EN Official Journal of the European Union CE 78/29

(2004/C 78 E/0031)

WRITTEN QUESTION P-1409/03

by Othmar Karas (PPE-DE) to the Commission

(14 April 2003)

Subject: Reform of European corporate taxation policy

The primary objective of European integration is enhancement of the prosperity of the Member States through the elimination of the barriers between them to the free movement of goods and production factors. The challenges confronting the European internal market in seeking to achieve this objective in the field of tax policy are correspondingly great. EU measures in the taxation field must ensure that tax systems contribute to the efficient operation of the internal market.

Parliament is fully aware of the complications facing small businesses in particular as a result of 15 (and soon 25) different tax systems and of the resulting administrative delays and barriers affecting cross-border activities and is critical of the administrative effort required by the various VAT rules and of the enormous burden of paperwork on businesses deriving from the different systems of corporate taxation and countless double taxation agreements.

What timetable and milestones has the Commission envisaged in order to make headway on this extremely controversial issue?

What opportunities and possible difficulties at the implementation stage does it detect for the following plans:

— adoption and implementation of the EU tax convention (closure of loopholes, no tax relief for direct foreign investment and holding structures);

— coordination of corporate taxation systems with a view to reducing the international room for manoeuvre for tax evasion (transfer pricing);

— same rate of taxation for corporate enterprises, partnerships and one-man businesses;

— reduction of the tax burden on the transfer of individually owned undertakings;

— implementation of a pilot project on ‘home country taxation’ (corporate taxation and income tax) for all SMEs, including partnerships;

— alignment of the double taxation agreements within the EU;

— turnover tax return for external turnover in the home country of a company where the company has no permanent subsidiary abroad;

— complete harmonisation of the administrative rules governing VAT;

— guaranteed reimbursement of VAT within an appropriate time limit (reform of 8th VAT Directive);

— continuation of the experiment involving reduced VAT rates for labour-intensive services and its extension to all sectors concerned?

Answer given by Mr Bolkestein on behalf of the Commission

(23 May 2003)

The Commission has launched a variety of initiatives, which are aimed at tackling the existing tax problems in the Internal Market with a view to improve its overall functioning and efficiency. In particular, the Honourable Member should have regard to the various activities that the Commission is undertaking following its Communications ‘Towards an Internal Market without tax obstacles — A Strategy for providing companies with a consolidated corporate tax base for their EU-wide activities’ (1) and ‘A Strategy to improve the operation of the VAT System within the context of the Internal Market’ (2). The administrative problems and compliance cost faced by small and medium-sized enterprises are receiving particular attention in this Commission work. For instance, the Commission is in the process of launching a very comprehensive compliance cost survey for 3 000 European companies. It is hoped that this survey will provide new insights on the cost for companies resulting from the need to cope with 15 separate tax systems and on the main drivers of this cost.

It is important to note that most of the measures proposed or to be proposed by the Commission require unanimous adoption by Member States, which is why the Commission is not in a position to indicate the precise timetable for their implementation.

As regards individual initiatives, the following observations can however be made:

— Adoption and implementation of the EU tax convention (closure of loopholes, no tax relief for direct foreign investment and holding structures)'. The Commission has assisted the Presidency in its efforts to achieve final conclusions on the tax package to eliminate harmful tax competition. Subject to the reservation tabled by one Member State, agreement on the package has been been reached. In particular, the work on the Code of Conduct for business taxation, which is designed to eliminate harmful tax competition by addressing business taxation measures which provide for a lower level of taxation than generally applies in the Member State concerned, has been successfully concluded.

— ‘Co-ordination of corporate taxation systems with a view to reducing the international room for manoeuvre for tax evasion (transfer pricing)’: In the ‘EU Joint Transfer Pricing Forum’, which was created in 2002 following a Commission initiative, high-level tax experts from Member States' administrations and from the business community are currently looking into possible ways for dealing with transfer pricing problems in the Internal Market. The Forum will provide a final report on its work towards the end of 2004.

