30.3.2004 EN C 80/139 Official Journal of the European Union
Opinion of the European Economic and Social Committee on ‘Taxation in the European Union:
common principles, convergence of tax laws and the possibility of qualified majority voting’
(2004/C 80/33)
On 17 July 2003, the European Economic and Social Committee, acting under Rule 29(2) of its Rules of
Procedure, decided to draw up an own-initiative opinion on ‘Taxation in the European Union: commonprinciples, convergence of tax laws and the possibility of qualified majority voting’.
The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 26 November
2003. The rapporteur was Mr Nyberg.
At its 404th plenary session held on 10 and 11 December 2003 (meeting of 10 December), the European
Economic and Social Committee adopted the following opinion by 78 votes to 23, with 15 abstentions.
1. Introduction
1.1. Tax policy is an aspect of macroeconomic policy that
is always at the centre of the political debate, both at nationaland EU level. There are considerable differences betweenMember State tax policies. This is not just a matter of tax rates;
there are already differences in the way the tax base is
calculated and tax systems are organised in terms of taxcollection, tax inspection, etc.
1.2. Different political parties have different ideas about the
way they want to see tax systems evolve. The tax debate within
the European Union suffers doubly in this respect, since thedifferences are not just between political parties, but also a
consequence of the different frames of reference from national
tax systems. Moreover, the discussions can be held with, onthe one hand, all the Member States, and with the eurozonecountries on the other.
1.3. This is why it is difficult to secure a common approach
to taxation, and difficulties can already arise when describing
tax systems, due to the different definitions of taxation and thefact that not all forms of taxation necessarily exist in all
countries. It is our hope, however, that this opinion will push
the debate forward and help us move towards a more unifiedapproach to taxation and its development.
1.4. We take as our starting point the Treaty’s rules on tax
policy, and the debates and proposals of the Convention onthe future of Europe. We will give a brief description of the
way the fifteen tax systems of the European Union have
developed. Although we are fully aware of EU enlargement in2004, the lack of material has nevertheless obliged us torestrict our analysis to the current Member States.2. Competence and decision rules — the Treaty of Rome
and the Convention on the Future of Europe
2.1. The current rules on taxation and duties are contained
in Articles 90 to 93 of the Treaty of Rome. The decision rules
are in Article 93:
2.1.1. ‘The Council shall, acting unanimously on a proposal
from the Commission and after consulting the European
Parliament and the Economic and Social Committee, adopt
provisions for the harmonisation of legislation concerningturnover taxes, excise duties and other forms of indirecttaxation to the extent that such harmonisation is necessary to
ensure the establishment and the functioning of the internal
market within the time limit laid down in Article 14’.
2.2. The Convention on the Future of Europe discussed
various new decision-making procedures in the field of
taxation. Articles 90 to 92 remain unchanged, save for revised
numbering. In the text submitted to the IntergovernmentalConference, the decision rules are contained in two articles.
2.2.1. ‘ Article III-62
1. A European law or framework law of the Council of
Ministers shall lay down measures for the harmonisation of
legislation concerning turnover taxes, excise duties and otherforms of indirect taxation provided that such harmonisation isnecessary for the functioning of the internal market and to
avoid distortion of competition. The Council of Ministers shall
act unanimously after consulting the European Parliament andthe Economic and Social Committee.
2. Where the Council of Ministers, acting unanimously on
a proposal from the Commission, finds that the measuresreferred to in paragraph 1 relate to administrative cooperation
or to combating tax fraud and tax evasion, it shall act,
notwithstanding paragraph 1, by a qualified majority whenadopting the European law or framework law adopting thesemeasures.’
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2.2.2. ‘ Article III-63
1. Where the Council of Ministers, acting unanimously on
a proposal from the Commission, finds that measures on
company taxation relate to administrative cooperation orcombating tax fraud and tax evasion, it shall adopt, by a
qualified majority, a European law or framework law laying
down these measures, provided that they are necessary for thefunctioning of the internal market and to avoid distortion of
competition.
2. That law or framework law shall be adopted after
consultation of the European Parliament and the Economic
and Social Committee.’
