In the context of the “bubbling building site” of financial and monetary affairs in the EU, this column examined the Euro and Eurogroup (EUROPE 9338), as well as the aborted European stock exchange project (yesterday's bulletin). It's now the turn of the dossier on the approximation of direct taxation.
A slow process. Last month, the European Commission adopted the Commissioner for taxation, László Kovács' orientations on the coordination of direct tax systems. Two aspects of them were given particular support: a) companies being able to compensate losses incurred in other Member States, so the tax system does not discourage investment in one or other Member State; b) harmonisation of “relocation taxes” when a tax payer (natural person or company) transfers their tax residence to another Member State. Coordination is necessary to get rid of distortions and clarify provisions applicable, which are complicated and sometimes difficult to interpret. Coordination is also necessary for providing evidence for complaints that submerge the national courts and the European Court of Justice.
The goal is to get rid of double taxation, while fighting tax evasion and eliminating barriers to cross-border business that undermine the effective functioning of the common market. Although the objectives are clear, how to attain them is much less so (see Mathieu Bion's analysis in EUROPE 9331). In a preliminary phase, Commission services will work in tandem with national tax authorities to undo the knots affecting the prevention of non-taxation, transfer prices, description of debt ratings and own funds, corporation tax etc. Other aspects such as rules against tax abuse and withholding tax will be tackled in different communications. The process now unravelling will undoubtedly be slow, due to the conflicts of interest and the tendency of finance ministers to safeguard their autonomy (while complaining about distortions).
Towards a partial compromise? While awaiting progress on facilitating business activity and the correct functioning of the single market, the aspect of direct taxation that political actors are currently getting excited about (and which sometimes provokes divergences and sharp polemics), is taxes on company profits. In this arena we are only too aware that Member States compete to attract investment and company relocation. Jacques Delors has always taken a clear position on this question. In Lectio magistralis, a speech he read at the opening of the 2005-06 academic year at the European College of Palma (available in No. 4-2005 in the Legal review of the European Union edited by Alfonso Mattera), he told the young university students that, “the most perverse attack against Europe comes from those calling for competition between companies to be accompanied by competition between nations. I warn you, if this should continue, there will never be a political Europe, there will even be a disintegration of the European acquis due to excess tax and social dumping”. Other political figures followed suit, including the president of the European Parliament.
The orientation that currently appears to be prevailing consists of a two stage approach: firstly, a uniform corporate tax bracket in order to clarify the calculation, and then a band for tax rates with uniform minimum rates. This appears to be the opinion of Eurogroup president, Jean-Claude Juncker, who mentioned “rules on minimum taxation”. Nevertheless, misgivings remain: the Commissioner for the internal market, Charlie McCreevy, the British and Irish governments, as well as several countries from central and eastern Europe do not intend to go beyond this stage of the uniform tax bracket (and this continues).
Mr Kovács would only say that the Commission has proposed the presentation in 2008 of a proposal on a harmonised tax bracket. The German Presidency of the Council's programme does not go any further on this question: it indicates that “the uniformity of a tax band (the imposed rate of corporation tax) is an essential contribution to improving the competitiveness of European businesses”. The Presidency also expressed its intention to push this project forward in the next six months so that the Commission effectively presents its proposal in 2008. It should not be forgotten that last April, the Commission discretely enquired whether Member States were in favour of developing possibilities for “strengthened cooperation” between those that wanted to go forward in the event of failure on this uniform tax band. In any case, results will not be swift, with the Commission asking for another year before presenting its project.
Tomorrow I will be completing this exploration of the tax, financial and monetary domains.
(FR)