Opinion of the Economic and Social Committee on "Tax policy in the European Union — Priorities for the years ahead"
Date: 2001-11-28
Institutions: European Economic and Social Committee
Subjects: European Union, approximation of laws, fiscal policy, tax harmonisation

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5.2.
Three other pieces of proposed legislation dealing with
civil aviation security should be promoted and adopted as
quickly as possible.

5.4. With regard to infrastructure, the suggested timeframe
for implementing the proposal is unrealistic.

5.3.
This proposal deals only with security measures for
boarding an aircraft. Legislation dealing with on-board security
should be proposed and adopted as quickly as possible.

5.5.
The significant additional expenditure involved in
implementing the proposals should be shouldered by the
Member States.

Brussels, 28 November 2001.

The President

of the Economic and Social Committee

Göke FRERICHS

Opinion of the Economic and Social Committee on ‘Tax policy in the European Union —
Priorities for the years ahead’

(2002/C 48/18)

On 5 June 2001 the Commission decided to consult the Economic and Social Committee, under Article
262 of the Treaty establishing the European Community, on ‘Tax policy in the European Union —
Priorities for the years ahead’.

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 13 November
2001. The rapporteur was Mr Morgan.

At its 386th plenary session (meeting of 28 November 2001), the Economic and Social Committee
adopted the following opinion by 72 votes for and 8 votes against with 7 abstentions.

1.

Introduction

The Commission’s communication is complete and

1.1.
comprehensive.

In its introduction (1), the Commission explains the purpose of
the communication:

‘This Communication sets out the Commission view of the
fundamental priorities for tax policy in the European
Union in the years ahead. It explains the general approach
which,
in the Commission’s opinion, 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, remain unanimity, this

(1) COM(2001) 260 final, Introduction, last paragraph.

Communication also examines whether there are other
appropriate instruments that could be used, in addition to
legislation, to achieve these policy objectives.’

1.2.
The communication is divided into four parts: the
general context for developing EU tax policy; EU tax policy —
specific objectives for the years ahead; mechanisms to achieve
the objectives; conclusion. In section 2, we have summarised
the Commission’s statement of context without comment,
simply to position the proposals which the Commission has
subsequently made. In the next three sections of the opinion,
we quote the Commission’s actions/proposals and give an
opinion as to whether they should be accepted or rejected.

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One of

1.3.
the Commission in its
Communication has been to deal pragmatically with the
backlog of issues affecting individual citizens and companies.

the objectives of

2. General context for developing EU tax policy

The Commission discusses the general context under

2.1.
four headings:

— recent EU developments;

— the global

trend towards economic integration and

cooperation;

— EU tax policy – general objectives;

— how to achieve these objectives.

2.2.
The first two of these headings, Recent EU develop-
ments and The global trend towards economic integration and
cooperation, are purely background material, but the second
two provide an important context for the action programme.

2.3.

EU tax policy — general objectives (1)

‘What type of EU tax policy would be compatible
2.3.1.
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). (...) 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. (...) 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 (...)’.

2.4. How to achieve these objectives (2)

2.4.2.
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. (...)

But a high degree of harmonisation is essential in the
2.4.3.
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. (...)

2.4.4.
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. (...)

In the case of direct taxation of mobile tax bases, the
2.4.5.
need for a certain degree of co-ordination has already been
recognised,
in particular: the exchange of 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.
(...) 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. (...)

2.4.6. Moreover, while it remains the Commission’s view
that a move to qualified majority voting at least for certain tax
issues is indispensable, the legal basis will, for the present,
remain unanimity. Given the difficulties in reaching unanimous
decisions on legislative proposals, which will be compounded
by enlargement, the Community should also consider the use
of alternative instruments as a basis for initiatives in the tax
field. (...)

3. EU tax policy — specific objectives for the years

ahead

3.1.

Indirect taxation

3.1.1. V a l u e a d d e d t a x

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

The Commission has brought forward proposals
3.1.1.1.
to improve the transitional system (3). In its opinion (4), the
ESC concluded as follows:

(1) COM(2001) 260 final, 2.3, 1st–3rd paragraphs.
(2) COM(2001) 260 final, 2.4, 1st–5th and 7th paragraphs.

