Communication from the Commission to the Council, the European Parliament and the Economic and Social Committee Tax policy in the European Union - Priorities for the years ahead
Date: 2001-05-28
Institutions: European Commission
Subjects: code of conduct, decision-making, direct tax, fiscal policy, indirect tax

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COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN
PARLIAMENT AND THE ECONOMIC AND SOCIAL COMMITTEE

Tax policy in the European Union (cid:151) priorities for the years ahead

(2001/C 284/03)

(Text with EEA relevance)

COM(2001) 260 final

1.

INTRODUCTION

the contribution of

In recent years,
tax policy to
Community objectives has increasingly been linked to
the development of the internal market, to EMU and
to closer economic integration. In the context of the
introduction of
the Community
the internal market,
legislation on VAT and
adopted a significant body of
excise duties in the early 1990s. This however only
highlighted the absence of a coherent policy on direct
taxation. At the same time,
it became clear that, too
often, tax proposals were discussed in isolation rather
than in the context of wider EU policy.

At the informal Ecofin meeting at Verona in April 1996,
the Commission, contrasting the need for progress in
tax coordination in the EU with the number of
decisions adopted in this area,
therefore proposed a
new and comprehensive view of taxation policy. Three
main, interlinked and mutually reinforcing challenges for
the EU were identified:

(cid:151) the stabilisation of Member States’ tax revenues,

(cid:151) the smooth functioning of the internal market, and

(cid:151) promoting employment.

In developing this approach, the Commission set out the
case for greater tax coordination within the EU in its
communication of 1 October 1997 (1), which paper
formed the basis of a debate in the Council on
taxation policy on 13 October 1997. Although
progress towards greater
tax coordination has been
slow in the three and a half years since then, there
have been some important achievements, notably in
the direct
the comprehensive
In particular,
agreement on key elements of the tax package reached
at the Council meeting on 26 and 27 November 2000

tax field.

(1) COM(97) 495, in particular, paragraphs 3 to 11, which explained

the need for tax coordination.

was an important step forward towards meeting the
abovementioned challenges.

to

But

through

conclusion.

The efforts to curb harmful tax competition through the
Code of Conduct for business taxation and the proposals
on the taxation of
income from savings will allow
Member States to consolidate their tax revenue raising
capacities,
thus offering scope for reducing the high
average tax burden on labour. It is important therefore
that the Community sees the various elements of the tax
package
the
their
Commission believes strongly that there is much more
to be done in the area of
tax coordination. The
Community now has the opportunity to put the main
addressees of the internal market, its citizens and enter-
prises, centre-stage. Moreover, the world has not stood
still since 1996. The increasing globalisation of
the
economy and the way in which rapid technological
developments
influence the behaviour of economic
operators and the nature of economic activities make
a review of EU tax policy even more urgent. The
growing gap between the decisions needed in the tax
field to achieve the goals the Community has set itself
and the actual results achieved is therefore worrying.

It explains

in the Commission’s opinion,

This communication sets out the Commission view of
the fundamental priorities for tax policy in the European
the general
Union in the years ahead.
approach which,
the
Community needs to adopt having regard to wider EU
policy objectives, and highlights a number of priorities
in specific tax areas. In view of the fact that the legal
basis for decisions on taxation will, for the time being,
retain unanimity,
this communication also examines
whether there are other appropriate instruments that
to achieve
could be used,
these priority objectives.

in addition to legislation,

2.

THE GENERAL CONTEXT FOR DEVELOPING EU TAX
POLICY

The Community is currently facing a number of
important challenges, from within, as we complete the
existing internal market and as economic and monetary
looking outwards as the EU
union (EMU) is achieved,
prepares to enlarge, and as part of
the new global
economy.

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2.1. Recent EU developments

and

dynamic

competitive
in

The Lisbon European Council established an ambitious
strategic goal for the EU, namely (cid:145). . . to become the
knowledge-based
most
sustainable
the world,
economy
economic growth with more and better
jobs and
social cohesion(cid:146). Attaining that goal was a
greater
focus of
in Stockholm.
The tax systems of Member States must be conducive
to the necessary market reform: of itself, this requires
the Community to place tax policy in a new perspective.

the recent European Council

capable

of

The 2000 Intergovernmental Conference (IGC) has
meanwhile agreed reforms to the Community’s insti-
tutions that, despite the disappointing outcome of the
Treaty negotiations on decision-making for tax issues,
will pave the way for enlargement.
In the coming
years the EU will be welcoming a number of new
Member States,
tax
systems.
It is vital that the body of Community tax
law is consolidated and stabilised to the largest extent
possible before enlargement. Equally, post-enlargement,
it will be vital to ensure that taxation does not prevent
both existing and new Member States from being able to
compete on a level playing field or from extracting the
full benefits of the internal market.

each with their own unique

With the third stage of EMU, the growth and stability
pact has increasingly focused the debate on budgetary
developments. The broad economic policy guidelines
(BEPGs) have established new challenges for Member
States’ fiscal policies. A budget that is close-to-balance
or in surplus remains a prerequisite for macroeconomic
stability. While maintaining these sound budgetary
positions, public
their
contribution to growth and employment. An appro-
to be established
priate balance and sequence has
between reducing public debt,
and
financing public investment in key areas. Reducing the
overall
tax burden offers the opportunity to remove
disincentives to employment, entrepreneurial activity
and growth.

should maximise

cutting taxes

finances

in

rendering

The Commission communication of 21 December 2000
on the contribution of public finances to growth and
employment (2) showed that all in all, the tax reforms
implemented over the past three years represent a move
in the right direction. Some Member States have made
systems more
progress
employment-friendly by lowering the fiscal burden on
labour, even if overall taxation on labour still remains
very high by international standards in many Member
States. While the reforms vary in coverage and depth,
taxation on
most Member States are cutting direct
personal and corporate income and in some cases
employers’ and employees’ social security contributions.

their

tax

(2) COM(2000) 846.

for

taxation. Tax cuts

The EU policy dialogue has promoted an integrated
approach with a greater awareness of policy options
and constraints
should be
focused on areas where they have beneficial supply
side effects and they should be accompanied by
reforms to benefit systems in order to increase growth
potential and employment. Emphasis has been put on
the need to reduce the fiscal pressure on labour and
in particular on relatively
non-wage labour costs,
approach is
unskilled and low-paid labour. This
reflected in the BEPGs 2001 (3) and in the European
employment strategy (4), with specific recommendations
for each Member State and provision for monitoring at
EU level.

to get

is also essential

It
the balance right between
cutting taxes, investing in public services and sustaining
fiscal consolidation so as to achieve a durable reduction
in the overall tax burden.

common

successful

environmentally-friendly

in
The Community has not been as
tax
promoting
policies. This is in spite of
the political consensus
concerning their merit, for example, in many Member
States the reductions in direct taxation have taken place
in the context of environmental tax reforms, where they
have introduced or increased energy or environmental
taxes. The recent turmoil following the increase in oil
prices demonstrated the need for a coherent Community
energy tax policy. The lack of progress risks calling into
question the ability of the Community both to meet its
commitments under
the Kyoto Protocol and, more
generally, to take action in this and other politically
the recent
important policy areas.
Commission communication,
(cid:145)A Sustainable Europe for
a Better World: A European Union Strategy for
Sustainable Development(cid:146) (5) states that Kyoto is but a
first step and that
the EU should thereafter aim to
reduce greenhouse gases still further, including the use
of ambitious targets for energy taxation. Health and
consumer protection concerns also need to be inte-
grated into tax policy; this is already happening in the
indirect tax field.

