Reforms are required at national and European level to make taxation efficient and fair, the European Commission said in a report published on Thursday 17 November, ahead of a joint conference with the IMF.
The efficiency of a tax system is influenced by both its design and its implementation, the Commission explains. It should raise revenue without creating high costs for tax payers or the tax administration.
The Commission is taking advantage of the publication of its report to do a bit of promotion for its proposed common consolidated corporate tax base (CCCTB), which it believes could offer the business-friendly system and deliver the certainty and simplicity required to attract investors and encourage cross-border trade (see EUROPE 11663).
At national level, the Commission calls for incentives in favour of alternative sources of financing, the 'debt-equity bias', in other words, the discrimination between the advantageous tax treatment of loan interest and, in many cases, the far less advantageous treatment of the raising of equity. The Commission also tackles this situation in its proposed CCCTB. The European institution also recommends reducing and simplifying the tax obligations on entrepreneurs just starting out and small and young companies. It also stresses that the high levels of unemployment are a legacy from the crisis and that work must continue to move the tax burden on employment to other sources, to make taxation less harmful to growth.
The Commission feels that there is not enough literature about the impact of the level of taxation on economic growth. "The level of taxation largely reflects social choices in terms of tax revenues and government expenditure", its report notes. It points out that there are "different social models in Europe and the amount of public money necessary to finance them varies" from a quarter of GDP in Denmark, France and Finland to less than 12% in Estonia, Latvia, Lithuania and Romania. "There is some correlation between the amount of tax collected and that of government expenditure", the Commission observes. That said, in 2014 all member states spent more than earned through taxes. (Original version in French by Élodie Lamer)