unanimity requirement were to be maintained, more progress might still be made
if greater consideration were given to the wide-ranging consequences of failure
to adopt the various proposals. The Commission pointed out that repeated failure
to achieve progress in tax co-ordination has substantially contributed not only
to maintaining distortions in the Single Market, but also - less visibly - to
generating unemployment and even to creating opportunities for tax base erosion.
This Commission strategy paper launched a period of intensive discussions among
EU Member States. Following several further Commission papers - see Report on
the development of tax systems 'Taxation in the European Union' (COM(1996) 546),
"Towards tax co-ordination in the European union. A package to tackle harmful
tax competition" (COM(1997) 495) and "A package to tackle harmful
tax competition in the European Union" (COM(1997) 564) the Council agreed
in December 1997 on the outline of a "Tax Package" of measures to
tackle harmful tax competition in the EU.
The Package consisted of:
- a political Code of conduct to eliminate harmful business tax regimes;
- a legislative measure to ensure an effective minimum level of taxation
of savings income ; and
- a legislative measure to eliminate source taxes on cross-border payments
of interest and royalties between associated companies.
In the same agreement in December 1997, the Commission committed itself to
publishing guidelines on the application of the State Aid rules to measures
relating to direct business taxation - these were adopted by the Commission
on 11 November 1998. The latest Commission report on the action taken by it
in the field of tax aid was published on 26 November 2003. Click here for further
information on tax state aids.
EU Finance Ministers formally adopted the package at their meeting of 3 June
2003 (see press release IP/03/787).
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