(3) COM(2000) 348 final.
(4) OJ C 116, 20.4.2001, p. 59.

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The Committee reiterates its position that

3.1.1.2.
the
manifold and serious weaknesses of the present transitional
system can only be finally removed by the introduction of a
new definitive system based on the principle of taxation in the
country of origin. It deeply regrets the total lack of progress
which has been made towards achieving this goal and, while it
welcomes the Commission’s continued dedication to this as a
long-term measure, it wonders how many more years of the
ramshackle transitional system will have to be endured before
this objective can be attained.

3.1.1.3.
It calls upon the Member States to realise the
advantages for the European Union which would accrue from
a system which would make a reality of the single market,
rather than undermining it, and do so much to stem the
current tide of VAT fraud.

The Committee agrees that the key elements in
3.1.1.4.
improving the transitional system are simplification and
modernisation of current rules, more uniform application of
the rules and closer administrative cooperation. It accepts the
Commission’s proposition that ‘modernisation and simplifi-
cation’ and ‘administrative cooperation and fraud prevention’
form a single package and must go hand in hand.

3.1.2.

E x c i s e d u t i e s

3.1.2.1.

Energy and environmental taxation

It is important to recognise that taxation is one
3.1.2.1.1.
of a number of
instruments for tackling environmental
problems. For example, regulations relating to the technical
efficiency of internal combustion engines, and the energy
saving properties of buildings, are very important. A major
contribution towards the Kyoto targets has been made by the
switch of generating capacity from coal and oil to gas. It is
important to keep the taxation instrument in a proper context.
The ESC has spoken out in various opinions in favour of
economic regulatory instruments in the field of environment
policy. However, as the Committee has also pointed out
repeatedly, ‘the introduction of eco-taxes must not be allowed
to lead to European firms becoming less competitive and to
jobs being lost, especially in energy-intensive sectors’ (1).

3.1.2.1.2.
It is the ESC opinion that while EU support for
the Kyoto protocol should not be put in question, we should
not be afraid to continue to ask questions about how these
targets are met.

The Commission observes (2) that ‘the current
3.1.2.1.3.
mechanisms at both national and Community level thus lead
to possible distortions in the consumer choices between energy
sources or products and in the conditions of competition. A
Community framework for facilitating the approximation of
the taxation schemes of Member States would offer the most
efficient remedy to these difficulties’. The Economic and Social
Committee considers that this should remain a matter for the
competence of Member State governments, depending as it
does on the particular supply and demand patterns in each
Member State. Nevertheless the ESC feels that Member States
must come together to reduce pollution since pollution knows
no boundaries.

The Commission is anxious to progress beyond
3.1.2.1.4.
the stalemate on the proposed Council Directive for restructur-
ing the Community Framework for the taxation for Energy
Products (3). While reiterating our support for Member State
decision-making, the ESC commends to Member States the
recommendation in the proposal that when implementing the
directive they should avoid any increase in their overall tax
burden.

The Commission feels that (4)‘the weaknesses of
3.1.2.1.5.
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 once again 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’. The Economic and Social
Committee cannot see the connection between the reaction of
Member States and the need for a common framework, since
the events in different countries were caused by different
national factors.

In conclusion, the Commission states that (5)‘the
3.1.2.1.6.
shift towards environmental taxes has clearly been a very
slow one.’ It asserts that ‘a common framework including
differentiated rates according to environmental objectives
could be very useful.’ However, in the view of the ESC, the
attempt to agree a common framework should not hold back
actions which countries would otherwise take. We would
recommend a system of common goals while continuing to
look for a common framework.

(2) COM(2001) 260 final, 3.1.2, Energy and environmental taxation,

3rd paragraph.
(3) COM(1997) 30.
(4) COM(2001) 260 final, 3.1.2, Energy and environmental taxation,

6th paragraph.

(5) COM(2001) 260 final, 3.1.2, Energy and environmental taxation,

(1) OJ C 19, 21.1.1998, p. 91.

last paragraph.