In this context,

Lastly, taxation policy has an important part to play in
increasing research and development (R&D) and inno-
vation within the EU. The Lisbon conclusions call on the
Council and the Commission, together with the Member
States where appropriate, to improve the environment
for private research, R&D partnerships and high tech-
tax
nology start-ups by using, among other things,
policies.

(3) Commission Recommendation for the 2001 Broad Guidelines for
the Member States and the Community.

Economic Policies of
COM(2001) 224, 25.4.2001, pages 11 and 12.

(4) Council Decision 2001/63/EC of 19.1.2001 on Guidelines for
Member States’ employment policies for the year 2001 (OJ L 22,
24.1.2001).
(5) COM(2001) 264.

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2.2.

The global trend towards economic integration and
cooperation

At the same time, globalisation and vastly expanded
trade and capital
flows require Community policies
which enhance, not put at risk, the EU’s global competi-
tiveness. Technological innovation and, in particular, the
development of e-commerce, enhance the mobility of
certain forms of economic activity, particularly in the
services sector, and the mobility of capital. Businesses in
the EU increasingly operate in more than one Member
State and there are more international mergers and
than ever
acquisitions
changing
environment,
tax barriers to the free movement of
capital and tax measures that distort competition must
be eliminated. At the same time, EU tax systems must
be sufficiently flexible and responsive in order to keep
pace with these developments, whilst
remaining as
simple as possible in order to minimise compliance
costs.

In this

before.

through the

exchange of

the last
closer

Moreover, tax systems must be transparent in order to
ensure the right tax is paid at the right time in the right
place, and that opportunities for fraud and evasion are
minimised. There is a growing international consensus,
in the EU and in the OECD, that this can only be
cooperation and in
achieved through cross-border
information.
particular
few years have witnessed a move
Indeed,
towards
cooperation between EU Member
States, for example in the agreement on principles for
exchange of
information on savings income and on
In the
mutual assistance in recovery of
case of the taxation of savings income, the EU wishes
to extend this form of cooperation beyond its borders.
To this end, the Commission and the Presidency are
currently engaged in discussions with the United States
Liechtenstein, Monaco,
of America,
Andorra and San Marino about
the adoption of
equivalent measures to those proposed in the draft
Directive.

Switzerland,

tax claims.

These are welcome developments. But the potential for
cooperation in the field of mutual assistance is far from
fully exploited. Increased cooperation would be a major
step forward in the fight against tax fraud and result in
more efficient tax collection, which in turn would offset
any possible losses of revenue from the coordinated
elimination of tax barriers to the internal market. It is
precisely for this reason that the Commission considers
it important that decisions on proposals in the area of
mutual assistance and administrative cooperation are
taken in the Council by a qualified majority, as the
Treaty already provides (in Article 95), rather than by
unanimity (under Article 93 or 94).

2.3.

EU tax policy (cid:151) general objectives

What type of EU tax policy would be compatible with
or indeed support Member States’ efforts to reform their
taxation systems? Clearly, such a policy must, as a
priority, serve the interests of citizens and business
wishing to avail themselves of
the four freedoms of
the internal market
(the free movement of persons,
goods and capital, and the freedom to provide services).
It must, therefore, focus on the removal of tax obstacles
to the exercise of those four freedoms. Moreover, to the
extent that tax systems are used as a tool for allocation,
redistribution, and stabilisation objectives, the tax conse-
quences must be clear to the intended economic agents.
tax systems must be made
For both these reasons,
simpler and more transparent.
is
In this context
important
tax
that, while harmful
competition must be addressed both at EU level and
at the broader international
level, notably within the
OECD, and the State aid provisions of the Treaty must
be respected, some degree of tax competition within the
EU may be inevitable and may contribute to lower tax
pressure.

to recognise

it

Secondly, EU initiatives in the tax field must ensure that
tax systems contribute to a higher efficiency in the
functioning of the goods, services and capital markets
as well as to a properly functioning labour market. This
is required to achieve the Lisbon goals. In terms of tax
policy, this means that it is necessary to focus on the
removal of tax obstacles and distortions, the elimination
of inefficiencies linked to the operation of 15 different
tax systems within the EU and the simplification of
these tax systems to make them more accessible to
the taxpayer. It also means ensuring more efficient tax
collection, to offset any possible losses of revenue from
the coordinated elimination of tax obstacles.

Thirdly, as called for in the BEPGs, EU tax policy should
continue to facilitate efforts to cut nominal rates while
broadening the tax base, thus reducing the economic
distortions associated with Member States’ tax systems.

These objectives of EU tax policy cannot be sought in
isolation and their achievement must be compatible
with other general EU policy objectives. In particular,
EU tax policy must

(cid:151) underpin the Lisbon goal for the EU to become the
most competitive and dynamic knowledge-based
economy in the world,

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(cid:151) support the continued success and development of
the internal market by allowing, both before and
to
after
States
all
compete on a level playing field and extract
the
full benefits of the internal market,

EU Member

enlargement,

(cid:151) contribute to a durable reduction in the overall tax
burden in the EU, by ensuring that a balance
between cutting taxes,
investing in public services
and sustaining fiscal consolidation is preserved,

(cid:151) reinforce EU economic, employment,

innovation,
health and consumer protection, sustainable devel-
opment, environmental and energy policies, and

(cid:151) support the modernisation of the European social

model.

2.4. How to achieve these objectives

When discussing the instruments for implementing the
general objectives already outlined, one of the questions
that is most frequently asked is the extent to which EU
tax harmonisation is either necessary or desirable.

It is clear that there is no need for an across-the-board
harmonisation of Member States’ tax systems. Provided
that they respect Community rules, Member States are
free to choose the tax systems that they consider most
appropriate and according to their preferences. The level
of public expenditure is equally a matter for national
preferences as long as this is adequately met by revenues
in such a way that budget positions remain close to
balance or in surplus. It is essential to underline that,
in many tax fields, harmonisation is neither necessary
nor desirable in view of the widely differing charac-
teristics of Member States’
tax systems and different
national preferences. However, Member States’ choices
do not take place in isolation and international aspects
need to be taken into account. So, for instance, EU tax
coordination
the
generally
coherence of Member States’ positions in international
fora like the OECD.

contribute

should

to

But a high degree of harmonisation is essential in the
indirect tax field. The Treaty specifically provides for
such harmonisation (Article 93), because indirect taxes
may create an immediate obstacle to the free movement
of goods and the free supply of services within an
internal market. They may also create distortions of
competition. A large number of Directives and Regu-
lations have already been agreed in this area. The

Commission’s legislative strategy, particularly in respect
of VAT as well as environmental and energy taxation,
has been clearly established.