2.3. The first of these two articles (Article III-62) contains
two paragraphs, the first of which replaces Article 93. Thewording has been revised and uses the terminology suggested
by the Convention in other articles. A substantive change, in
addition to the link established with the single market, is theinclusion of the reference to harmonisation being necessary to
avoid distortions of competition between firms. Articles III-62
and III-63 both use the word ‘and’ in ‘for the functioning ofthe internal market and to avoid distortion of competition.’ Inorder to avoid situations in which this might be interpreted as
applying to only one, the Committee suggests that ‘and’ should
be changed to ‘or’.
2.3.1. The second paragraph is a clear extension, not of
competence, but of the possibility of qualified majority voting.However, for all matters relating to the tax base and tax rates,
unanimity continues to be required.
2.4. Article III-63 provides for greater use of qualified
majority voting by introducing a new competence for dealingwith administrative cooperation, tax fraud and tax evasion inrelation to company tax. This constitutes an extension to the
previous competence dealing with indirect taxation alone.
2.5. Both these Articles thus introduce a provision for
qualified majority voting in certain limited cases, but theCouncil must always decide unanimously in cases of adminis-trative cooperation, tax fraud or tax evasion. These decisions
are, in the main, a matter for the Commission. Both Article III-
62 and Article III-63 should therefore begin ‘Wheremeasures...’. This would mean deleting the phrase: ‘Where the
Council of Ministers, acting unanimously on a proposal from
the Commission, finds that measure’.
2.6. The Convention debates gave rise to proposals for
more radical changes to the Treaty articles on taxation, inparticular extending competence beyond indirect taxation andabandoning the unanimity requirement in favour of qualified
majority voting for several tax matters.
2.7. Articles 94 and 95 (III-64 and III-65) deal with
the arrangements for the approximation of single marketlegislation. Tax matters are specifically excluded from qualified
majority voting. Article 96 (III-66) states that decisions can be
made by qualified majority voting in cases where MemberState legislation might distort competition in the single market.
Since tax policy is not specifically excluded, it would be
interesting for the Commission to test this Article in the areaof corporate taxation, for example.
2.8. Article 175 (III-180) provides the legal basis for
unanimous decisions on environmental taxes and charges,whereas qualified majority voting can be used for general
environmental policy decisions.
3. Direct and indirect taxes
3.1. The fact that indirect taxation is governed by the Treaty
explains its fundamental importance for the operation of thesingle market. However, a distinction is made between directand indirect taxation in all other contexts.
3.2. Another category is usually used when referring to
work, capital and consumption, the first two of which are
subject to direct taxation. The picture is further complicatedby the fact that income from work is subject to both income
tax and social insurance contributions. Given the considerable
differences in income tax/social insurance ratios, comparisonsshould always take these two aspects into account.
3.3. Furthermore, taxes can be national, regional or local.
Major differences exist in the way taxation is distributed
between these three levels.
3.4. One type of tax that has increased somewhat in
importance, but which does not fit into the above classifi-
cations, is environmental tax. This can be applied in either theproduction or consumption stage, and can therefore be director indirect. The very name means that it is sometimes omitted
from tax comparisons because it is often referred to as
‘charges’. Regardless of the name, these taxes should beincluded in tax levy data.
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4. Comparisons between the Member States
4.1. Our statistics are taken from a Eurostat publication
entitled ‘Structures of the taxation systems in the European
Union’. They are particularly useful for comparison purposes
since they are not only based on current tax rates, but alsorefer to the tax levy as a whole. For each form of tax, the
amount actually collected is given as a proportion of the tax
base. This is known as the ‘implicit tax rate’. This means thatboth the tax rate and the way the tax base is calculated impacton the figure. Comparisons based on tax rates alone are likely
to be misleading, since the rules for calculating the tax base
can vary considerably. A high tax rate can yield low taxreceipts if large deductions can be made when calculating the
tax base.