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3.1.2.2. Vehicle taxation

The Commission states that approximation of
3.1.2.2.1.
vehicle taxes should be encouraged. It seems to the Economic
and Social Committee that the cross-border effects on private
vehicles are de minimis at the citizen level, and that Member
State priorities should prevail. However, the ESC notes that
there is a competitiveness issue for commercial vehicles
involved in cross-border activity.

The Commission states that (1)‘the possibility of
3.1.2.2.2.
restructuring registration and circulation taxes in an environ-
mental direction will be examined.’ In principle, such moves
will have Economic and Social Committee support, on the
assumption that Member States would embrace such guidelines
as part of their own CO2 reduction plans.

3.1.2.3. Duties on alcohol and tobacco

3.1.2.3.1.
Present excise duty frameworks in the European
Union allow a wide range of discretion for Member State
governments. A Commission proposal to amend the structure
and rates of excise duty as applied on manufactured tobacco (2)
has been considered by the ESC. This directive would align
excise duties on tobacco were more clearly. The proposal has
been rejected by the ESC in its Opinion CES 1330/2001. The
Commission intends to adopt a report on alcohol taxation
before the end of 2002.

The Economic and Social Committee feels that within a broad
framework duties on alcohol and tobacco are fundamentally
matters for Member State governments. There are clearly trade-
offs between these duties, the overall levels of direct taxation,
the overall levels of disposable income, and wider interests
such as health and agricultural policies. The current wide
differences between levels of excise duty on alcoholic drinks
lead to much cross-border traffic (legal and illegal), but this is
an issue for Member States.

3.2. Direct taxation

3.2.1. T h e i n t e r n a t i o n a l f r a m e w o r k

The overall aim of the major world economics,
3.2.1.1.
the EU Member States, has been to
including those of
work towards a fiscal climate which promotes free and

fair competition and is conductive 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 (3).

3.2.1.2.
In a parallel Opinion (ECO/067), the ESC is giving
a position on ‘Fiscal competition and its impact on company
competitiveness’. In general, we agree with the conclusions of
the Commission (4) that ‘considerable progress has been made
in identifying harmful tax practices and agreeing timetables
for their elimination.’ The ESC opinion is being further
developed in ECO/067.

3.2.2. C o m p a n y t a x a t i o n

3.2.2.1.
In its tax policy communication, the Commission
stated that an in-depth study of company taxation was being
prepared.

3.2.2.2.
‘The study will analyse differences in effective levels
of corporate tax in Member States, taking into account, inter
alia, the results of the report of the Ruding 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, an assessment should be undertaken of the effects
on the location of economic activity and investment. The
Commission should highlight the tax policy issues involved
in reducing tax–induced distortions and examine possible
remedial measures, taking account of the respective spheres of
competence of the Member States and the Community (5).’

3.2.2.3. We have now received this new communication
and the ESC expects to prepare an opinion.

3.2.3.

P e r s o n a l i n c o m e t a x a t i o n

In summary,

the Commission’s position is as
3.2.3.1.
follows (6): As pointed out in section 2.3, personal income
taxes fall
in their entirety under the sole responsibility of
Member States and co-ordination at EU level only becomes

(1) COM(2001) 260 final, 3.1.2, Vehicle taxation, 2nd paragraph.
(2) COM(2001) 133 final.

(3) COM(2001) 260 final, 3.2.1, 1st paragraph.
(4) COM(2001) 260 final, 3.2.1, 2nd paragraph.
(5) COM(2001) 260 final, 3.2.2, 2nd paragraph.
(6) COM(2001) 260 final, 3.2.3, 1st and 3rd paragraphs.

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necessary to prevent cross-border discrimination or obstacles
to the exercise of
In particular, co-
the four freedoms.
ordination of personal income taxes may in some areas be
needed to avoid double taxation or unintentional non-taxation
in cross-border situations, or to tackle tax evasion. (...)

3.2.3.2.
(...) As the growing number of cases before the ECJ
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 co-
ordination at EU level appears necessary.

3.2.3.3.
facilitate cooperation between Member States.

