Nobody has ever marched in our streets in protest at tax policy in the European Union. Even so, the citizens were clearly shocked by the revelations of whistle-blowers (Panama Papers, Bahamas Leaks and other Paradise Papers) concerning large-scale tax fraud mechanisms. Honest people are disgusted that the wealthiest (individuals or companies) are not paying their fair share to society. They understand that the billions lost to State coffers are missed opportunities for social investments and spending. As for the EU budget, any desirable increase of this is negatively impacted, as it is fed into mainly from VAT and the contributions of the member states. Three out of every four Europeans quite understandably want the EU to take more action against abusive tax practices (Eurobarometer survey carried out on behalf the European Parliament in July 2016).
Furthermore, our fellow citizens are surprised to learn that in a European market that is supposed to be unified, substantial differences subsist between the various taxation regimes, particularly for corporate tax. The best-informed citizens can see that states which are supposed to be in solidarity with each other are engaged in ferocious tax competition to attract investors, with all the collateral damage that involves. More than half of all Europeans would therefore like to see more tax harmonisation within the EU (special Eurobarometer survey on the future of Europe, November 2018). This, moreover, is not the only field in which the grassroots citizens have proven to be more pro-European than their governments.
Ever since the first days of the Community, decisions on taxation matters have been the exclusive remit of the Council of Ministers, which is required to rule unanimously. You don’t need a diagram to understand that unanimity was easier to achieve when there were six states than it is now there are 28. Even so, as the Union grew bigger, governments insisted on retaining full sovereignty on taxation matters. Happily, this did not have the effect, at the end of the last century, of blocking the creation of a provisional common regime for VAT and excise, along with various other provisions that are vital to the functioning of the single market.
In the run-up to the biggest wave of enlargement, the Convention tasked with preparing the constitutional treaty reached a majority in favour of the Council making its decisions by qualified majority, for indirect taxation matters in any event. Under the influence of the United Kingdom, which made the issue one of its ‘red lines’, plus three other countries, the intergovernmental conference of 2004 would remove this possibility.
Here and there, current primary law (Lisbon Treaty) contains some hidden potential for change, but under conditions so strict as to act as a disincentive.
Article 116 TFE allows the Commission to propose directives to be adopted under the ordinary legislative procedure (i.e. Parliament-Council co-decision and qualified majority of the latter) in the event of disparities that are likely to distort competition conditions on the single market. This article has never once been used in the taxation field.
Article 48 § 7 TEU makes provision for a ‘general passerelle clause’ to switch to qualified majority in areas that normally require unanimity. However, the prior unanimous agreement of the European Council plus a ‘nihil obstat’ from all national parliaments within six months is required in order to trigger it. A specific ‘passerelle clause’ for environment policy, including its tax dimension, moreover, can be triggered by article 192 § 2 TFEU; a unanimous Council agreement is required to apply the ordinary legislative procedure. Another specific article (325 TFEU), concerning fraud against the financial interests of the EU, allows the above procedure to be used for measures to tackle VAT fraud alone, if the VAT in question is one of the budgetary own resources.
With the 10th anniversary of the entry into force of the Lisbon Treaty close at hand, the institutions have yet to trigger any of the above articles.
Finally, enhanced cooperation initiatives allowing acts to be adopted by a group of (at least nine) member states are governed by the TEU (article 20) and the TFEU (articles 326 to 334); it was implemented in 2013 for the financial transactions tax, following two years of fruitless debate between the 28 finance ministers.
What has the current landscape actually achieved?
Under the heading of indirect taxation, first of all, some progress has been made in the fight against VAT fraud and promoting administrative cooperation (regulations of 5 December 2017 and 20 October 2018). The directive on reduced VAT rates for electronic publications was adopted on 6 November 2018, alongside its counterpart for pilot reverse-charge mechanism projects (see EUROPE 12131/27), but not without much blackmail and strategic blocking at the Council (see EUROPE 12062/24). The rules for VAT on electronic trade were decided upon by the Council on 12 March of this year (see EUROPE 12212/36).
The proposed directive aiming to introduce a standardised VAT return (COM (2013 721 of 23 October 2013), so as to make everyday life easier for businesses, on the other hand, crashed and burned (see EUROPE B 10949A22). Indeed, the efforts of the Council to keep everybody happy made the text increasingly byzantine; no longer recognising it as its baby, the Commission opted to withdraw its proposal in early 2016. Net result: a lot of time wasted, no benefit to business.
On excise duty, the Council’s most recent revision resulted in an admission of defeat over the three texts being discussed: directive on the general excise regime, directive harmonising the structures for excise duty on alcohol and regulation on administrative cooperation in this field (see EUROPE 12212/7).
And what about direct taxation? Two achievements: the fight against abusive tax practices (tax evasion) (2016 and 2017 directives) and a number of provisions of the directive on the automatic exchange of information (tax transparency) (directive of 25 March 2018). This was achieved under pressure from current events – the various scandals coming to light – and from the European Parliament (resolution of 6 July 2016).
As for the taxation of income from savings, the directive proposed by the Commission back in… 1989… was not adopted by the Council until 3 June 2004, more than 14 years later. The proposed amendment of the same, which was presented by the College in November 2008, remained on ice (in the hands of the ministers) for six years. The quest for unanimity moves at glacial speeds in a world that is turning ever faster on its axis.
Another example. On 13 April 2011, the Commission proposed a revision of the directive on the taxation of energy (COM(2011) 169 final), on the basis of article 115 TFEU; the adoption of this revision would have a positive effect on the quality of our environment. Once it became obvious that there was no way of achieving unanimity at the Council, it pulled its proposal on 7 March 2015. All of that effort for nothing.
On 12 April 2016, the Commission proposed an amendment of the directive on accounting standards, requiring major groups to publish certain accounting information, such as the amount of tax paid (see EUROPE 11530/1). This goes under the name of country-by-country tax transparency (i.e. for EU countries, but also tax havens), or ‘reporting’. The Commission took as its basis article 50 TFEU, which involves the ordinary legislative procedure. On 14 November 2016, the legal services of the Council ruled that as the plans were of a fiscal nature, the proper legal base would be article 115 TFEU, which requires unanimity (see EUROPE 11667/23). The member states are divided: some take the same view as the Commission, others are fearful of setting a precedent in abandoning their sacrosanct unanimity. However, a unanimous decision is required to change the legal base of a proposal! The dossier is now stuck at the level of the national experts, whose most recent meeting, on 24 January, confirmed the deadlock (see EUROPE 12179/21). (To be continued).
Renaud Denuit