Select Committee on European Scrutiny Second Report


TAX POLICY


(22448)
9456/01
COM(01) 260

Tax Policy in the European Union — Priorities for the years ahead


Legal base:
Document originated: 23 May 2001
Forwarded to the Council: 30 May 2001
Deposited in Parliament: 20 June 2001
Department: HM Treasury
Basis of consideration: EM of 22 June 2001
Previous Committee Report: None
To be discussed in Council: No date known
Committee's assessment: Politically important
Committee's decision: Cleared



Background

33.1 For some years, the Commission has argued that there is much more to be done in the area of tax co­ordination. For example, at the informal ECOFIN meeting at Verona in April 1996, the Commission identified three interlinked and mutually reinforcing challenges for the EU: the stabilisation of Member States' tax revenues; the smooth functioning of the Internal Market; and promoting employment. The Commission proposed greater tax co-ordination in its Communication of October 1997.

33.2 However, despite the Commission's interest in developing closer co-ordination of tax policy, there are very few specific examples of tax policy amongst the Member States being closely co-ordinated. One example is the tax package agreed at the Council meeting on 26­27 November 2000 which, amongst other things, sought to curb harmful tax competition through the Code of Conduct for business taxation and the proposals on the taxation of income from savings. Our predecessors cleared the report from the Commission on the subject of harmful tax competition in December 1998.[80] They also cleared the third progress report on reinforced tax policy co­operation on 9 February 2000.

The document

33.3 This Communication contains no new legislative proposals about tax policy. Instead it describes a number of recent agreements on tax and urges Member States to make progress on a range of general issues, such as the fight against harmful tax competition and a durable reduction in the overall tax burden. More specifically, the document concludes that the Commission wishes to pursue a number of tax policy objectives, such as setting out a clear VAT legislative strategy for the next five years, examining environmental and energy taxation, and considering measures promoting convergence between the excise duty levels in the Member States on tobacco, while consulting in relation to excise duty on alcohol.

33.4 The Commission considers that the tax systems of Member States need to meet a number of challenges, such as completion of the Internal Market, Economic and Monetary Union and enlargement, and to provide for a coherent energy tax policy, while serving the interests of citizens and businesses. The Commission states:

    "Tax cuts should be focused on areas where they have beneficial supply side effects and they should be accompanied by reforms to benefit systems in order to increase growth potential and employment. Emphasis has been put on the need to reduce the fiscal pressure on labour and non­wage labour costs, in particular on relatively unskilled and low­paid labour. This approach is reflected in the BEPGs [Broad Economic Policy Guidelines] 2001 — and in the European Employment Strategy, with specific recommendations for each Member State and provision for monitoring at EU level.

    "It is also essential to get the balance right between cutting taxes, investing in public services and sustaining fiscal consolidation so as to achieve a durable reduction in the overall tax burden."

33.5 As regards tax harmonisation, the Commission states:

    "It is clear that there is no need for an across the board harmonisation of Member States' tax systems. Provided that they respect Community rules, Member States are free to choose the tax systems that they consider most appropriate and according to their preferences. The level of public expenditure is equally a matter for national preferences as long as this is adequately met by revenues in such a way that budget positions remain close to balance or in surplus. It is essential to underline that in many tax fields harmonisation is neither necessary nor desirable in view of the widely differing characteristics of Member States' tax systems and different national preferences. However, Member States' choices do not take place in isolation and international aspects need to be taken into account. So, for instance, EU tax co­ordination should generally contribute to the coherence of Member States' positions in international fora like the OECD."

The Government's view

33.6 In her Memorandum of 22 June 2001, the Paymaster General (Dawn Primarolo) says:

    "The Government notes that the objective set out at the Lisbon European Council to make the EU 'the most competitive and dynamic knowledge­based economy in the world' is at the heart of the Commission's approach on tax.

    "The Commission fully endorses the UK's policy of promoting fair tax competition while seeking to tackle harmful and discriminatory tax practices and evasion.

    "As the Communication makes clear, this approach has made substantial progress. For example, agreement has been reached on the substantive content of the Directive on taxation of savings based on UK proposals for exchange of information. This provides the basis for a Directive which will combat tax evasion without putting Europe's global competitiveness at risk.

    "The Government will continue to scrutinise closely any specific policy proposals to ensure that they match up to the programme of economic reform set out at Lisbon. For example, on VAT reform, while welcoming the Commission's emphasis on simplifying and modernising VAT arrangements, the Government will press for a prioritised work programme which ensures that the limited resources of the Commission and Member States are focused on reforms that provide real benefits to EU businesses and help improve the functioning of the Single Market.

    "On e­commerce, the Government will press for a workable, electronic system for taxing international e­commerce supplies which promotes Europe's competitiveness without placing undue burdens on business.

    "The Government does not accept the Commission's view that the need for unanimity has made progress on tax issues unduly slow. At the Nice European Council, the Government successfully ensured that tax would remain subject to unanimity both on grounds that tax is a matter for national governments and that only unanimity ensures that the complex details of tax proposals are considered sufficiently seriously to protect Europe's competitiveness.

    "As the recent agreement on the tax package showed, important agreements on tax can be secured through unanimity even when great national interests are at stake. Directives have been agreed on indirect tax to minimise distortions, reduce burdens on business, simplify rules for trade and avoid cases of double taxation. Accordingly, the Government will continue to insist that tax remains subject to unanimity and does not envisage any departure from the existing decision making process."

Conclusion

33.7 Although tax policy remains a sensitive subject, the document itself does not contain any legislative proposals and does not seem to contain anything new. We note the Government's position that it will continue to scrutinise closely any specific policy proposals to ensure that they match up to the programme of economic reform set out at Lisbon (i.e. to make the EU "the most competitive and dynamic knowledge­based economy in the world") and to the Government's insistence that tax remain subject to unanimity. We clear the document.


80  (19576) - ; see HC 34­ii (1998­99), paragraph 8 (2 December 1998). Back


 
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