4.2. The Eurostat data refers to 1995-2001, and reveals
some general trends: (a) a trend towards reducing the share oftax levied on work (following a period when it had increased);
(b) attempts to reduce corporation tax rates whilst increasing
the tax base; and (c) increases in indirect taxation as part of thegrowth in ‘green’ taxes. The latter has often been combined
with a reduction in taxation on work. While these trends do
exist, they are developing very differently from one MemberState to another. Any decisions that might increase thedifferences between the Member States must be avoided.
4.3. If we need to divide the Member States into categories,
we can say that in the Nordic countries, direct taxes accountfor a large proportion of tax receipts, whereas in Portugal andGreece, the same is true of indirect taxation. In Denmark,
Great Britain and Ireland, social insurance makes up a small
proportion of tax receipts.
4.4. Comparisons over time must also take into account
the fact that any changes that occur are not necessarily due to
real changes to the tax systems. During the second half of the
1990s, which was a period of growth, both household andcorporate incomes increased. This led to higher receipts from
direct taxation in both cases, as is clear in Eurostat table II-4.2,
without any change to either tax rates or the tax basecalculation rules. The situation changed with the end of this
period of growth in 2001, and has now probably shifted to
one in which tax receipts are falling without any changes beingmade to the systems.
4.5. There are differences in terms of the tier of government
responsible for collecting taxes. In Greece, the local authorities
collect 1 % of the tax levy, whereas this rises to one third in
Denmark. The local level accounts for a large proportion oftax receipts in all the Nordic countries. The regional levelcollects a particularly large proportion in the ‘federal’ countries,
i.e. Germany, Belgium, Spain and Austria. These differences
are important within each Member State, but not for relations
between the Member States. Federal states could have problemsin implementing EU level tax decisions if decisions are takenat federal state level.
4.6. The Member States are often grouped together accord-
ing to size of the tax levy. A more complex picture emergeswhen looking at the tax burden on work, capital and consump-
tion. Sweden and Finland appear as high tax countries for all
three, whereas Denmark has particularly high tax rates forconsumption, but not for capital. The low tax countries
UK and Ireland actually have relatively high tax rates for
consumption and capital. The low tax country Greece has aparticularly high rate for consumption, which accounts for
over 40 % of all tax levies. Generally speaking, if the only
previous criterion has been the general VAT rate, then theconsumption tax rate would appear to be surprisingly high.When other sales taxes are included, along with the effect of
reduced VAT rates, the differences between countries look
somewhat different. As much as a third of Luxembourg’stax income comes from tax on capital. Denmark and the
Netherlands have the highest proportion of environmental
taxes.
4.7. In order to determine the effectiveness of taxation, we
need to compare the data for actual tax levies with tax rates. Ifa country with a relatively high tax rate does not also have a
high tax levy, then either the tax base is open to large
deductions, or tax collection is inefficient. Given that theCommission and Eurostat have used such comprehensive taxbases as work, capital and consumption, it is difficult to
compare actual tax rates, as these often affect only part of
these three major taxation areas.
4.7.1. The issue of tax on capital raises the question of tax
bases that are most vulnerable to the tax rules of others.However, it is extremely complicated to compare taxation of
capital in order to assess where the effect on other countries is
greatest. It comprises four main strands: corporation tax, taxon income from interest, dividends and capital gains. Here
again, it is not possible to restrict a comparison of any of these
to tax rates, since there are also differences in the scope of anydeductions etc. It is not possible to consider only one of these;situations such as low corporation tax combined with high
taxation of dividends and capital gains must also be taken into
consideration. All these aspects of taxation have an impact onrelations with other countries’ tax systems.
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4.8. Finally, it must be remembered that the tax levies
described are only based on tax rates and the relevant tax
bases. Many of the differences between the various countries
are a result of other policy decisions. A tax deduction forchildren yields a lower total tax levy than does child allowance,although the actual level of support is the same. Reducing the
VAT rate on children’s clothes also has a different impact on
tax receipts than does child allowance. The statistics also showthat a lower VAT rate does not always have the desired effect
on prices. A budget deficit will, of course, give lower receipts
today, but higher ones when the deficit is gradually madegood.
