Opinion of the European Economic and Social Committee on "Taxation in the European Union: common principles, convergence of tax laws and the possibility of qualified majority voting"
Date: 2003-12-10
Institutions: European Economic and Social Committee
Subjects: ESC opinion, adoption of a law by vote, qualified majority, tax harmonisation, tax system

30.3.2004

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Opinion of the European Economic and Social Committee on ‘Taxation in the European Union:
common principles, convergence of tax laws and the possibility of qualified majority voting’

(2004/C 80/33)

On 17 July 2003, the European Economic and Social Committee, acting under Rule 29(2) of its Rules of
Procedure, decided to draw up an own-initiative opinion on ‘Taxation in the European Union: common
principles, convergence of tax laws and the possibility of qualified majority voting’.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 26 November
2003. The rapporteur was Mr Nyberg.

At its 404th plenary session held on 10 and 11 December 2003 (meeting of 10 December), the European
Economic and Social Committee adopted the following opinion by 78 votes to 23, with 15 abstentions.

1.

Introduction

2. Competence and decision rules — the Treaty of Rome

and the Convention on the Future of Europe

1.1.
Tax policy is an aspect of macroeconomic policy that
is always at the centre of the political debate, both at national
and EU level. There are considerable differences between
Member State tax policies. This is not just a matter of tax rates;
there are already differences in the way the tax base is
calculated and tax systems are organised in terms of tax
collection, tax inspection, etc.

1.2.
Different political parties have different ideas about the
way they want to see tax systems evolve. The tax debate within
the European Union suffers doubly in this respect, since the
differences are not just between political parties, but also a
consequence of the different frames of reference from national
tax systems. Moreover, the discussions can be held with, on
the one hand, all the Member States, and with the eurozone
countries on the other.

1.3.
This is why it is difficult to secure a common approach
to taxation, and difficulties can already arise when describing
tax systems, due to the different definitions of taxation and the
fact that not all forms of taxation necessarily exist in all
countries. It is our hope, however, that this opinion will push
the debate forward and help us move towards a more unified
approach to taxation and its development.

2.1.
The current rules on taxation and duties are contained
in Articles 90 to 93 of the Treaty of Rome. The decision rules
are in Article 93:

‘The Council shall, acting unanimously on a proposal
2.1.1.
from the Commission and after consulting the European
Parliament and the Economic and Social Committee, adopt
provisions for the harmonisation of legislation concerning
turnover taxes, excise duties and other forms of
indirect
taxation to the extent that such harmonisation is necessary to
ensure the establishment and the functioning of the internal
market within the time limit laid down in Article 14’.

2.2.
The Convention on the Future of Europe discussed
various new decision-making procedures in the field of
taxation. Articles 90 to 92 remain unchanged, save for revised
numbering. In the text submitted to the Intergovernmental
Conference, the decision rules are contained in two articles.

2.2.1.

‘Article III-62

1.
A European law or framework law of the Council of
Ministers shall lay down measures for the harmonisation of
legislation concerning turnover taxes, excise duties and other
forms of indirect taxation provided that such harmonisation is
necessary for the functioning of the internal market and to
avoid distortion of competition. The Council of Ministers shall
act unanimously after consulting the European Parliament and
the Economic and Social Committee.

1.4. We take as our starting point the Treaty’s rules on tax
policy, and the debates and proposals of the Convention on
the future of Europe. We will give a brief description of the
way the fifteen tax systems of the European Union have
developed. Although we are fully aware of EU enlargement in
2004, the lack of material has nevertheless obliged us to
restrict our analysis to the current Member States.

2. Where the Council of Ministers, acting unanimously on
a proposal from the Commission, finds that the measures
referred to in paragraph 1 relate to administrative cooperation
or to combating tax fraud and tax evasion,
it shall act,
notwithstanding paragraph 1, by a qualified majority when
adopting the European law or framework law adopting these
measures.’

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2.2.2.

