General tax policy

The power to levy taxes is central to the sovereignty of EU Member States, which have assigned only limited competences to the EU in this area. The development of EU tax provisions is geared towards the smooth running of the single market, with the harmonisation of indirect taxation having been addressed at an earlier stage and in greater depth than that of direct taxation. Alongside these efforts, the EU is stepping up its fight against tax evasion and avoidance, which constitute a threat to fair competition and are the cause of a major shortfall in tax revenues. According to the Treaty, tax measures must be adopted unanimously by the Member States. While tax policy is greatly influenced by the case law of the European Court of Justice, the European Parliament has the right to be consulted in this regard, except in budgetary matters, for which, as co-budgetary authority, it shares decision-making powers with the Council. Tackling tax avoidance and aggressive tax planning is a key challenge. Further cooperation, coordination and transparency between EU Member States in tax policy would help both to curtail significant revenue losses for Member States and ensure greater fairness across the EU. Further to progress already achieved and ongoing work, the Commission has proposed new initiatives in a Communication published in June 2016. Among these are the proposed revision of the Administrative Cooperation Directive and amendments to the Fourth Anti-Money Laundering Directive. Moreover, the Commission will this year seek to revive its proposal for a common consolidated corporate tax base and prepare an EU-owned ‘Tax Haven list’ by the end of 2017. In recent years, the European Parliament, along with its two special committees on taxation and the inquiry committee on the Panama Papers, has played a very important role in shaping new tax policy and initiating new initiatives at the EU and global levels, notably in the fight against tax avoidance, tax evasion, aggressive tax planning and money laundering.

Legal basis

The tax provisions chapter (Articles 110-113) of the Treaty on the Functioning of the European Union (TFEU), which relates to the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation; the chapter on the approximation of laws (Articles 114-118 TFEU), which covers taxes that have an indirect effect on the establishment of the internal market, with fiscal provisions not subject to the ordinary legislative procedure; other provisions relevant to tax policy, referring to the free movement of persons, services and capital (Articles 45-66 TFEU), the environment (Articles 191-192 TFEU) and competition (Articles 107-109 TFEU).

Enhanced cooperation (Articles 326-334 TFEU) can be applied in respect of tax matters. The main feature of EU tax provisions with regard to the adoption of acts is the fact that the Council decides on a Commission proposal by unanimity, with Parliament being consulted. Provisions adopted in the tax field include directives approximating national provisions, and Council decisions.

Direct taxation denotes taxes levied on income, wealth and capital, whether personal or corporate. Personal income tax (PIT) is not covered as such by EU provisions (rather, EU activity in this field is based on European Court of Justice case law). EU action on corporate income tax (CIT) is more developed, although it focuses only on measures linked to the principles of the single market. Indirect taxation consists of taxes that are not levied on income or property. It includes value-added tax (VAT), excise duties, import levies, and energy and other environmental taxes. As the development of EU tax provisions is geared towards the smooth running of the single market, the harmonisation of indirect taxation was addressed at an earlier stage and in greater depth than that of direct taxation.

Objectives

The EU tax policy strategy is explained in the Commission communication entitled ‘Tax policy in the European Union – Priorities for the years ahead’ (COM(2001) 0260). Provided that the Member States comply with EU rules, each is free to choose the tax system it considers most appropriate. Within this framework, the main priorities for EU tax policy are the elimination of tax obstacles to cross-border economic activity, the fight against harmful tax competition, tax evasion and tax fraud and the promotion of greater cooperation between tax administrations in ensuring control and combating fraud. Increased tax policy coordination would ensure that the Member States’ tax policies support wider EU policy objectives, as set out most recently in the Europe 2020 strategy for smart, sustainable and inclusive growth.

Achievements

The ‘Activity Reports’ in the tax field[1] published by the Commission present the EU’s achievements and the tax issues still to be addressed.

