Select Committee on European Scrutiny Thirty-Seventh Report




COM(01) 582

Commission Communication: Towards the Internal Market without Tax Obstacles.

Legal base:



HM Treasury

Basis of consideration:

Minister's letter of 8 July 2002

Previous Committee Report:

HC 152-xiv (2001-02), paragraph 4 (23 January 2002)

Discussed in Council:

9 November 2001

Committee's assessment:

Politically important

Committee's decision:




    1. We have previously reported on the Commission's interest in greater tax co-ordination. In October 2001, the previous Committee cleared the Commission Communication: Tax Policy in the European Union — Priorities for the years ahead. On 23 January 2002 we left uncleared the Commission Communication: Towards the Internal Market without Tax Obstacles, pending further information. We noted that the Commission proposes a strategy for reforming company taxation in the EU in order to remove tax obstacles to the internal market. It considers that the existence of 15 different tax systems in the EU causes the European business environment to be unnecessarily complex and cumbersome, especially in the areas of transfer pricing, cross-border loss relief and cross-border business integration. We requested further information from the Minister about the Commission's proposal for establishing a consolidated tax base and the relative merits of the different approaches outlined by the Commission, especially their optional and compulsory nature and the effect on the Government's freedom to determine its own tax rates.
    2. The Minister's letter

    3. In her letter of 8 July 2002, the Paymaster General (Dawn Primarolo) comments:

"As the Committee notes in its Report the Commission's Communication identifies four technical approaches to company tax base consolidation: Home State Taxation; Common (Consolidated) Base Taxation; European Corporate Income Tax; and a harmonised single tax base in the EU. The Commission express no preference for one approach over another and note that all the approaches have particular advantages and disadvantages and require further analysis.

"The Committee asks about the relative merit of these proposals. The Government's view is straightforward. The Government considers that fair tax competition not tax harmonisation is the way forward for Europe. Accordingly we do not see merit in any of the suggested approaches to tax base consolidation.

"As far as the optional and compulsory nature of the approaches is concerned, in paragraph 64 of the executive summary of the staff working paper, the Commission say that they envisage that the first three approaches could be operated as optional schemes alongside national schemes.

"On the freedom to determine tax rates, the Communication is clear. For instance:

    • On page 9 of the Communication, the Commission make clear that there is no convincing evidence for them to recommend specific actions on the approximation of national corporate tax rates;

    • On page 15, they state 'It is important to note that this approach does not infringe Member States' sovereignty to set corporate tax rates. They would apply their national tax rate to their specific share of the overall tax base ...'.

"Finally, the Committee might like to know that the Commission hosted its proposed European company tax conference in Brussels on 29-30 April. The Commission said that it will publish a progress report in early 2003 and that, in the meantime, it intends to continue discussions with Member States and other interested parties and with work on technical aspects."


    1. As we noted in our earlier Report, although the document itself does not contain any legislative proposals, it clearly sets out the Commission's objective of establishing a European consolidated corporate tax base whereby companies with cross-border activities within the EU will be able to compute the profits of the whole group on a consolidated basis according to one set of rules. The objective is seen by the Commission as a way of overcoming tax obstacles to the internal market.
    2. We thank the Minister for the further information and request to be kept informed of developments.
    3. Meanwhile we clear the document.


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Prepared 26 July 2002