5. Why taxes?
5.1. Tax systems have developed over a long period of
history. In European countries they are now accepted as partand parcel of a socially well-functioning democratic society,
but there is no single reason for taxes; in fact, there are several.
— The main reason is, of course, to obtain money for the
public sector and public services, thus enabling the
provision of good social services. The amount of taxcollected and the procedures for doing so depend largelyon various traditions and on the desire to entrust various
matters to the public sector.
— The decision to choose one form of taxation over another
to fund the public sector impacts on income distribution
and allocation of economic resources.
— The way the tax systems are organised and the relation
between these systems and social security systems canimpact on manpower levels and also on individual
decisions as to how much to work.
— Monetary policy measures aside, tax changes are the most
important and fastest economic policy measure available
when seeking to influence the economic situation.
— Certain forms of tax aim to impact directly on the
operation of the market. The most obvious example isthe use of taxes or charges on activities that pose a dangerto the environment, in an attempt to reduce production
or consumption. Attempts to use specific taxes to curb
consumption of tobacco and alcohol, for example, areanother example.6. Tax base — tax rate
6.1. Eurostat’s decision to report tax receipts in terms of an
‘implicit tax rate’, which takes account of both the tax base
and the tax rate, is clear evidence of the fact that both arecrucial to the tax levy. The general debate on taxation has
focused excessively on tax rates.
6.2. Since tax rates are more controversial politically, we
propose to begin by focusing on a study of the differences in
the calculation of the tax base. This should then enable us, in
stage two, to propose more common rules in order to bringcalculation methods more closely together. In the third stage,
where it is essentially tax rates that are responsible for the tax
levy differences, the debate could focus on whether thereshould be a minimum tax rate.
6.3. However, there are some purely statistical problems
involved in looking at tax rates alone. For example, there areconsiderable variations between the Member States as regards
derogations from the general VAT rate. Consequently, there
are differences in the extent to which countries exploit thepotential tax base. This affects the amount of tax receiptscollected through VAT regardless of the general VAT rate (
1).
But this distribution of exemptions is significant and important
as regards the repercussions on the distribution of incomesand on the degree of redistribution of tax regimes.
6.3.1. The Commission has said that ‘EU tax policy should
continue to facilitate efforts to cut nominal rates whilebroadening the tax base, thus reducing the economic distor-
tions associated with Member States’ tax systems’ (
2). This type
of tax policy approach must not just apply to VAT; it isperhaps even more important for other forms of tax such as
corporation tax and environmental taxes.
6.3.2. Another tax base difference between the Member
States is that only certain areas of public sector activity are
subject to VAT. If a country with a large public sector wants
to have as much VAT income as a country with a small publicsector, it must set a higher VAT rate. This means that the VAT
rate must be set nationally.
(1) A Swedish study shows that if the general VAT rate in Sweden
were to apply to all goods and services, it could be lowered from25 % to 21-22 %. Since one of the reduced VAT rates applies tofoodstuffs, such a change could impact considerably on incomedistribution.
(
2) COM(2001) 260 final.
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6.4. Judging by the tables on taxation of environmental
factors contained in the appendix, there are also considerable
differences in the way in which the base for these taxes or
charges is calculated. Not all the countries generally regardedas taxing environmentally dangerous activities particularlyheavily are included in the list of countries with high tax
receipts from these forms of tax. There could be two reasons
for this: either because there seems to be considerable scopefor avoiding this type of taxation in a number of countries, or
because the tax is so high that consumers actually choose to
avoid these dangerous products. The ‘polluter pays’ principlewould be have more impact if there were greater uniformity
of the tax base rather than just sufficiently high tax rates. This
is not just important from the environmental point of view,but also to achieve a more level playing field.
6.5. Although statistics are more readily available for the
tax base and tax rates, there is a third area where differencesbetween Member States can be seen: the way tax systems are
organised. How is tax collected, i.e. who is responsible for tax
collection? When does it take place and how often? What arethe inspection procedures? Is modern computer technologyused and do the authorities and the public have the necessary
IT skills? Can the procedures be regarded as simple, or is there
still a lot of unnecessary bureaucracy?
