At the risk of shocking some of my readers, I think that the two working documents on taxation to be submitted by Frits Bolkestein, with the agreement of the college, to the informal meeting of the Finance Ministers on 11 September (see our bulletin of 8 July, p.13), are appropriate, well-balanced and objective.
A common tax base is useful... The document on a "common consolidated tax base" for company taxation identifies the problems, makes suggestions and asks Ministers for their choices and preferences. The starting point is hard to argue with when it lists the advantages of this initiative to companies: the common base will make it easier for them to extend their activities beyond national borders, and reduce legal risks. Furthermore, it makes the real tax conditions in the various Member States more transparent, by simplifying and making investors' choices more logical. A uniform and simplified tax base is one of the main criteria for decisions on where to locate a company, alongside the numerous non-fiscal elements which also come into play: transport, telecommunications, quality and preparation of workforce, natural and geographical aspects such as climate, etc.
… but not enough for some. The Bolkestein draft does not recommend a harmonisation of rates alongside the harmonisation of the taxable base. Some Member States and several social and political forces believe that if this element is missed out, the document does not answer their concerns on the risks of delocalisation for purely fiscal reasons. From this point of view, however, one thing is quite clear: Frits Bolkestein does not think that tax rates should be standardised at European level, because he believes there should be tax competition. Quite a few Member States agree with him, and others think that at least setting a minimum rate would be useful, if not essential. But this kind of initiative should not be expected from the current taxation Commissioner. In a few months' time, we'll see what his successor thinks.
This aspect aside, Mr Bolkestein has defined a strategy for the tax base which takes objections and various national positions on board. The responses awaited from the Ministers will provide him with the elements he needs to draw up an official proposal which he intends to submit before he steps down, therefore before the end of October. In the basic questions he asks, the Commissioner shows his own preferences and future plans:
1. Voluntary or obligatory harmonisation of tax base. It would be unrealistic, says Mr Bolkestein, to propose a uniform tax base for all companies. In fact, only businesses which are active in several Member States, or which intend to become so, would be affected. An optional system giving companies the choice between the "European" tax base and the national system which they are used to would be more likely to be accepted by the Council.
2. Big companies and SMEs. In principle, only big businesses are concerned by the European tax base. It is true that many small and medium-sized enterprises (SMEs) are also active beyond their national borders, but Mr Bolkestein has drawn up his second document for them which recommends another approach: taxation in the State of origin.
3. Progressiveness. The objective of the initiative should be a common consolidated corporate tax base, but it would be possible to achieve this in two stages: firstly the common tax base, then the consolidated method. The reason for this is that the Member States would find immediate consolidation hard to swallow, as in practice it would prevent them from making any changes to the legislation without going through a new unanimous European decision.
4. "Reinforced co-operation" theory. Mr Bolkestein is well aware that certain Member States are not too keen on his project. For this reason, he is weighing up the option that only some Member States would be prepared to take part in it, via the "reinforced co-operation" instrument which exists in the Treaty of Nice but has never been used. To do this, at least eight Member States would have to agree to it.
I hope that I have cleared things up a bit for the non-specialists (of which I am one) on Frits Bolkestein's strategy on this specific dossier on company tax. It remains for me only to add a few comments on the second document (which is closely related to the first) for SMEs, and above all, on the initial reactions of the Member States and some parliamentary circles. I shall do so next time.
(F.R.)