‘Article III-63

abandoning the unanimity requirement in favour of qualified
majority voting for several tax matters.

1. Where the Council of Ministers, acting unanimously on
a proposal from the Commission, finds that measures on
company taxation relate to administrative cooperation or
combating tax fraud and tax evasion,
it shall adopt, by a
qualified majority, a European law or framework law laying
down these measures, provided that they are necessary for the
functioning of the internal market and to avoid distortion of
competition.

That

2.
law or framework law shall be adopted after
consultation of the European Parliament and the Economic
and Social Committee.’

2.3.
The first of these two articles (Article III-62) contains
two paragraphs, the first of which replaces Article 93. The
wording has been revised and uses the terminology suggested
by the Convention in other articles. A substantive change, in
addition to the link established with the single market, is the
inclusion of the reference to harmonisation being necessary to
avoid distortions of competition between firms. Articles III-62
and III-63 both use the word ‘and’ in ‘for the functioning of
the internal market and to avoid distortion of competition.’ In
order to avoid situations in which this might be interpreted as
applying to only one, the Committee suggests that ‘and’ should
be changed to ‘or’.

2.3.1.
The second paragraph is a clear extension, not of
competence, but of the possibility of qualified majority voting.
However, for all matters relating to the tax base and tax rates,
unanimity continues to be required.

2.4.
Article III-63 provides for greater use of qualified
majority voting by introducing a new competence for dealing
with administrative cooperation, tax fraud and tax evasion in
relation to company tax. This constitutes an extension to the
previous competence dealing with indirect taxation alone.

Both these Articles thus introduce a provision for
2.5.
qualified majority voting in certain limited cases, but the
Council must always decide unanimously in cases of adminis-
trative cooperation, tax fraud or tax evasion. These decisions
are, in the main, a matter for the Commission. Both Article III-
III-63 should therefore begin ‘Where
62 and Article
measures...’. This would mean deleting the phrase: ‘Where the
Council of Ministers, acting unanimously on a proposal from
the Commission, finds that measure’.

2.6.
The Convention debates gave rise to proposals for
more radical changes to the Treaty articles on taxation, in
particular extending competence beyond indirect taxation and

2.7.
Articles 94 and 95 (III-64 and III-65) deal with
the arrangements for the approximation of single market
legislation. Tax matters are specifically excluded from qualified
majority voting. Article 96 (III-66) states that decisions can be
made by qualified majority voting in cases where Member
State legislation might distort competition in the single market.
Since tax policy is not specifically excluded,
it would be
interesting for the Commission to test this Article in the area
of corporate taxation, for example.

2.8.
Article 175 (III-180) provides the legal basis for
unanimous decisions on environmental taxes and charges,
whereas qualified majority voting can be used for general
environmental policy decisions.

3. Direct and indirect taxes

The fact that indirect taxation is governed by the Treaty
3.1.
explains its fundamental importance for the operation of the
single market. However, a distinction is made between direct
and indirect taxation in all other contexts.

3.2.
Another category is usually used when referring to
work, capital and consumption, the first two of which are
subject to direct taxation. The picture is further complicated
by the fact that income from work is subject to both income
tax and social insurance contributions. Given the considerable
differences in income tax/social insurance ratios, comparisons
should always take these two aspects into account.

Furthermore, taxes can be national, regional or local.
3.3.
Major differences exist in the way taxation is distributed
between these three levels.

One type of tax that has increased somewhat

3.4.
in
importance, but which does not fit into the above classifi-
cations, is environmental tax. This can be applied in either the
production or consumption stage, and can therefore be direct
or indirect. The very name means that it is sometimes omitted
is often referred to as
from tax comparisons because it
‘charges’. Regardless of
these taxes should be
the name,
included in tax levy data.