The ESC welcomes a degree of co-ordination to

3.2.4. T a x a t i o n o f p e n s i o n s

3.2.4.1.
The Commission recognises that a minority of
states do not permit tax deductions on personal pension
payments by employers and employees (from another state).
This clearly creates problems, and the Commission will seek
to find solutions within the existing legal framework (1). The
ESC shares the Commission’s concern and has given its
Opinion.

3.2.5. T a x f r a u d — d i r e c t a n d i n d i r e c t t a x e s

3.2.5.1.
The ESC remains concerned about the general level
of fraud in the Community, in particular in the fields of VAT
and Customs and Excise. The ESC welcomes the steps being
taken by the Commission to tackle tax fraud.

4. Mechanisms to achieve the objectives

4.1.

The decision process (2)

4.1.1.
The Commission has traditionally relied mainly on
making proposals for Directives, and in some cases, regu-
lations, 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 Council, the European
Parliament and the Economic and Social Committee, and that
they offer legal certainty because they may be enforced by the
ECJ.

4.1.2.
However, the pace at which proposals for Directives
in the tax field are agreed has been disappointingly slow (...) in
the context of rapid economic and technical change, where
the need to adapt and modernise legislation quickly is apparent,
the Commission intends
the
implementing powers conferred on it by the Council as
provided for in the Treaty.

to make more use of

4.1.3.
(...) 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 legislation agreed. So where
legislation is not absolutely essential (notably in the direct tax
field), other 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.

The ESC shares the Commission’s concern that it is
4.1.4.
difficult to make progress on tax matters and agree that other
methods need to be found. Therefore the ESC welcomes the
measures of the Commission as outlined in 4.2, 4.3 and 4.4
below.

3.2.6. A c h i e v i n g t h e t a x p o l i c y o b j e c t i v e s i n

t h e e n l a r g e m e n t p r o c e s s

3.2.6.1.
The ESC supports the steps being taken by the
Commission to ensure that in taking on the obligations of
the acquis communautaire, candidate countries accept the
fundamental cornerstones of the tax acquis.

4.2.

The Commission’s role as guardian of the Treaty (3)

4.2.1.
The Commission highlights the number of cases
to the ECJ where Member State tax rules may
brought
contravene either the Treaty or existing Community legislation.
It feels that ‘the rapid development of EC case law in the direct
tax field over the last
few years through cases brought
litigants has highlighted the need for more
by individual
Commission action.’

(1) COM(2001) 214.

(2) COM(2001) 260 final, 4.1, 1st, 2nd and 4th paragraphs.
(3) COM(2001) 260 final, 4.2, 1st–3rd and 5th paragraphs.

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4.2.2.
The Commission sees a role in proposing a common
response to ECJ rulings, ‘including where necessary through
Community legislation. The Commission also plays an
important role in ensuring that ECJ rulings are respected and
properly implemented by Member States.’

In principle, the ESC is supportive of the Com-
4.2.3.
mission’s approach to ECJ activity within the area of taxation.

4.4.

Enhanced co-operation (2)

The Commission notes that ‘the decision at Nice will
4.4.1.
enable the Commission to propose to the Council that as small
a group as eight Member States may co-operate more closely,
after approval within the Council by qualified majority. (...)’

4.4.2.
The ESC is supportive of this approach of enhanced
co-operation, where Member States conclude that it is in their
interests.

it

‘(...)

the Commission cannot, as
4.2.4.
guardian of the Treaty, be lenient on infringements in the tax
field.’

is clear that

4.2.5.
‘(...) the Commission now intends to adopt a more
proactive strategy generally in the field of 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 judgements of the ECJ (...)’.

The ESC is supportive of this approach, while bearing
4.2.6.
in mind that Member States may have different means of
applying and integrating judgements into their national tax
systems.

4.3.

Broadening the range of policy instruments (1)

4.3.1.
The use of non-legislative approaches or ‘soft legis-
lation’ may be an additional means of making progress in the
to
tax field.(
the largest extent possible, involve the European Parliament
through the existing mechanisms for the consultation of
Parliament.