One tax policy issue which ranks high on the EU agenda is the fight against tax evasion and avoidance. The fight against tax fraud and evasion covers both direct taxation and indirect taxation and relies in particular on information-sharing. In the EU, around EUR 1 trillion in tax revenue is lost each year to tax evasion and avoidance, constituting a threat to fair competition and a huge loss of state income. To combat tax fraud, the Commission has adopted an Action Plan (COM(2012) 0722) and two recommendations, one on aggressive tax planning (COM(2012) 8806) and the other on the promotion of good governance in tax matters (COM(2012) 8805). This was a follow-up to a communication of June 2012 on concrete ways to reinforce the fight against tax fraud and tax evasion (COM(2012) 0351).

In May 2013 the Council adopted conclusions on tax evasion and tax fraud (Council document 9405/13), highlighting the need for a combination of efforts at the national, EU and global levels, and confirming support for work within the G8, the G20 and the OECD on the automatic exchange of information. On the same occasion, the Council also discussed a revision of the Savings Taxation Directive aimed at enlarging its scope to include all types of savings income as well as products that generate interest. On 24 March 2014 the Council adopted a directive (2014/48/EU) amending the EU Savings Directive (2003/48/EC). The amended directive broadens the scope of the current rules in order to close certain loopholes by strengthening EU rules on the exchange of information on savings income and enabling the Member States to clamp down more effectively on tax fraud and tax evasion.

Tightening EU corporate tax rules on aggressive tax planning (transfer pricing transactions, intra-group payments), preventing harmful tax competition and improving VAT compliance can help to close tax loopholes. Consideration is being given to these loopholes as part of the EU legislative process. Progress is being made, for instance, on the tax treatment of intra-group payments and on the treatment of transfer pricing transactions. The introduction of a common consolidated corporate tax base (CCCTB) could eliminate a number of tax planning opportunities together with most of the tax obstacles affecting the economic efficiency of the single market. The proposal had been on the negotiating table without any significant progress being made, but has been relaunched with the Commission communication (COM(2015) 0302 final) entitled ‘A fair and efficient corporate tax system in the EU: 5 key areas for action’.

At the international level, information-sharing has progressed. The agreement of 29 October 2014 on the early application of the new OECD global standard (GS) for the ‘Automatic exchange of information’ (AEOI) provides that the information the signatories (50 countries, including the 28 EU Member States) are to collect from 31 December 2015 will start to be exchanged in 2017, instead of 2018. The 2010 US Foreign Account Tax Compliance Act (FATCA) includes similar elements to those in the OECD standard. EU Member States will apply the AEOI in 2017 under the revised directive on administrative cooperation, which is aimed at transposing the global OECD standard on the AEOI into EU legislation, as agreed by the Council on 14 October 2014. The provisions of the EU Savings Tax Directive are more limited, and it will be suspended once the AEOI applies.

The G20/OECD Action Plan on Base Erosion and Profit Shifting (BEPS) tackles loopholes in national tax systems that are exploited by multinational enterprises to avoid paying taxes or to reduce their taxable revenue. On 5 October 2015, the OECD presented the Final BEPS package for reform of the international tax system to tackle tax avoidance. On 10 October 2015, G20 finance ministers endorsed reforms to the international tax system for curbing avoidance by multinational enterprises. On 28 January 2016, the Commission proposed a framework for a new EU external strategy for effective taxation (COM(2016) 0024).

Policy initiatives in the field of direct taxation include a proposal for a Financial Transaction Tax (COM(2011) 0594); Directive 2008/7/EC concerning indirect taxes on the raising of capital; negotiations on saving taxation agreements with EU third countries to improve tax compliance and automatic exchange of information, with a view to implementing the new single global standard developed by the OECD and endorsed by the G20; enhanced cooperation in the area of financial transaction tax (COM(2013) 0071); the taxation of savings (Ecofin Council Conclusions of 10 November 2015 on the repeal of Savings Taxation Directive 2003/48/EC).

Policy activity in the field of indirect taxation include a Green Paper on the future of VAT (COM(2010) 0695), followed by a communication on reform of the VAT system (COM(2011) 0851); a proposal for a directive (COM(2011) 0169) amending the Energy Taxation Directive (2003/96/EC) with the aim of achieving smarter energy taxation in the EU, accompanied by a communication (COM(2011) 0168); numerous individual arrangements concerning excise duties (e.g. on alcohol, tobacco and energy); the publication by the Commission of an Action Plan on VAT (COM(2016) 0148) aiming at the creation of a modernised and fraud-proof single VAT area and responding to the challenges of taxation in the digital economy.