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4. Comparisons between the Member States

Our statistics are taken from a Eurostat publication
4.1.
entitled ‘Structures of the taxation systems in the European
Union’. They are particularly useful for comparison purposes
since they are not only based on current tax rates, but also
refer to the tax levy as a whole. For each form of tax, the
amount actually collected is given as a proportion of the tax
base. This is known as the ‘implicit tax rate’. This means that
both the tax rate and the way the tax base is calculated impact
on the figure. Comparisons based on tax rates alone are likely
to be misleading, since the rules for calculating the tax base
can vary considerably. A high tax rate can yield low tax
receipts if large deductions can be made when calculating the
tax base.

4.2.
The Eurostat data refers to 1995-2001, and reveals
some general trends: (a) a trend towards reducing the share of
tax levied on work (following a period when it had increased);
(b) attempts to reduce corporation tax rates whilst increasing
the tax base; and (c) increases in indirect taxation as part of the
growth in ‘green’ taxes. The latter has often been combined
with a reduction in taxation on work. While these trends do
exist, they are developing very differently from one Member
State to another. Any decisions that might
increase the
differences between the Member States must be avoided.

4.3.
If we need to divide the Member States into categories,
we can say that in the Nordic countries, direct taxes account
for a large proportion of tax receipts, whereas in Portugal and
Greece, the same is true of indirect taxation. In Denmark,
Great Britain and Ireland, social insurance makes up a small
proportion of tax receipts.

4.4.
Comparisons over time must also take into account
the fact that any changes that occur are not necessarily due to
real changes to the tax systems. During the second half of the
1990s, which was a period of growth, both household and
corporate incomes increased. This led to higher receipts from
direct taxation in both cases, as is clear in Eurostat table II-4.2,
without any change to either tax rates or the tax base
calculation rules. The situation changed with the end of this
period of growth in 2001, and has now probably shifted to
one in which tax receipts are falling without any changes being
made to the systems.

There are differences in terms of the tier of government
4.5.
responsible for collecting taxes. In Greece, the local authorities
collect 1 % of the tax levy, whereas this rises to one third in
Denmark. The local level accounts for a large proportion of
tax receipts in all the Nordic countries. The regional level

collects a particularly large proportion in the ‘federal’ countries,
i.e. Germany, Belgium, Spain and Austria. These differences
are important within each Member State, but not for relations
between the Member States. Federal states could have problems
in implementing EU level tax decisions if decisions are taken
at federal state level.

4.6.
The Member States are often grouped together accord-
ing to size of the tax levy. A more complex picture emerges
when looking at the tax burden on work, capital and consump-
tion. Sweden and Finland appear as high tax countries for all
three, whereas Denmark has particularly high tax rates for
consumption, but not for capital. The low tax countries
UK and Ireland actually have relatively high tax rates for
consumption and capital. The low tax country Greece has a
particularly high rate for consumption, which accounts for
over 40 % of all tax levies. Generally speaking, if the only
previous criterion has been the general VAT rate, then the
consumption tax rate would appear to be surprisingly high.
When other sales taxes are included, along with the effect of
reduced VAT rates, the differences between countries look
somewhat different. As much as a third of Luxembourg’s
tax income comes from tax on capital. Denmark and the
Netherlands have the highest proportion of environmental
taxes.

In order to determine the effectiveness of taxation, we
4.7.
need to compare the data for actual tax levies with tax rates. If
a country with a relatively high tax rate does not also have a
high tax levy, then either the tax base is open to large
deductions, or tax collection is inefficient. Given that the
Commission and Eurostat have used such comprehensive tax
bases as work, capital and consumption,
it is difficult to
compare actual tax rates, as these often affect only part of
these three major taxation areas.

4.7.1.
The issue of tax on capital raises the question of tax
bases that are most vulnerable to the tax rules of others.
However, it is extremely complicated to compare taxation of
capital in order to assess where the effect on other countries is
greatest. It comprises four main strands: corporation tax, tax
on income from interest, dividends and capital gains. Here
again, it is not possible to restrict a comparison of any of these
to tax rates, since there are also differences in the scope of any
deductions etc. It is not possible to consider only one of these;
situations such as low corporation tax combined with high
taxation of dividends and capital gains must also be taken into
consideration. All these aspects of taxation have an impact on
relations with other countries’ tax systems.

