European experts recommended simplifying tax systems to improve competitiveness in the internal market, at a public hearing of the European Parliament’s Subcommittee on Tax Matters on Tuesday 13 February. In particular, they criticised the texts currently under discussion.
According to Jost Heckemeyer, associate researcher at the Leibniz Centre for European Economic Research (ZEW) in Mannheim, the complexity of texts in the average EU Member State is around 50% higher than in Switzerland, for example. Like the United States and the United Kingdom, the EU has a high level of tax complexity in general, with Finland the best performer and Croatia the worst.
“We have incentives and opportunities for multinational companies to shift their profits to low-tax jurisdictions. The question of how multinational companies allocate their profits is therefore of great importance for a company’s overall tax burden”, emphasised Mr Heckemeyer.
Although it has been discussed for 25 years, the problem of cross-border loss compensation has not been resolved. The ‘Business in Europe: Framework for Income Taxation’ (BEFIT) initiative, currently blocked in the EU Council (see EUROPE 13336/15), which proposes a harmonised consolidated tax base, could solve this problem. “Because of this lack of coordination, the central aims and objectives of the ‘BEFIT’ proposal will not be achieved”, deplored Mr Heckemeyer. “My key advice is to avoid unnecessary complexity”, he added.
Enrico Letta, President of the Jacques Delors Institute and former President of the Italian Council, believes that an overall agreement is needed within the Council. “I had a discussion with the representatives of the Council, and I had the feeling that when I mentioned taxation as one of the topics on which it is absolutely necessary to be more integrated and to move forward, I was touching on a very sensitive subject”, he said.
Not only did he feel that the application of the legislation needed to be deepened, but also that an agreement needed to be reached. “We have to start asking certain countries that use taxation as a means of competing or perhaps raising the level of competition with neighbouring countries within the European Union to stop doing so”, he said.
The same is true of the economic players. “Legal uncertainty is a critical burden, but not a full-blown obstacle to investments”, said Christian Kaeser, global head of tax and vice-president of industrial company Siemens.
He called for greater tax coherence, in particular with regard to BEFIT and the DEBRA directive, concerning an allowance to reduce the tax distortion in favour of indebtedness and limiting the deductibility of interest for corporation tax purposes. It is also blocked in the EU Council (see EUROPE 13329/16). (Original version in French by Anne Damiani)