— ‘Same rate of taxation for corporate enterprises, partnerships and sole proprietorships’: Partnerships and sole proprietors are predominantly subject to personal income tax laws. As stated in the Commission Communication ‘Tax policy in the European Union — priorities for the years ahead’ (3), ‘the level of taxation in this area [direct taxation] is however a matter for the Member States to decide, in accordance with the principle of subsidiarity’, provided that the Member States' laws respect the principles of the EC Treaty.

— ‘Reduction of the tax burden on the transfer of individually owned undertakings’: In accordance with the subsidiarity principle, transfer transactions of individually owned undertakings are generally a matter for Member States, subject to compliance with their treaty obligations. This is in particular the case for inheritance tax. However, in 1994 the Commission published a Recommendation 94/1069/EC on the transfer of small and medium sized enterprises and a Communication 98/C93/02 on its implementation in 1998. This subject has been addressed further by an expert group whose final report was published in July 2002 (4). It presents the measures taken by the Member States to facilitate the transfer of small and medium-sized enterprises and makes proposals for further action. The work of the experts was followed up by a project whose aim is to help Member States make further progress in implementing the Commission Recommendation and to respond to the expert group's proposals. The results of this project will be published shortly.

— ‘Implementation of a pilot project on “home state taxation” (corporate taxation and income tax) for all small and medium-sized enterprises (SMEs), including partnerships’: Following a successful workshop with stakeholders in December 2002, the Commission has launched a consultation procedure with a view to this possible pilot scheme. The deadline for contributions to the detailed consultation document has been extended until 30 April 2003. An analysis of the contributions will be published afterwards. The Commission intends to report on its conclusions from this consultation and from appropriate internal technical work in a Communication, in around October 2003. This Communication will also report on the follow-up to other aspects of the company tax study (5) and Communication (6) of 2001.

— ‘Alignment of the double taxation agreements within the Union’: The Commission is fully aware of the varied and complex problems relating to the double taxation treaties in the Internal Market. A Commission initiative in this area is planned for 2004 with a view to co-ordinating Member States' double taxation treaty policies within a Community framework. Possible approaches to resolve the problems of double taxation in the Internal Market and incompatibilities with Community law that are not currently being adequately addressed by bilateral treaties include, inter alia, the conclusion of a multilateral tax treaty between all Member States and the development of an Union model tax treaty.

— Turnover tax return for external turnover in the home country of a company where the company has no permanent subsidiary abroad': The mechanism providing single registration and reporting for transactions carried out in several Member States has currently only been adopted for non-European companies making digitised e-commerce sales to Union consumers. This mechanism will enter into force on 1 July 2003. The operation of this mechanism will be followed closely by the Commission and the Member States in order to determine its effectiveness and possible application to other transactions, and also to the benefit of EU companies.

— ‘Complete harmonisation of the administrative rules governing VAT’: The Commission has launched a wide consultation of European enterprises on the outcome of a study relating to the simplification and modernisation of VAT obligations. Depending on the outcome of this consultation process, the Commission will evaluate whether a legislative proposal is to be made in this area.

— ‘Guaranteed reimbursement of VAT within an appropriate time limit (reform of the 8th Directive)’: The Commission presented in June 1998 a proposal to replace the 8th Directive procedure by the right of taxable persons to recover VAT directly in the periodic return which they make to their Member State of establishment. This is currently under discussion in the Council.

— ‘Continuation of the experiment involving reduced rates for labour-intensive services and its extension to all sectors concerned’: The Commission intends before the summer 2003 to present a proposal on reduced VAT rates that will take into account the results of this experiment.

(1) COM(2001) 582 final.

(2) COM(2000) 348 final.

(3) COM(2001) 260 final.

(4) http://europa.eu.int/comm/enterprise/entrepreneurship/support_measures/transfer_business/best_project.htm.

(5) SEC(2001)1681.

(6) COM(2001) 582 final.