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Finally,

it must be remembered that the tax levies
4.8.
described are only based on tax rates and the relevant tax
bases. Many of the differences between the various countries
are a result of other policy decisions. A tax deduction for
children yields a lower total tax levy than does child allowance,
although the actual level of support is the same. Reducing the
VAT rate on children’s clothes also has a different impact on
tax receipts than does child allowance. The statistics also show
that a lower VAT rate does not always have the desired effect
on prices. A budget deficit will, of course, give lower receipts
today, but higher ones when the deficit is gradually made
good.

5. Why taxes?

5.1.
Tax systems have developed over a long period of
history. In European countries they are now accepted as part
and parcel of a socially well-functioning democratic society,
but there is no single reason for taxes; in fact, there are several.

— The main reason is, of course, to obtain money for the
thus enabling the
public sector and public services,
provision of good social services. The amount of tax
collected and the procedures for doing so depend largely
on various traditions and on the desire to entrust various
matters to the public sector.

— The decision to choose one form of taxation over another
to fund the public sector impacts on income distribution
and allocation of economic resources.

— The way the tax systems are organised and the relation
between these systems and social security systems can
impact on manpower levels and also on individual
decisions as to how much to work.

— Monetary policy measures aside, tax changes are the most
important and fastest economic policy measure available
when seeking to influence the economic situation.

6. Tax base — tax rate

Eurostat’s decision to report tax receipts in terms of an
6.1.
‘implicit tax rate’, which takes account of both the tax base
and the tax rate, is clear evidence of the fact that both are
crucial to the tax levy. The general debate on taxation has
focused excessively on tax rates.

6.2.
Since tax rates are more controversial politically, we
propose to begin by focusing on a study of the differences in
the calculation of the tax base. This should then enable us, in
stage two, to propose more common rules in order to bring
calculation methods more closely together. In the third stage,
where it is essentially tax rates that are responsible for the tax
levy differences, the debate could focus on whether there
should be a minimum tax rate.

6.3.
However, there are some purely statistical problems
involved in looking at tax rates alone. For example, there are
considerable variations between the Member States as regards
derogations from the general VAT rate. Consequently, there
are differences in the extent to which countries exploit the
potential tax base. This affects the amount of tax receipts
collected through VAT regardless of the general VAT rate (1).
But this distribution of exemptions is significant and important
as regards the repercussions on the distribution of incomes
and on the degree of redistribution of tax regimes.

6.3.1.
The Commission has said that ‘EU tax policy should
continue to facilitate efforts to cut nominal rates while
broadening the tax base, thus reducing the economic distor-
tions associated with Member States’ tax systems’ (2). This type
it is
of tax policy approach must not just apply to VAT;
perhaps even more important for other forms of tax such as
corporation tax and environmental taxes.

6.3.2.
Another tax base difference between the Member
States is that only certain areas of public sector activity are
subject to VAT. If a country with a large public sector wants
to have as much VAT income as a country with a small public
sector, it must set a higher VAT rate. This means that the VAT
rate must be set nationally.

— Certain forms of tax aim to impact directly on the
operation of the market. The most obvious example is
the use of taxes or charges on activities that pose a danger
to the environment, in an attempt to reduce production
or consumption. Attempts to use specific taxes to curb
consumption of tobacco and alcohol, for example, are
another example.

(1) A Swedish study shows that if the general VAT rate in Sweden
were to apply to all goods and services, it could be lowered from
25 % to 21-22 %. Since one of the reduced VAT rates applies to
foodstuffs, such a change could impact considerably on income
distribution.

(2) COM(2001) 260 final.