As far as taxes on personal income are concerned, the
view is that such taxes may be left to Member States
even when the European Union achieves a higher level
of
integration than at present. Nevertheless, Member
States must respect the fundamental Treaty principles
on non-discrimination and the free movement of
workers within the EU. Furthermore, even in this area
it may be necessary to coordinate national tax systems
in order
to prevent discrimination in cross-border
situations or to remove obstacles to the exercise of
the four freedoms (the tax treatment of occupational
pensions is a good example of this).

the

those direct

establishment or

tax rules that
functioning of

In the case of direct taxation of mobile tax bases, the
need for a certain degree of coordination has already
exchange of
been recognised,
in particular:
information on savings income;
in the Directives in
the field of company taxation already adopted (under
Article 94 of the Treaty); in the Code of Conduct for
business taxation, and in the proposed Directive on
interest and royalties. However, it may be necessary to
adopt a more ambitious approach in the near future.
The Treaty (in Article 94) provides for the (cid:145)approxi-
(cid:145)directly affect
mation(cid:146) of
the
common
the
market(cid:146). The Commission is examining whether more
can be done to tackle direct
to the
internal market, notably in the field of company
the
taxation, while
Member States. Certainly,
coordination of
national tax systems in the area of company taxation
would help to eliminate situations of double taxation or
unintentional non-taxation as well as the abovemen-
tioned tax obstacles. More analysis is therefore needed,
taking into account on the one hand those distortions
which could threaten the proper functioning of
the
internal market, and on the other hand the effects of
tax competition. The level of taxation in this area is
however a matter for the Member States to decide, in
accordance with the principle of subsidiarity.

sovereignty of

respecting the

tax obstacles

further

the target date for completion of

In practice the last few years have seen some progress
being made on tax coordination at EU level. While the
Commission welcomes the trend,
it believes further
steps can and should be taken along this path. Eight
years after
the
internal market, it is unacceptable that many obstacles
remain to the attainment of key Community objectives.
Now that the work on the tax package seems to be
progressing satisfactorily,
increased attention must be
paid to the removal of these obstacles. It is high time
to put much more emphasis on the concerns of the EU
taxpayer. In this respect, a number of specific objectives
are outlined in point 3 of this communication.

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the legal basis will,

Moreover, while it remains the Commission’s view that a
move to qualified majority voting at least for certain tax
issues is indispensable,
the
present,
remain unanimity. Given the difficulties in
reaching unanimous decisions on legislative proposals,
which will be
the
Community should also consider the use of alternative
instruments as a basis for initiatives in the tax field. The
full range of possible mechanisms is discussed in point 4
of this communication.

compounded by enlargement,

for

in the last

few years that, because of

it has become
made since in this context. However,
evident
the
importance of VAT for tax revenues, most Member
States are reluctant to agree to proposals designed to
the definitive system. They are not
lead towards
prepared, at this stage, to accept any further harmon-
isation of rates and structures, or the re-distribution of
tax receipts, which the definitive system would require,
for fear of suffering a loss of tax revenues.

3.

EU TAX POLICY (cid:151) SPECIFIC OBJECTIVES FOR THE
YEARS AHEAD

3.1.

Indirect taxation

functioning of

In the Commission’s view a high degree of harmon-
isation of indirect taxes is necessary, as provided for in
the Treaty. The proper
the internal
that are
requires VAT and excise systems
market
efficient and fully reflect the needs of EU businesses
and consumers. The continued existence of a variety
of derogations in both the VAT and excise duty fields
is unhelpful in this context. In addition, it is important
to ensure full consistency between indirect tax systems
and the customs union for the movement of goods,
both in relation to the EU’s external border and to the
abolition of internal borders. The Commission intends
to examine this issue further and, if appropriate suggest
legislation.

3.1.1. Value added tax

to try

to achieve

In the VAT field, the Commission has for a long time
been working intensively
the
improvements in the VAT system which are necessary
to adapt it fully to the needs of the internal market. The
1987 proposal for an origin-based common VAT system
was made precisely with the objective of achieving a
true (cid:145)single market(cid:146)
in which intra-Community sales
and purchases of goods would be treated in the same
way as those taking place within the Member States.
However, by the time of
the abolition of border
controls on 1 January 1993, the origin-based system
had not been achieved and therefore a transitional
system involving
of
consumption, at
the rates and under the conditions
applicable in that country, was retained. This transitional
system has a number of defects, notably because it is
complicated, susceptible to fraud and out of date.

taxation

country

the

in

by

the Member

these difficulties,

in June 2000 the
In view of
Commission proposed a new strategy (6), which was
widely welcomed
States when
presented in the Council. This current strategy concen-
trates on bringing about an overall improvement in the
operation of the current VAT system that would directly
benefit EU taxpayers, although an origin-based definitive
system remains a long term Community goal. The
current strategy focuses on simplification, modernisation
present
and
arrangements, and closer administrative cooperation.
These will both encourage legitimate commercial trans-
actions within the internal market and prevent fraud. So
long as the present system of VAT-based Community
is in existence, closer administrative
own resources
cooperation and the other measures aimed at preventing
fraud will help to maximise the VAT base and thereby
ensure that this tax plays the full part in providing
income that Community budgetary rules intended.

uniform application

a more

of

Existing proposals have been reviewed in line with this
new strategy and new proposals have been and will be
made. This has resulted in the recent adoption by the
Council of two proposals (concerning the abolition of
fiscal representatives (7) and the minimum level for the
VAT standard rate (8)), and also in a political agreement
by the Council on the proposal
concerning the
improvement of mutual assistance on the recovery of
claims (9). Of particular
first
proposal made after the new strategy was announced,
the proposal
to modify the rules applying VAT to
certain services supplied by electronic means (10). This
proposal has the principal objective of protecting EU
competitiveness by eliminating a major disadvantage
for EU service providers
relative to their non-EU
competitors. Linked to this is the proposal recently
presented by the Commission on invoicing (11), which

importance

the

is

(6) COM(2000) 348.
(7) Council Directive 2000/65/EC of 17 October 2000 amending
Directive 77/388/EEC as regards the determination of the person
liable for payment of value added tax.

(8) Council Directive 2001/41/EC of 19 January 2001 amending
Directive 77/388/EEC as regards the length of time during which
the minimum standard rate is to be applied.

In 1996,
the Commission proposed a programme
involving a stage-by-stage movement to the definitive
origin system and a number of proposals have been

(9) COM(1998) 364.
(10) COM(2000) 349.
(11) COM(2000) 650.