Role of the European Parliament

Parliament has generally endorsed the broad lines of the Commission’s programmes in the field of taxation.

Recently, the fight against tax fraud, tax evasion and avoidance, and money laundering has been an EP policy priority. The ‘Panama Papers’ and ‘Lux Leaks’ revelations have shown the urgent need for the EU and its Member States to fight tax evasion, tax avoidance and aggressive tax planning, and to act for increased cooperation and transparency, particularly by ensuring that corporate taxes are paid where value is created, not only among Member States, but also globally.

On 27 October 2015, Parliament adopted a legislative resolution on mandatory automatic exchange of information in the field of taxation[2]. The ‘Lux Leaks’ scandal revealed the extent of the use of secret deals featuring complex financial structures designed to obtain drastic tax reductions. Parliament expressed its strong determination not to tolerate tax fraud and tax avoidance and to advocate a fair distribution of the tax burden between citizens and companies.

On 25 November 2015, Parliament adopted a resolution on tax rulings and other measures similar in nature or effect[3]. The work carried out by Parliament had shown that taking tax measures to reduce some large corporations’ overall tax liabilities at the expense of other countries was a widespread practice within Europe and beyond. Parliament called on the Commission to more thoroughly address corporate taxation issues, including the harmonisation of definitions; harmful tax practices and aggressive tax planning schemes; cooperation and coordination on advance tax rulings; state aid; the code of conduct; the protection of whistle-blowers; patent, knowledge and R&D boxes; a comprehensive, transparent and effective automatic exchange of tax information and a mandatory common consolidated corporate tax base; tax havens; and proposals for a EU taxpayer identification number.

On 16 December 2015, Parliament adopted a resolution with recommendations to the Commission on bringing transparency, coordination and convergence to corporate tax policies in the Union[4]. While respecting Member States’ sovereignty in relation to tax policy, Parliament stated that there is a need for EU legislative measures to improve transparency, coordination and convergence within corporate tax policies in the EU. The resolution lists a series of measures that called for the Commission to submit to Parliament by June 2016 one or more legislative proposals.

On 6 July 2016, Parliament adopted a resolution on tax rulings and other measures similar in nature or effect[5]. Recalling that the OECD estimates the revenue loss at global level to be between 4% and 10% of all corporate income tax revenue, Parliament reiterated the conclusions of its resolutions of 25 November 2015 and of 16 December 2015.

Following these requests, the Commission made a series of proposals, some of which have already been agreed by the Council.

On 8 March 2016, the Council agreed on an updated directive on the automatic exchange of information between national tax administrations, following a proposal by the Commission (COM(2016) 0025). The 4th Directive on Administrative Cooperation (DAC4) will require multinationals to report, inter alia, on their revenues, profits, taxes paid and number of employees in every country in which they operate.

On 12 April 2016, the Commission made a proposal for a Directive of the European Parliament and of the Council amending Directive 2013/34/EU as regards disclosure of income tax information by certain undertakings and branches (COM(2016) 0198). On 5 July 2016, the Commission adopted (i) a communication on further measures to enhance transparency and the fight against tax evasion and avoidance (COM(2016) 0451); (ii) a proposal for a Council Directive amending Directive 2011/16/EU as regards access to anti-money-laundering information by tax authorities (COM(2016)0452); (iii) a proposal for a Directive of the Parliament and the Council amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing and amending Directive 2009/101/EC (COM(2016) 0450).

On 12 July 2016, the Council adopted Directive 2016/1164/EU laying down rules against tax avoidance practices that directly affect the functioning of the internal market[6]. This directive closes a series of loopholes that were revealed by the ‘Lux Leaks’ scandal.

[1] http://ec.europa.eu/atwork/synthesis/aar/doc/taxud_aar_2015.pdf

[2]Texts adopted, P8_TA(2015)0369.

[3]Texts adopted, P8_TA(2015)0408.

[4]Texts adopted, P8_TA(2015)0457.

[5]Texts adopted, P8_TA(2016)0310.

[6]OJ L 193, 19.7.2016, p. 1.

Dario Paternoster

06/2017