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Judging by the tables on taxation of environmental
6.4.
factors contained in the appendix, there are also considerable
differences in the way in which the base for these taxes or
charges is calculated. Not all the countries generally regarded
as taxing environmentally dangerous activities particularly
heavily are included in the list of countries with high tax
receipts from these forms of tax. There could be two reasons
for this: either because there seems to be considerable scope
for avoiding this type of taxation in a number of countries, or
because the tax is so high that consumers actually choose to
avoid these dangerous products. The ‘polluter pays’ principle
would be have more impact if there were greater uniformity
of the tax base rather than just sufficiently high tax rates. This
is not just important from the environmental point of view,
but also to achieve a more level playing field.

6.5.
Although statistics are more readily available for the
tax base and tax rates, there is a third area where differences
between Member States can be seen: the way tax systems are
organised. How is tax collected, i.e. who is responsible for tax
collection? When does it take place and how often? What are
the inspection procedures? Is modern computer technology
used and do the authorities and the public have the necessary
IT skills? Can the procedures be regarded as simple, or is there
still a lot of unnecessary bureaucracy?

level,

It is crucial to provide answers to these questions at
6.6.
national
in order to establish the receipts actually
generated by a certain tax rate and the costs involved. But it is
also important to secure greater standardisation of the various
procedures in order to facilitate the operation of the single
market. It is often difficult to learn how to deal with a national
system, but when engaging in international trade, one must be
able to cope with several systems. In many cases, this can pose
a greater obstacle than any tax rate differential. These problems
can be insurmountable barriers for SMEs.

This type of problem must be an important focus of
6.6.1.
the Commission’s continuing efforts. It is essential
if the
Member States are to accept a more standardised calculation
of tax bases. It is also to be hoped that the new concept of
‘administrative cooperation’ will cover all forms of cooperation
that can eliminate unnecessary differences and red tape.

7.

Interdependence and the need for more standardised
systems

7.1.
As the Member States become more integrated econ-
omically, the differences in their tax systems become more
important. Where the situation is static, the differences are of
little consequence. They have arisen because traditions vary,
and also because some countries have chosen to deliver a
greater proportion of social services via the public sector, and
therefore have a higher total tax percentage in the economy.
The traditions are long ones, and economies have adapted
over time. In a more dynamic economy, and particularly when
the dynamism is partly the result of the rapid integration of
several countries, some of the tax system disparities can have
a greater impact on the way in which economies interact.

7.1.1. Market integration was facilitated by the decision to
launch the Single Market and the establishment of EMU. The
process could continue with ever more coordination, including
in the area of economic policy, of which tax policy is a part.
Integration goes hand in hand with increased competition. This
improves efficiency and economic potential. When increased
competition leads to increased productivity, the outcome can
only be positive for businesses, employees and the economy
as a whole.

7.1.2.
However, the integration process contains inherent
risks if, on the other hand, different methods are adopted in
order to cope with increased pressure from competitors. It
might be easier to accept weaker social or environmental
protection, or to resort to tax policy when unable to secure
productivity gains to cope with competition. This type of
change cancels out the benefits of increased competition.
for
Inadequate competitiveness either
employees and the environment, or is transported to other
countries via tax dumping. Single market legislation has often,
but not always, managed to thwart this tendency towards
weaker social and environmental protection. In the field of
taxation, however, this has seldom been the case.

to changes

leads

The question of introducing competition between
6.6.2.
different tax systems always leads to heated discussion. There
is a need to be very explicit on what kind of competition it
concerns. It is wrong to presume that it always concerns tax
rates and tax bases. Competition that leads to more efficient
and less bureaucratic systems should on the other hand always
be welcomed. To achieve such a competition, which succeeds
in bringing forward best practise, we propose that a new ‘open
method of coordination’ for such aspects of tax policy is
considered.

7.1.3.
The correlation between tax policy and an inability
to achieve a level playing field is not taken seriously enough.
The Primarolo Report describes, for example, a number of
corporation tax measures that distort competition. The Mem-
ber States have undertaken to eliminate the most detrimental
of these (some 66 measures). The Commission is expected to
produce a progress report on this soon. These direct system
errors in tax policy must be removed.

