Thursday, May 26, 2005

EU tax plans

Buried by all the news on the referendums on the Constitutional Treaty I noticed this headline at the Financial Times EU tax harmonisation plan “ready in three years”

Yet curiously, almost in spite of the headline, the report states quite clearly that “the European Commission remains adamantly opposed to any harmonisation of company tax rates - a policy advocated by France and Germany as a means for ending "tax dumping" by countries with very low company taxes.”

Why the headline then? Just trying to sell newspapers? Or, is it the case that this is a case of harmonisation by another name. Here is what the FT report writes:

A Franco-German sponsored plan for more harmonisation of company taxation could be ready in three years, the European Union's tax commissioner claimed yesterday. Laszlo Kovacs is working on details to create a uniform system across Europe for calculating a company's tax base, ending wide national variations. The move is aimed at cutting red tape for business and to make it easier for companies to operate across borders. However, the European Commission remains adamantly opposed to any harmonisation of company tax rates - a policy advocated by France and Germany as a means for ending "tax dumping" by countries with very low company taxes.

Mr Kovacs, addressing a conference in Sweden, said he believed there would be wide support in Europe for a common corporate tax base. When asked when it would be ready, he said: "My assessment is three years if everything goes well." The task of distilling a common method for calculating corporation tax across Europe is large, but Mr Kovacs says it will bring significant benefits. "At the moment there are 25 different ways to calculate the corporate tax base," he said. "If we manage to have only one EU-wide set of rules that will increase competitiveness."

However, the idea has not met universal approval, with Britain among the countries refusing to accept the idea of an EU-wide corporate tax base. Gordon Brown, Britain's chancellor of the exchequer, believes the move would interfere with national sovereignty and restrict flexibility in the tax field. Although tax matters in the EU have to be decided unanimously, a group of countries could press ahead regardless under a mechanism called "reinforced co-operation", allowing Britain and other opponents to join later if they wished.

Mr Kovacs said that 20 member states out of 25 supported the idea, adding that he thought others would come around once the advantages to business became clear.
"They are afraid that it is a Trojan horse to implement the harmonisation of tax rates at a later stage," he said. "We have no ambition and I have no personal ambition [to do that]."
Harmonisation it isn't and the headline is sloppy and irresponsible journalism.

The speech Lászlo Kovács gave in Sweden is not yet up on his EU website but it sounds very much like the same speech he gave on 12th May. In which he said the following -
... this Commission has established as one of its priorities in the tax field the creation of a common consolidated corporate taxation base in the EU. The Commission considers that if companies were allowed to apply a single EU-wide set of rules for company tax purposes, this would eliminate most of the current problems such as double taxation that they currently face when they do business across borders in the EU. It would also lead to a substantial reduction in compliance costs. This idea has received considerable support from the business sector, as well as from many Member States. My services in the European Commission are currently discussing the elements of a common tax base with EU Member States in a technical working group.

....... I would like to stress that a common company tax base in the EU would not mean a common corporate tax rate. I believe that tax competition is not bad by definition and I support a degree of tax competition between Member States to the extent that it forces governments to produce value for money. I therefore see no need for Community action on corporate tax rates at present.
The above clearly states that harmonization is not on the agenda ... at present.

Here are some other proposals put forward in the speech of 12th May
The Commission has set as a particular priority that of simplifying VAT compliance obligations in the case of intra-Community activities.

The Commission intends to present before the summer break another important proposal within the current VAT strategy, namely a proposal on the place of supply of services to final consumers (B2C).

The objective of this proposal is to review the current rules, in order to ensure that tax revenues deriving from services than can be supplied from a remote location accrue to the Member State of consumption. For services which can be provided remotely (such as telecom services and e-commerce), the current rules increasingly result in distortions of competition and delocalisation of businesses.

...... Turning to the area of excise duties, here too the Commission attaches the greatest importance to preserving the integrity of the Internal Market. The Commission has no wish to intrude in areas which remain the responsibility of Member States. However, we continue to believe that a certain degree of approximation of rates of excise duties is essential in order to reduce distortions of competition and fraud within the Internal Market. In this connection, a discussion took place in the ECOFIN Council in April on the question of alcohol taxation. As a result, Member States gave us the green light to present proposals to adjust the Community minimum rates of excise duties so as to re-establish the real value of those minimum rates in the light of inflation since 1992 when they were set.

....... Another important indirect tax proposal which the Commission hopes to present in the near future, following extensive consultation with all stakeholders, concerns passenger car taxation. The purpose of this proposal will again be to improve the functioning of the Internal Market as well as to provide the Community with the means of achieving our aims under the Kyoto Protocol of reducing CO2 emissions from passenger cars.
Tax harmonisation it isn't but nonetheless it looks as if there are indeed some taxing times ahead – some of these proposals may prove more than a little controversial. Here is a link where one can open or download the full text of European Taxation and Customs Commissioner Lászlo Kovács Speech of 12th May from which I have quoted above.