6.6. It is crucial to provide answers to these questions at
national level, in order to establish the receipts actually
generated by a certain tax rate and the costs involved. But it isalso important to secure greater standardisation of the various
procedures in order to facilitate the operation of the single
market. It is often difficult to learn how to deal with a nationalsystem, but when engaging in international trade, one must be
able to cope with several systems. In many cases, this can pose
a greater obstacle than any tax rate differential. These problemscan be insurmountable barriers for SMEs.
6.6.1. This type of problem must be an important focus of
the Commission’s continuing efforts. It is essential if the
Member States are to accept a more standardised calculationof tax bases. It is also to be hoped that the new concept of
‘administrative cooperation’ will cover all forms of cooperation
that can eliminate unnecessary differences and red tape.
6.6.2. The question of introducing competition between
different tax systems always leads to heated discussion. Thereis a need to be very explicit on what kind of competition it
concerns. It is wrong to presume that it always concerns tax
rates and tax bases. Competition that leads to more efficientand less bureaucratic systems should on the other hand alwaysbe welcomed. To achieve such a competition, which succeeds
in bringing forward best practise, we propose that a new ‘open
method of coordination’ for such aspects of tax policy isconsidered.7. Interdependence and the need for more standardised
systems
7.1. As the Member States become more integrated econ-
omically, the differences in their tax systems become moreimportant. Where the situation is static, the differences are oflittle consequence. They have arisen because traditions vary,
and also because some countries have chosen to deliver a
greater proportion of social services via the public sector, andtherefore have a higher total tax percentage in the economy.
The traditions are long ones, and economies have adapted
over time. In a more dynamic economy, and particularly whenthe dynamism is partly the result of the rapid integration of
several countries, some of the tax system disparities can have
a greater impact on the way in which economies interact.
7.1.1. Market integration was facilitated by the decision to
launch the Single Market and the establishment of EMU. The
process could continue with ever more coordination, includingin the area of economic policy, of which tax policy is a part.Integration goes hand in hand with increased competition. This
improves efficiency and economic potential. When increased
competition leads to increased productivity, the outcome canonly be positive for businesses, employees and the economy
as a whole.
7.1.2. However, the integration process contains inherent
risks if, on the other hand, different methods are adopted in
order to cope with increased pressure from competitors. It
might be easier to accept weaker social or environmentalprotection, or to resort to tax policy when unable to secureproductivity gains to cope with competition. This type of
change cancels out the benefits of increased competition.
Inadequate competitiveness either leads to changes foremployees and the environment, or is transported to other
countries via tax dumping. Single market legislation has often,
but not always, managed to thwart this tendency towardsweaker social and environmental protection. In the field of
taxation, however, this has seldom been the case.
7.1.3. The correlation between tax policy and an inability
to achieve a level playing field is not taken seriously enough.
The Primarolo Report describes, for example, a number ofcorporation tax measures that distort competition. The Mem-ber States have undertaken to eliminate the most detrimental
of these (some 66 measures). The Commission is expected to
produce a progress report on this soon. These direct systemerrors in tax policy must be removed.
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7.2. The creation of the single market and the introduction
of the single currency have, however, already provided a more
level playing field. Policy measures have thus set limits for the
operation of the market economy. While opinions might varyas to whether this process has been adequate or whether theactual content of the rules has always been optimal, there
is considerable agreement that this development has been
beneficial for the operation of the single market. Removingobstacles is especially important for SMEs, so that they can
better exploit ‘international’ trade within the single market.
7.2.1. The ‘fixed framework’ approach to the operation of
the single market, which aims to create a level playing field in
which the Member States can compete, must continue to beapplied. However, there is a particular need for more rapid
decision-making in the field of tax policy, as this is crucial to
securing a competitive climate. That said, we must be sure thattaxation decisions do not stymie the growth of the single
market. However, as mentioned in point 5.1, as well as being
an economic policy instrument, taxation also encourages (orpenalises) certain economic behaviour, particularly as part ofan approach that is favourable to sustainable development,
taking ecology into account. Consequently, there must be an
exception to this rule, which is that there is justification forusing environmental taxes to keep development from moving
in a politically undesirable direction. Taxes that distort compe-
tition should be regarded in the same way as direct state aid.The impact on competition in the single market is the same.
