Misunderstanding and lack of knowledge. The divergence at the Convention with regard to future EU decisions on taxation will certainly come to the fore at the Intergovernmental Conference (IGC) and will have to be clarified more thoroughly. The main question at first glance is very simple: should the unanimity rule be maintained for decisions at the Council in this domain? Due to the quest for consensus, the Convention has replied in the affirmative but the European Commission, the majority of the European Parliament and a number of political forces believe that this is a mistake. The temperature has risen somewhat, the United Kingdom has in fact made unanimity a priority condition on its accepting the draft Constitution, whereas the European Commissioner in charge of this sector, Frits Bolkestein, considers that the introduction of majority voting for several aspects of taxation is essential for the effective functioning of the single market. In the current conditions, the chances of reaching a compromise appear pretty low. I believe that the quarrel has somewhat been provoked by misunderstandings, and in part due to insufficient knowledge of the stakes at play. Clarification is indispensable if we are going to move on.
British public opinion sometimes gets it wrong. The first difficulty is quite simply semantic: in English, "fiscal policy" and other similar terms cover what in French is known as "budgetary policy". For the British, the EU's aspiration to take decisions at majority qualified voting on tax issues is understood as a European attempt to get their hands on the national budgets and goes beyond what is agreed in the Stability Pact. The difference in interpretation is so obvious that certain Commission services (whose spokesperson) have decided to use the English term "taxation" to describe what in French and other languages is expressed by the term "fiscal". But this is not the case for most British journalists and public opinion across the Channel (and the British political class) who believe that the Community institutions are talking about budgetary policy when they are in fact referring to fiscal policy ("taxation"). This misunderstanding is in urgent need of clarification.
Respect the differences in Sweden and Denmark. The second aspect to iron out involves limits to Community action. It should be made quite clear that EU fiscal measures can not influence "models of society" chosen by the different Member States. Let me explain. As a general rule, the decrease in the percentage of fiscal receipts in GDP is perceived as a move towards a more free economy and therefore less bureaucratic and more dynamic; this evaluation is largely shared by most countries (in Europe as elsewhere). Reduction in fiscal pressures is seen as an objective by the majority of EU governments and is seen as a success when it is achieved. But there are exceptions. In Sweden, fiscal receipts reached 54.1% of GDP in 2001 and the rate in Denmark was almost 50% (49.8%). Why? Because the Swedes and Danes chose a model of society that provides every citizen with not only healthcare, education etc, but also other benefits, guarantees and support, higher education for example. This system is financed by taxation. Danish taxes on buying a car for example, can reach a level of 200%. Such choices are not transposable to other Member States for reasons to do with mentality and habits of the people and sometimes for more down to earth motives, such as the lack of confidence in the efficacy of management of the nation's wealth by a public administration, indeed the level of corruption. We can say as a simplification, that Swedish and Danish Citizens have a high tax burden, that some are moderately involved in tax evasion and that in return they receive adequate services. It's their choice, confirmed during the elections. EU fiscal decisions should not prevent or obstruct choices for these kinds of societies. A too rigid interpretation of rules on free movement of goods in itself could have an impact on taxation in the alcoholic drinks or automobile sectors. Fiscal harmonisation, with downward fiscal pressures would get rid of obstacles at borders but how could the welfare state be financed in such a scenario? These questions need thrashing out.
Should "fiscal competition" be banned or allowed? The third aspect to iron our underpins a basic political choice: should "fiscal competition" between Member States be banned or be, on the other hand, a normal part of economic competition? In practice this means seeing whether the provisions that lower the tax burden on companies with the aim of attracting investment and economic activity, represent an element of distortion or legitimate policy. The issue is not a new one; it arose several years ago at a Community level. But it has never been entirely or clearly answered, just pragmatic half-answers, founded, most notably on the "code of conduct for business taxation"). This code has been applied over a number of years but it was not until 3 June that it received the definitive approval of the Council, in the context of a fiscal package that has been discussed since 1995. It does not outline a doctrine but rather practices and essentially the elimination of fiscal measures in a Member State that could cause "damage" in others.
