At the 'Ecofin' Council in Luxembourg on Tuesday 10 October, the European finance ministers will discuss the application of the rules on the preventative arm of the Stability and Growth Pact and the taxation of the Internet giants.
Central to the debate on the European budgetary rules will be the discretionary margin available to the European Commission, in the framework of the country-specific recommendations, to assess the national objectives in terms of structural efforts in the framework of the preventative arm of the pact.
Under these rules, member states are required to reduce their structural deficit by 0.5% of GDP a year once they have joined this preventative plank, if their public debt is less than 60% of GDP and by 0.6% of GDP a year if it is greater than 60% of GDP. The Commission, mindful of not wishing to affect growth and investment, intends to propose giving the member states some leeway to deviate from this annual structural effort objective, a recommendation that requires the approval of the Council of the EU.
Over breakfast, the finance ministers will hold an informal discussion on this margin. Their opinions differ over the level of this leeway, the most reluctant taking the view that the stability already built into the Pact is ample.
The debate comes at a timely moment, with the only two states under the excessive deficit procedure, France and Spain, expected to exit it next year and join the preventative arm of the Stability and Growth Pact.
Taking stock of the 'European Semester' 2017
The major financial decision-makers of the EU will also draw conclusions from the 2017 'European Semester' budgetary process.
A number of different solutions are being considered to improve the implementation of the country-specific recommendations submitted by the Commission each year for approval by the Council. In a letter dated 29 September to the Estonian finance minister, Thomas Tõniste, the President of the Economic and Financial Committee of the Council, Thomas Wieser, admitted that “we cannot yet call the Semester a success”, due to the uneven implementation of the recommendations between member states or sectors, although he acknowledged that the exercise had improved year after year.
Taxation of the digital sector. The Commission will present two recent taxation initiatives. On direct taxation, the European institution will report to the ministers on the taxation of the digital economy.
This document sets out possible options to ensure, in the short term, that Internet giants are paying tax where they create value. A proposed French tax on turnover and a tax on advertising revenue will be discussed (see EUROPE 11866). The ministers have already had this discussion around the French proposal at the informal meeting in Tallinn in September (see EUROPE 11864). This new discussion will therefore be mainly recycling, a source told us.
VAT. The Commission will present its proposal for a definitive VAT regime based on the principle of taxation in the country of destination (see EUROPE 11876).
Several of the delegations we spoke to declined to comment at this stage on the content of the Commission's legislative text, as they have not yet had time to digest it. However, we gather that confidence between member states in taxation matters is not sky-high.
Firstly, as regards the collection by one state of the VAT of another when a good is dispatched by a company based on the territory of the former- suppliers will invoice VAT, pay it to their tax authorities, which will then in turn forward it to the tax authorities of the country of destination of the goods. Secondly, they will consider the positive list of reliable taxpayers suggested by the Commission for which reversing the VAT charge will be possible in an initial stage of the definitive regime.
No meeting has as yet been scheduled to discuss the financial transactions tax (FTT). Readers may recall that the participating countries are in the process of setting up an expert group, which will be responsible for measuring the impact of an FTT on the ten countries in the context of Brexit (see EUROPE 11864).
Finally, the ministers will adopt conclusions on the financing of climate change. (Original version in French by Lucas Tripoteau and Élodie Lamer)