7.2.2. If no policy decisions are taken, the more difficult
competitive climate created by integration will put downward
pressure on the taxes and charges that affect companies most
directly. Lower tax levels, along with any reapportionment ofthe various types of taxation, are a mistake if market-driven.The latest reforms of corporation tax in the various Member
States have all been in the direction of reducing tax rates, with
the EU-15 average passing from 32,42 % to 29,70 %. If suchchanges are desired, they must result from policy decisions in
which other countries’ tax systems are not the decisive factor.
7.3. While most types of tax have no direct or decisive
impact on the single market, they can, of course, play a very
important role in the operation of national markets. The needfor more uniform systems should, then, only be seen in
relation to the operation of the single market.
7.4. The Treaty of Rome made indirect taxation a com-
petence of the European Union precisely because it impacts on
the internal market. The Convention added a certain degree ofcompetence for corporation tax. However, it only refers toadministrative cooperation, tax fraud and tax evasion. These
are important measures, but they are far too limited to cover
all the conceivable effects of corporation tax on the internal
market.
7.4.1. The references to the operation of the single market
and to measures to prevent distortions of competition are very
welcome. The definition of ‘distortions of competition’ will bevery important and the discussion in the Primarolo Group can
be a starting point.
7.4.2. We will only be able to say with certainty if
‘administrative cooperation’ is an adequate expression when
we have fully understood what it actually covers. If theintention is to try to secure greater standardisation for tax
collection and recovery rules, tax inspection, tax return format
and the like, then the term is acceptable. But if it only refers tothe amount of cooperation needed when assisting people whomove from one country to another or carry out transactions
in several countries for one reason or another, then it is far too
restrictive.
7.4.3. In addition to the restrictive wording, the biggest
shortcoming is that there is no unified approach to the typesof tax that are likely to impact on the single market and
competition. By this we mean on the one hand, taxation of
income from capital, which is of considerable importance tothe development of a common European financial market and
to easy access to investment capital in each country; and on
the other, the lack of any reference to taxation to protect theenvironment.
7.5. The European Union must be given competence for all
areas that affect the single market and competition conditions
between Member States. This must include all taxes and
charges that have such an impact. There must be no need forthe EU to resort to the article that gives it the right to decide
unanimously to address specific questions at Community level.
In addition to widening the fields of competence, there is alsoa need to specify which areas are concerned (the single market
and competition conditions), and whether decisions are to be
taken unanimously or by qualified majority voting. A factor inchoosing the decision-making procedure must be the increaseddifficulty in reaching a unanimous decision in a Union of
25 Member States.
8. Decisions currently in force
8.1. Despite the shortcomings in the wording of the Treaty,
important tax questions have been on the agenda and certaindecisions have also been taken in recent years.
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8.2. On 3 June 2003, following a fourteen-year debate and
much compromise, the Council of Ministers adopted a package
of tax measures covering income from interest and corporation
tax. It is probably easier to criticise the way this decision wasmade than its actual contents.
8.2.1. With regard to income from interest, it was decided
that each country must report any interest paid to foreignersto their country of origin, so it can be taxed there. The ten new
Member States will start to do this in 2007. Exemptions are
provided for Luxembourg, Belgium and Austria, and for the‘tax havens’ (Switzerland, Monaco, Liechtenstein, Andorra, SanMarino, Gibraltar and the Channel Islands), which will tax
foreigners’ savings at source and send three-quarters of the tax
received to the saver’s country of origin. All the rules will enterinto force in 2005. In the countries benefiting from an
exemption, the withholding tax rate will be 15 %. It will rise
to 20 % in 2008 and to 35 % in 2011. Moreover, the UnitedStates has agreed to provide information if required.
8.2.2. With regard to income from interest, the decision
can be seen as far-reaching. However, the effects are limited in
as much as other forms of capital income, such as share
dividends and various insurance products, are not included.