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is designed to cut red tape for European traders and to
make it possible to use electronic invoicing and storage
so as to improve competitiveness and promote elec-
tronic commerce.

status of

An action programme has been put in place in relation
to the above proposals. Following that programme, the
Commission intends to carry on with the work on
existing proposals
the VAT
(change of
Committee (12), the right of deduction and the eighth
Directive (13), e-commerce and invoicing) as well as to
present new proposals, focusing on the recasting of the
sixth Directive, the place of supply of goods, and on
travel agents. Some of this work is already under way.
Further work is also being undertaken in respect of
financial services and in the field of subsidies/activities
of public authorities/services as well as coordination of
customs and taxation policies. It is important that the
proposals made and those planned take effect rapidly
and that
the Commission monitors progress in the
implementation of this new strategy. As for VAT rates,
a review and rationalisation of the rules and derogations
applying to the definition of reduced VAT rates should
be considered in the medium term, but not before the
end of 2002. This will be after the evaluation of the
pilot project
introduced by Directive 1999/85/EC on
labour intensive services (14). Particular attention will
be paid to the rates applying to virtual products
compared with traditional products and the use of
reduced VAT rates in Community policies (e.g. to help
protect the environment and promote employment).

3.1.2. Excise duties

subject

In the field of excises, general definitive arrangements
govern the holding, movement and monitoring of
products
to excise duty. The arrangements
apply to alcoholic beverages, manufactured tobacco
and mineral oils, and allow goods to be moved with
suspension of excise duty and without checks at intra-
Community frontiers. Minimum rates of taxation have
these products (15). However,
existed since 1992 for
there are highly differentiated excise duties between
Member States above these minimum rates, a situation
which creates serious obstacles to cross-border trade in
the case of a number of goods.

3.1.3. Energy and environmental taxation

Generally,
economic

taxation has proved to be an efficient
environmental
instrument

tackling

for

(12) COM(1997) 325.
(13) COM(1998) 377.
(14) Council Directive 1999/85/EC of 22 October 1999 amending
Directive 77/388/EEC as regards the possibility of applying on
an experiment basis a reduced VAT rate on labour-intensive
services.

(15) Council Directive 92/12/EEC of 25 February 1992 on the general
to excise duty and on the

arrangements for products subject
holding, movement and monitoring of such products.

It

instrument

energy use

is a crucial

to dissociate

for providing an effective

in meeting the
problems.
the
the Kyoto Protocol and has
commitments of
for
stimulus
potential
policies
from economic
growth, to improve energy consumption patterns and
to develop renewable energy sources,
like biofuels, as
pointed out
in the Green Paper on the security of
energy supply in Europe (16). Currently, the taxation of
energy is built on three pillars: i) excise duties, ii) VAT
and iii) specific levies. Whereas excise duties on mineral
oils and VAT constitute Community systems of taxation,
no EU-wide framework is applicable to energy products
other than mineral oils.

As regards mineral oil products, since 1992 a unani-
mously agreed Community system provides
for a
minimum excise rate for each product according to its
use (propellant, industrial and commercial uses, heating
purposes). Today, however, excise duties are often levied
at rates that are significantly higher than the minimum
rates, which have not been updated since 1992. Effective
excise rates thus differ substantially between Member
States. Zero taxation is compulsory for some activities
(international air traffic) and national derogations can
also be granted for specific policy reasons in favour
for instance, environmentally-friendly products or
of,
economic sectors (agriculture, public transport, road
abovementioned
haulage).
the
cases,
derogations are granted in order
to maintain the
competitiveness of local companies when higher energy/
implemented.
environmental
Moreover
that
the multiplication of national
differ in their scope, methods of calculation, rates, etc.
jeopardises the unity of the internal market and might
negatively affect the functioning of the liberalised gas
and electricity markets.

taxation schemes

In many

taxes

are

at

both

national

current mechanisms

The
and
Community level thus lead to possible distortions in
the consumer choices between energy sources or
products and in the conditions of competition. A
facilitating the approxi-
Community framework for
the taxation schemes of Member States
mation of
would offer
remedy to these
difficulties.

the most

efficient

this background in 1997 the Commission
Against
restructuring the
proposed a Council Directive for
Community framework for
the taxation of energy
products (17), with a view to extending the scope of
the Directives on mineral oils to a number of other
energy sources, e.g. coal, electricity and natural gas,
and to increasing the Community minimum excise
In aiming at the gradual
duties on energy products.

(16) COM(2000) 769.
(17) COM(1997) 30.

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the

the

functioning of

recommendation

(cid:145)polluter pays(cid:146) principle,

this
introduction of
proposal would make it possible to both restructure
national tax systems, achieve certain policy objectives
transport
in the field of employment, environment,
the
and energy, and improve
internal market. One key element of the proposal
is
the
States, when
implementing the Directive, should avoid any increase
in their overall
tax burden. Macroeconomic research
suggests that a structured reform, involving the intro-
duction of (cid:145)green taxes(cid:146) and reducing the tax burden on
lead to a
labour can, under certain circumstances,
double
both
on
benefits
employment and the environment.

that Member

conferring

dividend,

If

purchases a car will be required to pay a registration
tax.
that person then moves to live and work in
another Member State, it is necessary to re-register the
car on local number plates and, in at least eleven of the
Member States, to pay a further registration tax there,
with no system of refunds or reliefs for registration
taxes paid in the first country. In addition to the regis-
tration tax, highly differentiated systems of vehicle
cause
taxation
from the
several
also
the free movement of goods. The
perspective of
Commission will
these
problems constitute breaches of the provisions of the
Treaty, and take steps as necessary. Approximation of
should in any event be encouraged,
vehicle taxes
the enhanced transparency of
especially in view of
vehicle prices following the introduction of the euro.

examine whether

problems

any of

After a four-year stalemate in the Council, it is essential
that progress is now made on the abovementioned
proposal, even if unanimity cannot be obtained.

The weaknesses of the current situation have once again
been exposed by the range of different measures
adopted by Member States,
in particular in the road
haulage sector, in response to the increased oil prices
in 2000. It demonstrates that a common framework for
the taxation of energy products should be established,
not only on the structure of such taxes but also in
relation to tax rates. This will prevent distortions in
the internal market, ensure that prices of energy
products reflect their external environmental costs and
assist the Community to meet its international environ-
mental commitments.

The possibility of restructuring registration and circu-
lation taxes in an environmental direction will also be
examined. This restructuring could be made in a way,
which would promote vehicle taxation differentiation,
based on the CO2 polluting effect of each new
passenger car put
in circulation. The Commission’s
work in this area will be based notably on input from
other Community Programmes, and in particular the
Community strategy on CO2 emissions from cars, the
II Programme and the European Climate
Auto Oil
Change Programme.
It should contain a number of
for
options
future action, which would take into
account
the Community’s environmental objectives,
and in particular those included in the Kyoto Protocol.

3.1.5. Duties on tobacco and alcohol

The shift towards environmental taxes has clearly been a
very slow one. A common framework including differ-
entiated rates according to environmental objectives
could be very useful. The aforementioned Commission
communication on an EU strategy for sustainable devel-
opment calls on the energy products Directive to be
adopted by 2002. An agreed Community framework
for energy taxation could help to pave the way for
energy
more
taxation within two years of
the
Directive, aiming at the full internalisation of external
costs.

the adoption of

environmental

ambitious

targets

for

3.1.4. Vehicle taxation

In accordance with the Commission’s 2001 work
programme, it is intended to present towards the end
of this year a communication on vehicle taxation in the
EU. The intention in so doing is to launch a discussion
on future options for action at Community level in the
field of vehicle taxation. Recommendations will also be
made concerning the problems of double taxation in
this area. At present,
for example, there is no coor-
dination concerning registration taxes for passenger
a person who
cars.