Observations from the Primarolo group. In the EU, tax advantages are allowed under regional policy, under the control of the Commission as State Aid. National systems can therefore be more or less favourable to one zone or other in the same Member State, due to reasons linked to regional development. Beyond this rule, each Member State is autonomous in determining corporation taxes. European institutions should not get involved unless of course these systems are discriminatory. It was, however, pointed out that several national measures (legislative, regulatory, administrative) had or were able to have a noticeable impact on the localisation of companies and could therefore damage other Member States. This observation led to the "code of good conduct" updated in 1995 and which defines criteria determining measures that are "potentially damaging" and which introduce two principles: a) a freeze on the situation where a new measure of this kind can no longer be introduced; b) gradual dismantling of existing measures that ate incompatible with the code. In its application, the Ecofin Council set up the "Primarolo group" in 1998 after the name of its president, Dawn Primarolo, "Paymaster General" from the United Kingdom. In its report in November 1999, this group came up with 66 fiscal measures that could engender damage: 40 in Member States, 23 in associated or dependent territories of Member States, 3 in Gibraltar. These measures have effectively been revised or replace, with deadlines (one is on "coordination centres" in Belgium, which also raise certain problems).
The British "No". It is in this context that at the Convention, the Commission, most MEPs and several Member States came out in favour of majority qualified voting for certain Council decisions on fiscal decisions.. The draft did not go any further due to the opposition of some Member States and in particular due the radical refusal of the United Kingdom, which sees maintaining of unanimity in this area as one of the pillars of its attitude and presented it to the British public as evidence that the EU Constitutional draft would not give any supplementary powers to the European institutions and would safeguard, indeed, reinforce the autonomy of the Member States.
Frits Bolkestein enters the fray. At this stage, Commissioner Frits Bolkestein, published in the "Le Monde" a genuine plea in favour of moving to majority qualified voting in certain limited and specific cases, explaining that, "Let's be clear, in an EU composed of 25 Member States, unanimity leads to blockage". This is also the case for direct and indirect taxes (where a, "proliferation of exemptions and derogations, introduced in the framework of the necessary 'horse trading" for obtaining unanimity, remain impossible to eliminate given that each Member State can block decisions that impact on the benefits of which it is a beneficiary"). This situation, "affects the overall competitiveness of the Union, as well as employment. European citizens and economic operators are confronted with tax systems that are increasingly inadequate and old". Member States are no longer able to combat cross-border evasion and tax fraud. Mr Bolkestein outlines a pragmatic approach, first of all confirming that there is no question of harmonising the rates affecting companies or individuals ("how many time is it necessary to repeat that the Commission is not calling for this?"). Qualified majority voting would be applicable in three cases and on the condition that there is a direct link with the functioning of the internal market. a) in indirect taxation issues, for modernisation and simplification of legislation in force (which date back to the 1970s); b) for alignment on tax bases applicable to companies to facilitate the dismantling of fiscal obstacles to the effective functioning of the internal market; c) for administrative cooperation in the fight against tax fraud and evasion, which "is reaching worrying levels". If this is not forthcoming, "We will be condemned to a lasting and harmful paralysis for the economy of the Union and its Member States".
Two responses needed. I believe that the Bolkestein objective will only be reached if the semantic misunderstanding is clarified and that two fundamental questions are answered. Firstly, does fiscal competition between States represent unfair competition even if it is not discriminatory, as France perceives it or is it legitimate as Ireland claims? The effects of this competition on the relocation of a company are seriously worrying the regional authorities and the trade unions, and we can understand why. Second question, how can the application of rules in the large market be reconciled with the funding of social and political systems chosen by some Member States?
If these aspects are clarified, opposition to European coordination and modernisation measures would create the impression of a defence of systems in favour or tax evasion.
(F.R.)