8.2.3. The package also contains provisions on royalty
payments, so that they will not be taxed twice. Corporationtax is also included through a code of conduct in which the
Member States commit themselves to abolishing 66 specific
measures with a view to preventing unfair competition.However, this part of the tax package has nothing to say on
corporation tax rates. Consequently, one must realise that, in
its present state, the tax package remains incomplete, especiallyas regards the corporation tax.
8.3. Environmental taxes and charges have also been on
the agenda in recent years. Article 175 (III-130) provides that
decisions on environmental taxes must be taken unanimously.
Convention proposals to introduce qualified majority votingin this paragraph were defeated. A final decision remains to be
taken on many Commission proposals, including the diesel
tax and biofuels directives. On 27 October 2003, the Counciladopted a decision on taxation of energy products. Thedecision will enter into force on 1 January 2004 and will
reduce tax discrepancies for various types of energy. Over the
last ten years there have been several promises to address thisissue at European Council level.8.3.1. The unanimity requirement is probably the reason
why the Commission has not submitted formal proposals on
packaging, CO
2emissions from motor vehicles, aviation fuel,
etc. Moreover, there are no proposals to grade products fortaxation according to how dangerous they are.
8.4. In the meantime the Commission has also produced
proposals for more standardised rules for reduced VAT rateson certain products. The Commission takes the view that a10 % disparity (15 %-25 %) is acceptable in the single market.
However, with some reduced VAT rates the difference can be
too great, going from 0 % to 25 % (
1).
9. Qualified majority voting and minimum levels
9.1. Unanimity is required for all EU tax decisions. The
Convention has proposed a slight easing of this rule, but
neither the calculation of the tax base nor of tax rates are
covered by this proposal. The EESC has said on severalprevious occasions that the unanimity requirement for taxmatters needs to be reviewed.
9.1.1. The unanimity requirement means that fewer pro-
posals can be translated into decisions. It also means, as we
saw with savings income, that it can take a tremendously long
time to get a unanimous decision. Moreover, this particularcase shows how players can exploit the unanimity requirement
to promote their ideas in other policy areas. Another conse-
quence is that the Commission, being only too aware of theneed for unanimity, chooses not to submit proposals that a
Member State is expected to oppose. A decision that includes
all the Member States is always preferable. If, on the otherhand, the unanimity requirement leads to decisions being taken
by the eurozone countries or through reinforced cooperation,
some inequalities will persist.
9.1.2. As we see it, there is only one way to unravel all
these knots. The European Union must have competence andbe genuinely able to decide by qualified majority voting in taxmatters whenever a country’s ability to set its own taxes is
largely dependent on the behaviour of the other Member States
in a single market of 25. It is because of this situation, wherethe policy of one country impacts on the rest, that the IGC
must exploit its room for manoeuvre to extend the scope for
qualified majority voting on tax policy. National sovereigntyfor some tax decisions is an illusion when it is, in fact, the single
market that sets the constraints for national tax decisions. A
theoretical right to make decisions is no real sovereignty at all.
(1) See EESC opinion on COM(2003) 397 final, OJ C 32, 5.2.2004.
C 80/146 EN 30.3.2004 Official Journal of the European Union
9.2. If the mobile tax base becomes less easy to tax
because single market competition has harmonised tax rates
downwards, the tax burden on the working population will
increase and eventually become unbearable in the demographicscenario that awaits us. The need for transparent tax systemsthat are perceived to be fair will thus become even more
important in the future, when demographic change leads to a
reduction in the proportion of the working population that ispaying for social security.
9.3. If qualified majority voting rules are adopted, the type
of taxes concerned will have to be very clearly defined. Clearly,
corporation tax, and taxation of income from capital and ofenvironmentally hazardous activities belong in this category.
There is no case for establishing a general right to adopt tax
decisions by qualified majority voting. It must be restricted, asproposed by the Convention, to taxes that impact on theoperation of the single market or are likely to cause distortions
of competition. Taxation of earned income and, for example,
property must therefore remain a national competence, andany EU-level decisions on these must be taken unanimously. It
is therefore difficult to set any clear boundary. There are taxes
such as VAT and other sales taxes that affect the single marketin some respects, but any impact they might have does not
constitute such a clear distortion of competition within the
single market.
