An intention becoming clearer. The Commission announced its intention in a somewhat subdued manner last month, in its preparatory report for the Spring Summit of 25/26 March. This report (reproduced in Nr 2346/2347 of our series EUROPE/Documents, published with our bulletin of 4 February) included "the definition of a common consolidated tax base on company profits" among the "strategic measures for our competitiveness, which remains blocked by a lack of political goodwill" (chapter 2.3). A couple of pages later (chapter 3.3), we read: "it is essential that the Union adopt as quickly as possible a common consolidated definition of taxation on company profits covering all company activities. If no progress were to be made by the Union as a whole, the possibility of applying the Treaty rules on enhanced co-operation would have to be contemplated".
This warning went virtually unnoticed. Late last week, however, the Commissioner for taxation, Frits Bolkestein, announced (interview with Le Monde of 21 February) that he would invite the Commission to propose "reinforced co-operation" in this field very soon, certainly before the end of its mandate (October). Contrary to its representation by a section of the press, Mr Bolkestein made it clear that this initiative would concern only the tax base, meaning the taxable base, not tax rates. Two years ago, the Commission proposed to harmonise the tax base, but this proposal has since been blocked by the opposition of the United Kingdom and Ireland. Right then, we'll harmonise the base without them, said Mr Bolkestein, adding "it will be easy to find the eight countries required by the Treaty to commit to this course of action". The procedure is as normal as can be: Commission proposal, European Parliament opinion (which will become an "approval" once the Constitution Treaty is in force), Council decision by qualified majority. Mr Bolkestein can see no great difficulties, because this harmonisation "clearly lies in the interest of the Member States"; even the new Members want in. He feels this is a necessary measure for the smooth running of the single market, and especially for fiscal transparency. Tax rates on companies are public knowledge, but there are "differences in tax burden hidden in the calculation of the base". These "hidden differences" will disappear, and it will be easier to compare company profitability whilst boosting investor confidence. Furthermore, Mr Bolkestein feels that the time is right, because as of 1 January 2005, the 7,000 European companies quoted on the stock exchange will have to apply the same European accounting standards, and "harmonised accounting goes hand in hand with a harmonised tax base".
Liberal convictions confirmed. There should be no implication that in announcing this initiative, Mr Bolkestein has changed his liberal convictions any. In particular:
he is not in favour of standardising tax rates on businesses. He said: "I have no legal basis to oblige States to change these, and nor do I want to, because the European Union is not a State and tax policy lies within the sovereignty of national States". The only harmonised rate he could approve of is a zero rate: such a suggestion "is not absurd because at the end of the day, it's people, not companies, who pay taxes".
he is not against tax competition between States. He clarified: "a certain level of tax competition is a good thing. It stops governments from spending too much, and I think they do spend too much". There are other criteria for attracting businesses: qualified labour force, language, market. Governments which oppose "tax dumping" need not count on him.
he does not subscribe to the "tax dumping" accusations levelled at Ireland, which, with a company taxation rate of 12.5%, has attracted many companies and investments. "We try to help countries to catch up, and I think they should be left alone. Ireland has succeeded spectacularly. I think the same will happen in Estonia, which has a very low rate of tax on business. I can't see myself- and I haven't the legal means to do it- forcing these countries to apply the same rate as France".
Tax on company profit differ widely within the EU, from almost zero in Estonia to over 30% in France, Spain, Italy, Netherlands and Belgium, with 12.5% in Ireland and under 20% in Hungary, Slovakia and Poland. France and Germany instigated a double discussion last year (between Finance Ministers, and within a parliamentary delegation co-chaired by Pierre Lequiller and Friedrich Merz) on a bilateral harmonisation, because their view is that with the unanimity rule, European standardisation is pie in the sky.
(F.R.)