In eleven Member

States,

reports

and proposals

In line with the objective of ensuring the smoother
functioning of
the internal market and the wider
objectives of the Treaty, the Commission services have
concerning the
to prepare
Community’s minimum levels of excises on alcohol
and tobacco. A report and proposal on tobacco
taxation has been adopted recently by the Commission.
At present, prices and excise rates for tobacco products
in the EU still vary considerably between Member States
(e.g. for cigarettes, the excise duty in the highest taxing
Member State is four times the amount charged by the
lowest taxing Member State). The measures proposed
should enhance convergence between the tax levels of
fraud and
the different Member States and restrict
smuggling within the
Particular
internal market.
attention is also given to health protection aspects and
to the relationship between such protection and the
price of
these products. As regards the report on
excise duty levied on alcohol and alcoholic beverages,
the Commission services are in the process of consulting
Member States and trade associations concerned on the
issues to be dealt with in the report. These issues are the
proper functioning of the internal market, competition
between the different categories of alcoholic drinks, the
real value of the rates of duty and the wider objectives
of the Treaty (such as health and agricultural policy).
The Commission intends
the report on
alcohol taxation later this year.

to adopt

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3.2. Direct taxation

3.2.1. The international framework

a

of

the

this

global

dimension

international

economy needs

communication highlighted the
Point 2.2 of
importance
in
considering the development of EU tax policy. This is
particularly relevant in relation to direct taxes, where
globalisation has had the most significant impact. To
some
effectively,
work
acceptable ground rules
to guide governments and
business. The overall aim of the major world economies,
including those of the EU Member States, has been to
work towards a fiscal climate which promotes free and
fair competition and is conducive to cross-border
business activity, while at the same time ensuring that
national tax bases are not eroded. The work on tackling
harmful tax competition, both in the OECD and also in
the EU through the tax package, has been central to this
aim in the last few years.

however, Member States often do not exchange views
on tax issues discussed within the OECD before taking a
position. This sometimes leads to unsatisfactory results,
as the Community is unable to take a coherent position
or to exploit its full potential where it has a common
interest. Therefore, in the Commission’s view, it should
be explored whether, without making any changes to
the institutional
including Member States’
voting rights, coordinated views in OECD tax debates
might be established across the Member States. Such an
approach would be desirable given that EC law and the
jurisprudence of
Justice
inevitably affects what positions the Member States are
able to take.

European Court of

framework,

the

Considerable progress has been made in identifying
harmful tax practices and agreeing timetables for their
elimination. It is also becoming clearer which non-EU
jurisdictions are prepared to cooperate with the inter-
national consensus on fair tax competition, and which
are not. In the coming months, OECD members will be
examining what coordinated defensive measures might
be taken against non-cooperative jurisdictions. The
Community should play a leading role in taking
the United
forward this work, notwithstanding that
States is reviewing its position. However,
in the case
of EU Member States, any such measures must be
compatible with the Treaty. Beyond the question of
agreeing
the
Community also needs to consider the coherence of
all its policies towards both cooperative and non-coop-
erative jurisdictions. For example, Community policies
on development aid and on access to EU markets
should have the effect of encouraging and rewarding
cooperation with the fair tax competition agenda. The
Commission intends to study how such coherence can
be achieved.

defensive measures,

appropriate

Of course, the work of the OECD in the direct tax field
extends far beyond the harmful tax competition agenda
(cid:151) it has pioneered work on eliminating double
taxation, developed guidelines on transfer pricing, and
there is also emerging work on the company taxation of
e-business. The Community has a special status at the
OECD, as a full member but without voting rights, and
in that
the
Community’s interests as a whole. At the same time,

the Commission represents

capacity

3.2.2. Company taxation

the study:

context of

An important objective for the Commission in the direct
tax field is to ensure that EU company tax systems cater
for
the increased cross-border activity and modern
organisational structures of companies. To this end,
the Commission services are currently in the process
of preparing a study of company taxation in the EU.
The intention is to present a communication on the
results of the study and the related tax policy impli-
cations shortly. As requested by the Council on 22
(cid:145)will be undertaken in the
July 1999,
general
the Vienna European Council
conclusions emphasising the need to combat harmful
tax competition whilst taking into account that coop-
eration in the tax policy area is not aiming at uniform
tax rates
tax
competition, but is called for to reduce the continuing
distortions in the single market also in view of stimu-
lating economic growth and enhancing the international
competitiveness of the Community, to prevent excessive
losses of tax revenue or to get tax structures to develop
in a more employment-friendly way. This study will also
be undertaken on the basis of
the Ecofin Council
conclusions asking to illuminate existing differences in
effective corporate taxation in the Community and the
policy issues that such differences may give rise to. The
study should also highlight remaining tax obstacles to
cross-border economic activity in the internal market.

inconsistent with fair

and is not

the results of

The study will analyse differences in effective levels of
corporate tax in Member States, taking into account,
the Ruding
inter alia,
Committee (1992). Attention should be given to the
influence of corporate tax bases on effective levels of
taxation. Moreover, the study should also identify the
main tax provisions that may hamper cross-border
economic activity in the single market. On this basis,

the report of

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an assessment should be undertaken of the effects on
the location of economic activity and investment. The
the tax policy issues
Commission should highlight
involved in reducing
and
examine possible remedial measures, taking account of
the respective spheres of competence of the Member
States and the Community.(cid:146)

tax-induced distortions

be the existing national rules; otherwise, new common
rules would need to be devised at EU level. Economic
operators support
this kind of more comprehensive
pan-European solution to the elimination of cross-
tax obstacles. This would constitute a very
border
ambitious and far-reaching step touching on funda-
mental issues of EU tax policy; among other things, it
would increase the overall economic importance of
corporate tax rates. EU enlargement will also add a
new dimension to this development.

the existing infrastructure,

Taxation is an important factor that companies consider
before making location choices, but is only one among
many such factors. The geographical accessibility of
transport costs,
markets,
environmental
and the
quality of
the workforce, wage levels, social security
systems and the overall attitude of its government all
play an important role too. Of course, which of these
factors are relatively the more important very much
depends on the individual type of investment decision.

availability

standards,

the

it

that

is clear

the
Whichever solution is pursued,
removal of
the tax obstacles will reduce compliance
costs and incidences of double taxation, thus generating
efficiency gains in the internal market and stimulating
economically beneficial cross-border operations. This
would be a substantial contribution towards improving
the competitiveness of EU business.

