There's more than just the Convention. Important developments in the work of the Convention on the Future of Europe have recently monopolised this section and other interesting developments have been sidelined. The compromise on savings taxation, efforts made to boost tardy aspects of the Lisbon process and attempts to define an industrial policy for Europe deserve some reflection. I will begin with the event that has provoked the most commentaries: the fiscal affair.
The public should make no mistake about it, the compromise obtained after years of effort will in practice introduce for an indeterminate period of time, the co-existence of two taxation systems, namely, information exchange between national governments (allowing for the beneficiaries to be taxed on their overall incomes) and for three Member States (Belgium, Austria and Luxembourg) a withholding tax. I don't know why some Member States consider that the second system is not equitable because it does not take into account the principle of progressivity in taxation and that the agreement between Member States reached before was based on generalised progressivity of the first system. All the same, I consider that the new compromise represents progress for at least four reasons: a) it constitutes the only solution that is practically feasible in a reasonable time limit; b) it includes a withholding tax rate (35% after 2010, which some experts consider as "sky high") that is higher than expected; c) it constitutes a first significant step towards greater financial justice by going in the direction of balance between income tax and tax from financial capital; d) it paves the way to other measures, notably the accelerated suppression of the 60 or 61 fiscal measures (out of 66 identified previously by the "Primarolo group") which are likely to artificially impact on the localisation of economic activities. We can therefore understand the satisfaction of Nikos Christodoulakis, the President of the Council (Greece was able to inaugurate its Presidency with added scope), the decision in favour of Commissioner Frits Bolkestein, who had argued for this compromise to be possible and Commissioner Mario Monti's declaration underlining the positive effects towards reducing tax across the board.
A case with a long past. In his White Paper o 1993, Jacques Delors, highlighted the serious fiscal and social distortion that had been produced in the Union: savings income was increasingly successful at escaping any taxation at all thanks to being able to transfer it to countries where it wasn't taxed, whereas income tax was easily targeted, due to its immobility. Countries were at least obliged to maintain the level of tax receipts and subsequentlyincreased income tax while de-taxing savings of non-residents in an effort to pull in their financial assets. In practice all countries in the Union had become from this point of view, financial paradises for non-residents. Mario Monti, who was at the time Commissioner of the Single Market and taxation, brought the problem up at the Ecofin Council and the great "fiscal package" adventure began. As for the "savings taxation" aspect, the biggest difficulty involved relations with third countries: if all Member States taxed savings income how could they stop the savings leaving the EU to other third countries where non-residents don't pay taxes? There are loads of these countries, close to the Union and further away…That's why negotiations between the Fifteen was doubly difficult because Switzerland and other countries were also included.
Switzerland declared that any change was impossible for constitutional reasons involving disclosure of banking secrets but it did in fact make two significant concessions. It was the first to say that it was prepared to apply the 35% withholding tax rate and agreed to pay back the main chunk of the receipts that would result from it. The EU is going to ask other countries to make these changes. It can only be hoped that the negotiations with all the others comes to a hasty end in order to bring the case to a close.
A provocative suggestion. I am well aware that the compromise is not totally satisfactory from a conceptual point of view, that it only covers one essential aspect of "fiscal paradises" and that the ambiguous situations in some territories linked to the United Kingdom and the Netherlands need to be clarified. But I believe that the reasons indicated above justify a positive response. Implementation of information exchange will not be easy for some Member States, nor will the sharing out of tax revenue resulting from the withholding tax. One suggestion: involving this final aspect: why not consider these tax returns as belonging to the Union, which would help to reduce national contributions to the Community budget and set an example for other similar initiatives?
(F.R.)