9.4. This restriction as to the type of tax concerned is one
of two limitations. The second is that this is not a matter ofharmonisation but only of setting minimum levels. A country’s
ability to set its tax rates as it wishes is only frustrated when
certain countries cut their taxes to such low levels that theothers are obliged to follow suit for the sake of competition.
If, after the minimum levels have been set, a country chooses
to keep taxes higher or even to increase them, it is a nationalmatter. It can only have a domestic impact, i.e. a negative
impact on the nation’s ability to compete.
10. Summary and conclusions
10.1. The differences between Member State tax policies
are not just confined to tax rates, but also to tax basecalculation criteria and the way the tax systems are organised.
Consequently, the difficulty encountered in achieving a com-
mon position on tax issues is not just a question of differingpolitical views.10.2. Under the tax policy changes proposed by the
Convention on the Future of Europe, EU action can be
legitimate not just for the needs of the single market but
also to address distortions of competition. The Conventionproposes a switch to qualified majority voting for administrat-ive cooperation, tax fraud and tax evasion, and that this shall
also apply to corporation tax in addition to indirect taxes.
10.3. A comparison of the Member States’ tax burdens on
work, capital and consumption, and recourse to environmental
taxes, reveals a complex picture. Data relating to corporation
tax also show that changes in tax receipts can be a result ofthe economic situation, without the tax rules actually being
altered.
10.4. In addition to the main objective of funding the
public sector, taxes are used to impact on income distribution,the market (e.g. use of hazardous products), employment
supply, and as a strand of economic policy to influence the
business cycle.
10.5. With regard to tax policy, an attempt should first be
made to secure more common rules for calculating taxes,
deductions, etc., and the administration and efficiency of the
systems before addressing tax rate decisions. Differences otherthan in tax rates can often be a source of major headaches,
particularly for small firms that are thinking of launching their
products on the single market.
10.6. As economic integration between the Member States
gathers pace, so does the significance of tax system differences.
Integration goes hand in hand with increased competition,which can improve efficiency and economic potential. How-
ever, when unable to cope with competition through pro-
ductivity gains, there is a risk of resorting to weaker environ-mental or social protection, or tax cuts, in order to ‘protect’
firms that are exposed to competition.
10.6.1. Measures that distort competition in areas such as
corporate taxation must be eliminated. Tax policy must
therefore be developed and decisions speeded up to provide a
more level playing field. Taxes that distort competition havethe same impact on the single market as direct state aid.
10.6.2. Convention proposals for simpler decision-making
procedures for administrative cooperation and measures tocombat tax fraud and tax evasion will only be meaningful if
they are interpreted widely enough to reduce unnecessary
differences in tax systems in order to improve the operation ofthe single market.
30.3.2004 EN C 80/147 Official Journal of the European Union
10.7. After a 14-year debate a decision has now been taken
on the gradual introduction, by the year 2011, of a fairer
system for taxing income from interest. Following the aut-
umn 2003 decision, energy taxation will be more uniform,whereas most areas of environmental taxation appear to havegot stuck in the decision-making machinery. With regard to
corporation tax, a start has been made on the more detrimental
rules, but there is still some way to go before we get a morecomprehensive regulation.
10.8. The European Union must have competence and be
genuinely able to decide by qualified majority voting in cases
where a country’s ability to set its own taxes is largely
Brussels, 10 December 2003.
The President
of the European Economic and Social Committee
Roger BRIESCHdependent on the behaviour of the other Member States. If the
mobile tax base becomes impossible to tax, then the taxburden will increase on the fixed tax base, which means,basically, the working population.
10.8.1. Qualified majority voting must be restricted to
certain types of tax, such as corporation tax, taxation of incomefrom capital and of environmentally dangerous activities. Itshould also apply to taxes that impact on the operation of thesingle market or distort competition. It must not apply to anynational differences that have no impact on the market or oncompetition. In addition to applying to certain types of taxonly, qualified majority voting must only be used to set
minimum levels.