The whole of company taxation. The creation of a European Commission Vice-President with overarching responsibility for all the economic, monetary, tax, industrial and competition policies is just a theory for the time being; and we've already had an example of what his or her duties could entail. Germany and France, the two Member States which launched the concept of this kind of Vice-President, undertook a procedure at the Commission, calling upon it to propose harmonisation of company taxation rates, including a tax bracket or minimum rates (see our bulletin of 29 May, p.8). Frits Bolkestein, European Commissioner for taxation, confirmed his negative attitude to this request, feeling that tax competition between States is normal and beneficial. Quite apart from the technical aspect, the Franco-German procedure involves the whole delocalisations dossier (businesses and activities moving from one country to another to take advantage of more favourable tax regimes), including industrial policy, regional policy, cohesion policy, all the fields which don't come under the Commissioner for taxation. The dossier would therefore go to the "horizontal" Vice-President. In the current situation, Mr Bolkestein's "no" is an end to the matter: the Commission will not take a taxation initiative if the competent Commissioner is opposed to it. If the horizontal Vice-President comes into being, the result could be entirely different.
From Chancellor Schröder to Michel Barnier. Obviously, it's not just a question of power between Commissioners: it's a question of substance, which involves the new Member States. The first person to raise the issue publicly in Brussels was the French Foreign Minister Michel Barnier. In his speech of 10 May on the cohesion policy, he underlined the risks of tax dumping, and our bulletin immediately drew attention to this aspect of his speech (see the bulletin of 11 May, pages 10/11). Mr Barnier had been cautious and moderate, without referring to any particular country. But on less formal occasions, Chancellor Schröder has been less mealy-mouthed: at the end of April, the German press reported his comments opposing "one-way tax competition" at the cost of those Member States which are net contributors to the EU budget, indicating that if the new States keep taxation low or non-existent and get the EU to pay for infrastructures to attract foreign business (which would usually be financed out of taxes), "then this is something we will have to talk about". These comments preceded the procedure by Finance Ministers Hans Eichel and Nicolas Sarkozy at the Commission.
Mr Bolkestein's reasoning. Mr Bolkestein's negative response came as no surprise to anyone, because his liberal views are well documented. Of the countries of central and eastern Europe, some have taken position (including Poland); others may prefer what the Commission, along with the British government, are putting forward. France and Germany are, furthermore, being somewhat cautious: their letter talks of "fair" competition conditions, and that an obligatory minimum rate "in no way contradicts the development of healthy (tax) competition between Member States", but adds that the limits of this competition should be discussed and decided politically. Chancellor Schröder has said that he is "patient"; quoting from Lucretius: "gutta cavat lapidem", the drip hollows the stone (with time and patience).
It is true that Mr Bolkestein had already taken an initiative to harmonise the tax base for companies; he has even suggested that in the absence of a unanimous agreement, this could be made into a "reinforced co-operation" between the Member States in favour. I feel that those who are presenting this initiative as evidence that the Commissioner is becoming open to tax harmonisation are on the wrong tracks. Its aim is not to align company tax, but to bring about increased transparency so that investors can clearly see in which countries the conditions are more favourable, and more lucrative. What it aims to do is create more competition and thus greater choice. Transparency is clearly needed, even Messrs Eichel and Sarkozy call for it, but they feel that this should be a step towards harmonisation, but Mr Bolkestein sees it as an end in itself, to give competition a helping hand.
This episode sheds some light on reactions to the idea of a "horizontal" Vice-President. This is just one example; others of Frits Bolkestein's dossiers have made waves. Without mentioning the take-over bids case (an example of the influence of the European elections, see this column yesterday), a few aspects of the planned liberalisation of services have created a similar stir, and I will come back to these tomorrow. (F.R.)