for

are

cases,

a number of

At present, cross-border activities of companies give rise
to numerous cases of discrimination, double taxation,
excessive administrative costs owing to complicated
administrative procedures and delays in tax refunds.
There
example, of
European multinationals that have had to wait more
than five years for the tax authorities of two Member
States
to agree on transfer prices on cross-border
exchanges of services. Then there are the tax issues
involved in reorganisations of companies. This type of
reorganisation is often accompanied by cross-border
mergers and acquisitions, which currently result in a
combination of one-off and ongoing tax costs. The tax
treatment of European companies must
also be
addressed following the
agreement on the
European Company Statute. Current EU tax legislation
and proposals for legislation will have to be amended to
include European companies. The need for a common
European tax system as an option for these companies
has also been emphasised by industry representatives.

recent

in the EU (and their associated costs)

On the basis of this company tax study, the Commission
will be in a better position to consider what changes it
should propose. One of the important questions that the
study will raise is whether the Commission’s approach
should continue to be to attempt piecemeal solutions to
tax obstacles while leaving the 15 different corporate tax
systems
to
continue to coexist. The alternative would be to
pursue more
ambitious
solutions such as providing companies with the option
for a single set of rules on the corporate tax base for
their EU-wide activities. Under a mutual recognition
the
approach,
taxation
for
according to the rules of
the residence country (the
so-called (cid:145)home State taxation(cid:146) approach), these could

comprehensive, politically

approach of

example

3.2.3. Personal income taxation

the four

to the exercise of

As pointed out in section 2.3, personal income taxes fall
in their entirety under the sole responsibility of Member
States and coordination at EU level only becomes
necessary to prevent cross-border discrimination or
obstacles
In
particular, coordination of personal income taxes may
in some areas be needed to avoid double taxation or
unintentional non-taxation in cross-border situations, or
to
evasion. The Commission
proposal
for a Directive to ensure a minimum of
effective taxation of savings income in the form of
is
interest
payments within
probably the best example of the latter.

the Community (18)

cross-border

freedoms.

tackle

In its recommendation of 21 December 1993 on the
taxation of certain items of income received by indi-
viduals in a Member State other than that in which
they are resident (19),
the Commission proposed a
Community system for
taxing income of persons
having their fiscal residency in one Member State but
carrying out their activities in another. In essence this
recommendation seeks to avoid the double-taxation of
the income of frontier workers. The main feature is that
non-resident
same
tax-treatment as residents, if they obtain 75 % of their
total income in one Member State; in such situations,
the Member State of residence would be allowed to
reduce the personal
tax advantages correspondingly.
The recommendation has been largely taken on board
by the Court of Justice of the European Communities in
the Schumacker case (C-279/93) and most Member
States have since changed their legislation accordingly.

from the

persons

benefit

(18) COM(1998) 295.
(19) 94/79/EC.

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recommendation only addressed one

specific
The
problem in the context of personal
income taxation
and is far from resolving either the numerous other
problems of non-residents in the field of taxation or
the inter-relation between taxation and social security.
As the growing number of cases before the Court of
Justice reveals, new problems can be expected to arise.
If the problem of cross-border issues relating to personal
income taxation is not to be completely left to the Court
to resolve, greater coordination at EU level appears
necessary.

in turn feel

An issue of more recent concern is regimes for highly
qualified so-called expatriate staff. Several Member States
with relatively high personal tax rates have introduced
low-tax regimes for this group of employees, usually in
the form of a flat-rate tax, as a means to attract specific
categories of skilled workers and experts. Although,
after examination, considered not
to constitute State
Aid, such schemes not only raise significant equity
concerns when seen in comparison to the taxation of
taxpayers, but may also lead to a
other
resident
from other Member States.
tax-driven (cid:145)brain-drain(cid:146)
the pressure to introduce
These will
comparable schemes. A number of Member States and
such
the Commission considered
of
arrangements
problems
for
business taxation, and that accordingly this question
should be considered with a view to a possible
extension of the scope of the Code under the review
procedure. While it would be premature to judge on this
latter suggestion,
the Commission believes that such
schemes have a clear EU dimension and have the
potential
they run against
the abovementioned generally accepted policy recom-
mendation to lower the general taxation of low-skilled
labour.

range
come within
covered by the Code of Conduct

in 1997 that
the

to be harmful. Moreover,

could

3.2.4. Taxation of pensions

an overall

On 19 April 2001,
the Commission adopted a
communication on the elimination of tax obstacles to
the cross-border provision of occupational pensions (20),
which proposes
approach to current
problems in this field. At present, Member States often
do not allow tax relief
for contributions to pension
schemes in other countries. This means that employers
and employees in one Member State cannot take out
pensions with a provider in another Member State.
This
the growing
number of workers who begin their working life and
start contributing to a pension fund in one Member
State and thereafter move to work in another. There is
also the problem that Member States differ in how they

causes particular problems

for

(20) COM(2001) 214.

tax

give

relief

Some

for pension
tax pensions.
contributions and then later tax occupational pension
receipts. Others do not give tax relief
for pension
contributions but, instead, do not tax pension receipts.
This may lead to either double taxation or double
exemption for individuals who work in one Member
State and retire in another. To avoid these difficulties,
companies operating in more than one Member State
are frequently forced to set up pension arrangements in
each State where they have employees, at significant
additional cost.

The communication complements
the Commission’s
proposal for a pension fund Directive of 11 October
2000, which does not deal with tax issues. The
communication sets out how the Treaty rules on
workers and services apply in the area of pensions
and demands the swift removal of any discrimination
in Member States’ tax laws against cross-border pension
provision. The communication also includes proposals
designed to protect Member States’ tax revenues where
pension provision is made across borders. Thirdly, the
communication raises the more deep-seated issue of
double taxation and non-taxation arising from the
mismatch of
i.e. pensions being taxed
when the contributions to those pensions were not
tax
the
contributions were deductible). This problem could
largely be overcome by convergence of pension
arrangements. However, given the present diversity of
these arrangements,
to
what extent such problems could be addressed in the
context of existing systems and the existing legal
framework.

the communication explores

taxed where

tax systems

deductible

(or not

being

3.3.

Tackling tax fraud (cid:151) direct and indirect taxes

Both in the area of direct and indirect taxation tax fraud
is a phenomenon of growing concern to EU Member
States but also globally. On 28 January 2000 the
Commission produced a report (21), which proposes
tackling fraud by improving administrative cooperation.
Within the Council, in 1999 an ad hoc working party
was charged to:

(cid:151) assess the current situation concerning tax fraud,

(21) COM(2000) 28, report under Article 14 of Regulation (EEC) No
218/92 and Article 12 of Regulation (EEC, Euratom) No 1553/89
of the Council and the European Parliament.

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(cid:151) study possible weaknesses in existing Community
rules and control systems, and the efficiency of
existing administrative
cooperation arrangements
for dealing with tax evasion and fraud in the areas
of both indirect and direct taxation, and

allow the Member States to receive assistance from
the Commission in the most complex cases of fraud,

(cid:151) examining closely the action taken by Member

States, and

(cid:151) examine the possibility of improved administrative
cooperation in these areas, making suggestions for
any new arrangements or measures it considers
appropriate.