...) Such non-legislative approaches should,

4.3.2.
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
instruments such as
In such cases,
the Court of
Communications, recommendations, guidelines and interpret-
ative 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. (...).

Justice.

4.3.3.
The ESC is fully supportive of this. The ESC encour-
ages the Commission to develop the use of non-legislative and
soft-law instruments, where they can help to make progress in
the tax field.

5. Conclusion

In its conclusion, the Commission highlights six principal tax
policy objectives.

i)

Implementation of the VAT legislative strategy.

— The ESC fully endorses this (3).

ii) More approximation of Member State laws in the area of

environmental and energy taxation.

— The ESC expects that this approximation will be difficult
to achieve. Meanwhile the ESC would welcome a re-
emphasis on goals together with guidelines on environ-
mental taxes, waste disposal, etc.

iii)

Enhanced convergence between excise duties on alcohol
and tobacco.

— Because these duties are a major component of Member
State fiscal systems it is not feasible to deal with them in
isolation. The ESC believes that competition between
countries should be allowed to drive approximations over
time.

iv) Coordination of corporate taxes.

— The ESC expects to give its opinion in due course on the
new Communication from the Commission on company
taxation (4).

v)

Elimination of tax obstacles to cross-border provision of
occupational pensions.

— The ESC fully supports this objective.

vi)

Improved decision-making on tax matters.

— The ESC agrees with the Commission’s view that the legal

basis for the present will remain unanimity.

(1) COM(2001) 260 final, 4.3, 1st–2nd paragraphs.

(2) COM(2001) 260 final, 4.4, 1st–2nd paragraphs.
(3) OJ C 116, 20.4.2001, p. 59.
(4) COM(2001) 582 final.

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In the meantime, the ESC supports both of the proposed
mechanisms to be used in pursuing tax policy objectives (1):

— a more pro-active, well-focused and even-handed use of

infringement proceedings in the tax field;

(1) Ibid, point 5, 2nd paragraph, last bullet point.

— an increased use of non-legislative solutions and the

mechanism of enhanced co-operation.

Brussels, 28 November 2001.

The President

of the Economic and Social Committee

Göke FRERICHS

Opinion of the Economic and Social Committee on ‘World Economic Changes: New Economic
Challenges for the European Union’

(2002/C 48/19)

At its plenary session of 28-29 November 2001 the Economic and Social Committee, acting under the
third paragraph of Rule 23 of its Rules of Procedure, decided to draw up an Opinion on ‘World Economic
Changes: New Economic Challenges for the European Union’.

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 12 November
2001. The rapporteur was Mrs Konitzer.

At its 386th plenary session of 28 and 29 November 2001, (meeting of 28 November), the Economic
and Social Committee adopted the following opinion with 46 votes in favour and three abstentions.

1. Background

and capital and to significant progress in promoting the
macroeconomic conditions for growth and employment made
since the last recession, and particularly in the run-up to
economic and monetary union (2).

1.1.
In 2000 the economic trend in the EU was more
favourable than for more than a decade. GDP growth was just
below 3 1/2 %. Employment rose strongly (1,7 %), so that by
comparison with the previous year unemployment fell by a
full percentage point to 8,3 % of the active population. Thus,
following a peak of 11,1 % (1994), the level prevailing before
the 1992/93 recession had effectively once again been reached.
Despite high oil prices inflation was only a little over 2 % and
the external economic balance seemed assured.

However, hopes that

1.3.
this favourable trend would
continue uninterrupted for a number of years, which was
necessary to solve the EU’s employment problem, were dashed
in the course of 2001.

This favourable trend could be ascribed both to
1.2.
ongoing structural policy efforts to improve the operation of
the markets for goods and services as well as those for labour

(2) See also: OJ C 139, 11.5.2001, p. 51 (ECO/041), OJ C 139,
11.5.2001, p. 60 (ECO/042), OJ C 139, 11.5.2001, p. 72
(ECO/046), OJ C 139, 11.5.2001, p. 79 (ECO/054), OJ C 221,
7.8.2001, p. 177 (ECO/065).