At the invitation of the European Parliament’s Subcommittee on Fiscal Affairs (FISC), experts discussed the potential distortions of the single market for small and medium-sized enterprises (SMEs) due to personal income tax on Monday 9 January. In their view, these distortions exist and could be resolved through tax reform.
Achim Pross, Acting Deputy Director of the OECD Centre for Tax Policy and Administration, acknowledged that the issue of personal income has long been neglected in favour of corporate taxation. However, personal income taxation also has an impact on the attractiveness of a territory, especially nowadays with the mobility of workers and remote working.
Sarah Godar, a researcher at the EU Tax Observatory, stated that since 1995 the number of preferential personal income tax regimes targeting foreigners has increased from 5 to 29 in the EU. These regimes consist of tax deductions.
200,000 people in the EU benefit from preferential tax regimes. “This is problematic because it undermines tax collection on revenue as a whole in the EU”, she explained. Ms Godar estimated this loss at €4.5 billion per year. She noted that tax regimes became more aggressive after the 2008 financial crisis.
The current system requires companies to report the working time of their employees in each country. “The current system based on time spent abroad is a difficult administration issue”, said Mr Pross. He added that this problem is not only about taxation, but also about social security.
The solution presented by Krister Andersson, rapporteur for the European Economic and Social Committee (EESC) opinion on the taxation of cross-border teleworkers and their employers, intrigued MEPs. He proposes establishing a ‘one-stop shop’ which would allow companies to declare these teleworking days. This system already exists for value added tax (VAT) returns (see EUROPE 13080/19).
Asked by Gilles Boyer (Renew Europe, French) about harmonising tax residency criteria, Mr Andersson said that such a measure could be useful. “But that may no longer be the only purpose, there needs to be a system of reporting”, he added.
Professor Franco Roccatagliata, a guest from the European Legal Studies Department at the College of Europe, said he was more in favour of a system based on tax retrocessions, as happens in Switzerland, Italy and France.
“Exclusive taxation would be preferable to a combination”, he argued. To avoid a budgetary imbalance between countries, he advocated the creation of a compensation system, with a clearing house to deal with fiscal and linguistic problems. (Original version in French by Anne Damiani)