At its meeting of 5 June 2000, the Council took the
view that the recommendations of the ad hoc working
future work by the
party were a useful basis for
in the fight
Commission and the Member States
against
can be
grouped into three categories:

recommendations

tax fraud. The

(cid:151) those which fall within the competence of

the
Commission (these centre on increasing adminis-
trative cooperation, mutual assistance and exchange
of information between Member States),

(cid:151) those that fall solely within the competence of the
Member States and which require action to be taken
(e.g. to optimise control selection methods on the
basis of risk analysis), and

(cid:151) those which require Community action other than
legislation (e.g. to study the possibility of amending
the VAT information exchange system).

For its part, the Commission will follow up the recom-
mendations concerning VAT by:

(cid:151) strengthening existing Community legal instruments
on administrative cooperation. The Commission will
present to the Council and the European Parliament,
in the first half of 2001, a proposal for a Regulation
and an amending Directive to increase administrative
cooperation between Member States in order
to
combat VAT fraud. It will also present, during the
course of 2001, a proposal for a Regulation of the
Council and the European Parliament which will

(cid:151) taking all necessary initiatives to implement

the
recommendations that require Community action
in the Standing
other
Committee on Administrative Cooperation or
in
the Commission-chaired VAT Anti-fraud Subcom-
mittee.

than legislation,

either

to

simplify

In the field of excise duties, in order to prevent fraud
and
the
procedures
Commission intends to present a proposal for the intro-
duction of a computerised excise movement and control
system (EMCS) between Member States.

operators

for

In the field of direct taxation, in order to reduce fraud
the Commission will present appropriate initiatives
following up the report of the ad hoc working party
after further discussions with Member States.

3.4. Achieving

the

tax policy objectives

in the

enlargement process

that

The enlargement process should not be ignored when
considering the objectives of EU tax policy. The
candidate countries’ ability to take on the obligations
of the acquis communautaire leaves certain issues open
for negotiation. For
the vast majority these issues
relate to some of the fundamental cornerstones of the
tax acquis. Where such issues are considered to jeop-
ardise the proper functioning of the internal market or
may even lead to significant distortions, the Commission
will recommend, in line with existing negotiation prin-
ciples,
transitional
the Council does not grant
Increasingly, however, EU tax policy devel-
periods.
the prospect
opment
of
of
taking
is
it was agreed at the
enlargement. Thus, for instance,
in Santa Maria da Feira in June
European Council
the proposal
for a Directive on
2000,
from the
no
derogation
savings
be
should
information requirement
exchange of
granted to the candidate countries in the enlargement
negotiations. Candidate countries are also expected to
respect
for
business taxation; all of the current candidates have in
principle undertaken to do this.

in respect of
taxation,

the Code of Conduct

the principles of

account

that

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4.

MECHANISMS TO ACHIEVE THE OBJECTIVES

4.2.

The Commission’s role as guardian of the Treaty

4.1.

The decision process

traditionally relied mainly on
The Commission has
making proposals for Directives, and in some cases
Regulations, as a way of achieving progress in the tax
field. Directives and Regulations have as advantages that
they are adopted only after
full discussion in the
the European Parliament and the Economic
Council,
and Social Committee,
legal
and that
certainty because they may be enforced by the Court
of Justice.

they offer

However, the pace at which proposals for Directives in
the tax field are agreed has been disappointingly slow.
There are currently 16 Commission proposals
for
Directives in the taxation domain on the Council’s
table. Some of these have been on the table since the
early 1990s. It is hoped that, in the VAT area at least, a
greater willingness will be shown by Member States to
adopt new and outstanding proposals, as a result of
their agreeing to the current strategy. Nonetheless,
in
the context of rapid economic and technical change,
where the need to adapt and modernise legislation
quickly is apparent, the Commission intends to make
more use of the implementing powers conferred on it
by the Council as provided for in the Treaty.

The disappointing progress in the field of taxation has
given rise to discussions about the way in which the EU
institutions handle tax issues. Ideas have surfaced and
are being discussed about the possible creation of a new
body to coordinate tax issues in the framework of the
Council. While these discussions are in themselves a
increased political
welcome demonstration of
the
profile of tax issues at EU level,
it is the insufficient
political will combined with the unanimity requirement
rather than the existence of one body or another that
are the main obstacles to progress. Any proposal of this
nature
institutional
structure
the Community. The
Commission will contribute to further discussions of
this issue.

and methods of

therefore

respect

should

the

As noted above, it remains the Commission’s view that a
move to qualified majority voting at least for certain tax
issues is indispensable. Since the legal basis will, for the
present, remain unanimity it will, after enlargement, be
much more difficult to have any new Community legis-
lation agreed. So where legislation is not absolutely
essential
tax field), other
in the direct
methods will have to be found to achieve progress in
removing tax obstacles and distortions to the internal
market, which taxpayers have a right to expect.

(notably

investment
States’

A different means of removing tax obstacles to the
smooth functioning of the internal market is to make
more, or more carefully focussed, use of infringement
proceedings. It is clear from the above examples of tax
obstacles and many others which have not been cited
there are a number of areas (the taxation of
that
for
companies
and collective
rules may
example) where Member
contravene either the Treaty or existing Community
legislation. While the Commission regularly submits its
observations to the Court of Justice in tax cases brought
it has itself brought only a
by individual
infringement proceedings against
limited number of
Member States in the area of direct taxation. However,
the rapid development of EC case-law in the direct tax
field over the last few years through cases brought by
individual
litigants has highlighted the need for more
Commission action.

taxpayers,

vehicles,

tax

in many instances

The different levels to which case law has developed in
the indirect and direct tax fields can be largely explained
by the different degrees of Community competence in
these areas. However, it is also true that Court actions
involve high costs for both taxpayers and adminis-
trations. Moreover,
the general
application of a specific case in an individual Member
State is not entirely clear. The current legal approach
also tends to be asymmetrical
in its effects in that,
even where a ruling forces a number of Member
States to introduce new tax rules they often do so in
vastly differing ways. The Commission has a role here in
proposing
to such rulings,
including where necessary through Community legis-
lation. The Commission also plays an important role
in ensuring that Court of Justice rulings are respected
and properly implemented by Member States.

common response

a

(cid:145)Matching

Beyond this, however, it is clear that the Commission
the Treaties, be lenient on
cannot, as guardian of
field. The Commission
infringements
tax
in the
communication of 26 July 2000,
the
Commission’s activities with its human resources(cid:146) (22),
advocated a strengthening of the Commission’s efforts
It specifically
in its role as guardian of the Treaties.
identified work in the tax and customs fields as a key
element of that activity. In this context, it may also be
recalled that Article 96 of the Treaty provides a legal
basis for the Commission to take action to deal with
the conditions of competition in the
distortions of
internal market,
including proposing directives, which
may be adopted by qualified majority.

(22) SEC(2000) 2000.