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The creation of the single market and the introduction
7.2.
of the single currency have, however, already provided a more
level playing field. Policy measures have thus set limits for the
operation of the market economy. While opinions might vary
as to whether this process has been adequate or whether the
actual content of the rules has always been optimal, there
is considerable agreement that this development has been
beneficial for the operation of the single market. Removing
obstacles is especially important for SMEs, so that they can
better exploit ‘international’ trade within the single market.

7.2.1.
The ‘fixed framework’ approach to the operation of
the single market, which aims to create a level playing field in
which the Member States can compete, must continue to be
applied. However, there is a particular need for more rapid
decision-making in the field of tax policy, as this is crucial to
securing a competitive climate. That said, we must be sure that
taxation decisions do not stymie the growth of the single
market. However, as mentioned in point 5.1, as well as being
an economic policy instrument, taxation also encourages (or
penalises) certain economic behaviour, particularly as part of
an approach that is favourable to sustainable development,
taking ecology into account. Consequently, there must be an
exception to this rule, which is that there is justification for
using environmental taxes to keep development from moving
in a politically undesirable direction. Taxes that distort compe-
tition should be regarded in the same way as direct state aid.
The impact on competition in the single market is the same.

If no policy decisions are taken, the more difficult
7.2.2.
competitive climate created by integration will put downward
pressure on the taxes and charges that affect companies most
directly. Lower tax levels, along with any reapportionment of
the various types of taxation, are a mistake if market-driven.
The latest reforms of corporation tax in the various Member
States have all been in the direction of reducing tax rates, with
the EU-15 average passing from 32,42 % to 29,70 %. If such
changes are desired, they must result from policy decisions in
which other countries’ tax systems are not the decisive factor.

7.3. While most types of tax have no direct or decisive
impact on the single market, they can, of course, play a very
important role in the operation of national markets. The need
for more uniform systems should, then, only be seen in
relation to the operation of the single market.

administrative cooperation, tax fraud and tax evasion. These
are important measures, but they are far too limited to cover
all the conceivable effects of corporation tax on the internal
market.

7.4.1.
The references to the operation of the single market
and to measures to prevent distortions of competition are very
welcome. The definition of ‘distortions of competition’ will be
very important and the discussion in the Primarolo Group can
be a starting point.

7.4.2. We will only be able to say with certainty if
‘administrative cooperation’ is an adequate expression when
we have fully understood what it actually covers.
If the
intention is to try to secure greater standardisation for tax
collection and recovery rules, tax inspection, tax return format
and the like, then the term is acceptable. But if it only refers to
the amount of cooperation needed when assisting people who
move from one country to another or carry out transactions
in several countries for one reason or another, then it is far too
restrictive.

In addition to the restrictive wording, the biggest
7.4.3.
shortcoming is that there is no unified approach to the types
of tax that are likely to impact on the single market and
competition. By this we mean on the one hand, taxation of
income from capital, which is of considerable importance to
the development of a common European financial market and
to easy access to investment capital in each country; and on
the other, the lack of any reference to taxation to protect the
environment.

7.5.
The European Union must be given competence for all
areas that affect the single market and competition conditions
between Member States. This must include all taxes and
charges that have such an impact. There must be no need for
the EU to resort to the article that gives it the right to decide
unanimously to address specific questions at Community level.
In addition to widening the fields of competence, there is also
a need to specify which areas are concerned (the single market
and competition conditions), and whether decisions are to be
taken unanimously or by qualified majority voting. A factor in
choosing the decision-making procedure must be the increased
difficulty in reaching a unanimous decision in a Union of
25 Member States.

8. Decisions currently in force

7.4.
The Treaty of Rome made indirect taxation a com-
petence of the European Union precisely because it impacts on
the internal market. The Convention added a certain degree of
competence for corporation tax. However, it only refers to

8.1.
Despite the shortcomings in the wording of the Treaty,
important tax questions have been on the agenda and certain
decisions have also been taken in recent years.

