Brussels retreats on tax plans
Financial Times, January 24 ,2001

The European Commission is retreating from its controversial drive to harmonise taxes throughout the union.

In an internal debate on Wednesday on reorientating its future tax strategy, the Commission will accept that member governments are unlikely to agree to large-scale harmonisation in the foreseeable future. Instead, Frits Bolkestein, the EU’s internal market and tax commissioner, will advocate a more pragmatic focus on the practical problems encountered by individuals and businesses in the single market.

The Commission’s move to a less ambitious tax policy is partly a reflection of its failure to convince member countries to agree to more qualified majority voting on tax issues at the Nice summit last December. It will now try to increase use of existing law, and start taking governments to court for introducing tax rules that contravene the EU’s founding treaty.

The Commission will point to the prospect of groups of countries moving ahead on co-ordination of taxation under the enhanced co-operation mechanism established at Nice.

The move has delighted the British government. A colleague of Gordon Brown, the chancellor, said: ”Nice demonstrated that the tax harmonisation agenda is waning and that the way forward is exchange of information.”

The EU has tried to crack down on harmful tax competition between countries, and this is likely to remain a priority, but Mr Bolkestein is expected to say today that a reasonable degree of competition is healthy and should be allowed to operate.

The Commission is particularly disappointed with the slow progress of taxation directives which have to be agreed unanimously by finance ministers - 16 proposals are now on the table, many dating from the early 1990s.

Company taxation is an area where the Commission may bring forward ambitious proposals for pan-European action on cross-border tax obstacles. It is studying the problems companies encounter with double taxation and tax barriers, particularly in mergers and acquisitions. Officials are also looking at the big differences in corporation tax rates, which vary from 40 per cent in Germany and Greece to 28 per cent in Sweden.

Companies are pressing officials to come up with comprehensive pan-European rules when they table proposals in the next couple of months. But the Commission recognises that EU countries will be reluctant to agree on any kind of far-reaching change.

The Commission wants to press for a reduction in the tax burden on individuals, and to remove tax barriers to the movement of people around the single market. It will also try to undo the mismatch in taxes on pensions.

Mr Bolkestein wants to improve the way VAT is levied and crack down on fraud. He wants to move ahead on energy taxes and vehicle taxation. However, legislation will only be proposed if absolutely necessary.

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