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Since both direct and indirect tax measures may fall
under the State aid provisions of the EC Treaty, the
Commission pays close attention to them and will
continue to take steps to ensure the Treaty is respected.
As regards direct taxes, in its 1998 communication on
the application of State aid rules to measures relating to
taxation (23)
the Commission has
direct
explained in detail the criteria it uses in this area.

business

these

Secondly,

litigation.

instruments

can
even
contribute to the development of new tax rules when
the Court has found the old ones unlawful. The pension
communication is just such an example. A further
example of an area where this approach could be
applied would be that of
tax treaties
which Member States conclude with each other and
with third countries.
In a way, the Recommendation
on the taxation of non-residents of 1993 represents a
forerunner to the use of softlaw.

the bilateral

in the

strategy

field of

generally

In short, the Commission now intends to adopt a more
proactive
tax
infringements and be more ready to initiate action
where it believes that Community law is being broken.
It will also ensure the correct application of judgments
of the Court of Justice. There is a particular imperative
in the direct tax field: the current approach of leaving
the development of case-law in the area of direct
taxation to chance by simply reacting to cases taken
by taxpayers to the Court of Justice is not a proper
basis for progress towards agreed Community objectives.

4.3.

Broadening the range of policy instruments

The use of non-legislative approaches or (cid:145)soft legislation(cid:146)
may be an additional means of making progress in the
tax field. For example, peer pressure, which is the basis
of the Code of Conduct for business taxation, could be
instruments, notably
applied in other areas. Other
Commission recommendations, which have been used
in the past, but also guidelines and interpretative
notices could also be considered. Such non-legislative
approaches
to the largest extent possible,
involve the European Parliament through the existing
mechanisms for the consultation of Parliament.

should,

The downside of using soft law approaches is, however,
that they can be very resource-intensive and also they
are not directly enforceable in legal terms.

4.4.

Enhanced cooperation

The possibilities introduced by the Amsterdam Treaty
and developed by the Nice Treaty for closer cooperation
like-minded Member States
between sub-groups of
could also be envisaged in certain cases. In particular,
this could be used in tax policy areas where, even in the
long term, decisions
in the Council are taken by
unanimity. These must be self-contained policy areas
cannot pick and choose
so that Member States
between policies as best suits them. The decision at
Nice will enable the Commission to propose to the
Council that as small a group as eight Member States
may cooperate more closely, after approval within the
Council by qualified majority. However, in line with the
principles agreed at Nice,
this approach must not,
among other things, undermine the internal market,
trade,
constitute a barrier to or a discrimination of
the
distort
competences, rights and obligations of the non-partici-
pating Member States.

the conditions of competition, or affect

The use of non-legislative or soft law approaches could
be particularly effective in cases where they have a firm
legal foundation, based on the Treaty and the case-law
of the Court of Justice. In such cases, instruments such
as communications, recommendations, guidelines and
interpretative notices can provide guidance to Member
States on the application of the Treaty principles and
promote the rapid removal of obstacles to the internal
market. The use of such instruments can also address, at
least to a certain extent, the above-mentioned problem
of the asymmetry of a legal approach. This is because,
legal
firstly, these instruments can point to potential
problems and indicate possible ways
forward for
dealing with them in order to avoid legal conflicts or

(23) OJ C 384, 10.12.1998, p. 3.

In the field of direct
taxation, cooperation between
Member States has been organised mainly through
bilateral tax treaties. The enhanced cooperation could
be targeted so as to produce such benefits for the
participating countries that non-participants would be
motivated to become involved.

As regards indirect taxation, the possibility of enhanced
cooperation could provide a way forward in the area of
environmental and energy taxation. A majority of
Member States have indicated their strong desire to
make progress in this area.

10.10.2001

EN

Official Journal of the European Communities

C 284/19

5.

CONCLUSIONS

fight

and supports

against harmful

the modernisation of

in addition to continuing the
The Community must,
competition,
tax
important
ensure that
tax policy underpins the Lisbon goals,
supports the continued success and development of
the internal market, contributes to a durable reduction
in the overall tax burden, reinforces other agreed EU
policies
the
European social model. In recent years, there has been
an increased trend towards closer cooperation on tax
policy. The priority now is to ensure the smooth func-
tioning of the internal market and EMU. In particular,
the EU must focus on the practical problems for indi-
viduals and businesses operating within the internal
market, and the level of coordination between Member
States necessary to deal with these problems. This work
must be accompanied by steps to assist Member States
in combating fraud and tax evasion. Double taxation
due simply to the cross-border nature of economic
activity cannot be accepted, but its elimination should
not create opportunities for tax avoidance and evasion.
Neither should any greater coordination of Member
unintentional
give
tax
States’
non-taxation.

systems

rise

to

A number of specific tax policy objectives have been
the
this
identified
Commission will pursue. Most notably:

communication, which

in

(cid:151) the Commission has established a clear VAT legis-
years. The
lative
Commission will push for this strategy to be imple-
mented rapidly in the Council;

the next

strategy

five

for

(cid:151) in view of the urgent need for more approximation
of Member States’ laws in the area of environmental
and energy taxation in the EU, all posile ways
forward for making progress will be thoroughly
examined by the Commission;

(cid:151) both for health protection reasons and to restrict
fraud and smuggling in the internal market,
the
Commission
proposed measures which
excise duty
enhance
levels in the Member States on tobacco, and is
consulting in relation to excise duty on alcohol;

convergence between the

has

(cid:151) in the corporate tax area,

is
increasingly being asked is how extensive coor-
dination should be. The debate is whether, with

the question that

tax obstacles can
increasing cross-border activity,
continue to be tackled by piecemeal approaches
intact.
leave national company tax systems
that
While
the
the Commission acknowledges
falls within the
setting of corporate tax rates
exclusive competence of Member States, a more
ambitious approach might be a more comprehensive
solution such as a common set of rules for company
taxation. The study on company taxation will assist
the Commission in arriving at a view on this funda-
mental issue;

that

(cid:151) it is very necessary to eliminate tax obstacles to the
cross-border provision of occupational pensions, an
issue addressed in the recent Commission communi-
cation on pensions’
this
objective,
the Commission will actively monitor
Member States rules in this area and take action
where necessary;

taxation. To achieve

is

least

(cid:151) it remains the Commission’s view that a move to
for certain tax
qualified majority voting at
issues
indispensable, and in particular when
there are serious distortions of the internal market,
but
for the present, remain
unanimity. So, while Community legislation on
taxation will continue to play an important role,
the Commission believes
in pursuing tax
policy objectives, all available mechanisms should
be pursued, in particular:

the legal basis will,

that,

(cid:151) a more proactive, well-focused and even-handed
use of infringement proceedings in the tax field
is now required,

(cid:151) careful consideration should be given to an
increased use of non-legislative solutions and to
the mechanism of enhanced cooperation.

and obstacles highlighted

The problems
in this
communication cannot be allowed to continue if the
European Union is to meet the challenge of globalisation
and the objectives set by the Treaty and by recent
European Councils. The Commission,
fully respecting
the subsidiarity principle but having regard also to the
requirements of the internal market and to its own role
as guardian of the Treaties, will therefore energetically
pursue the avenues of tax policy coordination identified
in this communication.