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On 3 June 2003, following a fourteen-year debate and
8.2.
much compromise, the Council of Ministers adopted a package
of tax measures covering income from interest and corporation
tax. It is probably easier to criticise the way this decision was
made than its actual contents.

The unanimity requirement is probably the reason
8.3.1.
why the Commission has not submitted formal proposals on
packaging, CO2 emissions from motor vehicles, aviation fuel,
etc. Moreover, there are no proposals to grade products for
taxation according to how dangerous they are.

8.2.1. With regard to income from interest, it was decided
that each country must report any interest paid to foreigners
to their country of origin, so it can be taxed there. The ten new
Member States will start to do this in 2007. Exemptions are
provided for Luxembourg, Belgium and Austria, and for the
‘tax havens’ (Switzerland, Monaco, Liechtenstein, Andorra, San
Marino, Gibraltar and the Channel Islands), which will tax
foreigners’ savings at source and send three-quarters of the tax
received to the saver’s country of origin. All the rules will enter
into force in 2005.
In the countries benefiting from an
exemption, the withholding tax rate will be 15 %. It will rise
to 20 % in 2008 and to 35 % in 2011. Moreover, the United
States has agreed to provide information if required.

8.2.2. With regard to income from interest, the decision
can be seen as far-reaching. However, the effects are limited in
as much as other forms of capital
income, such as share
dividends and various insurance products, are not included.

8.2.3.
The package also contains provisions on royalty
payments, so that they will not be taxed twice. Corporation
tax is also included through a code of conduct in which the
Member States commit themselves to abolishing 66 specific
measures with a view to preventing unfair competition.
However, this part of the tax package has nothing to say on
corporation tax rates. Consequently, one must realise that, in
its present state, the tax package remains incomplete, especially
as regards the corporation tax.

8.3.
Environmental taxes and charges have also been on
the agenda in recent years. Article 175 (III-130) provides that
decisions on environmental taxes must be taken unanimously.
Convention proposals to introduce qualified majority voting
in this paragraph were defeated. A final decision remains to be
taken on many Commission proposals, including the diesel
tax and biofuels directives. On 27 October 2003, the Council
adopted a decision on taxation of energy products. The
decision will enter into force on 1 January 2004 and will
reduce tax discrepancies for various types of energy. Over the
last ten years there have been several promises to address this
issue at European Council level.

8.4.
In the meantime the Commission has also produced
proposals for more standardised rules for reduced VAT rates
on certain products. The Commission takes the view that a
10 % disparity (15 %-25 %) is acceptable in the single market.
However, with some reduced VAT rates the difference can be
too great, going from 0 % to 25 % (1).

9. Qualified majority voting and minimum levels

Unanimity is required for all EU tax decisions. The
9.1.
Convention has proposed a slight easing of this rule, but
neither the calculation of the tax base nor of tax rates are
covered by this proposal. The EESC has said on several
previous occasions that the unanimity requirement for tax
matters needs to be reviewed.

The unanimity requirement means that fewer pro-
9.1.1.
posals can be translated into decisions. It also means, as we
saw with savings income, that it can take a tremendously long
time to get a unanimous decision. Moreover, this particular
case shows how players can exploit the unanimity requirement
to promote their ideas in other policy areas. Another conse-
quence is that the Commission, being only too aware of the
need for unanimity, chooses not to submit proposals that a
Member State is expected to oppose. A decision that includes
all the Member States is always preferable. If, on the other
hand, the unanimity requirement leads to decisions being taken
by the eurozone countries or through reinforced cooperation,
some inequalities will persist.

9.1.2.
As we see it, there is only one way to unravel all
these knots. The European Union must have competence and
be genuinely able to decide by qualified majority voting in tax
matters whenever a country’s ability to set its own taxes is
largely dependent on the behaviour of the other Member States
in a single market of 25. It is because of this situation, where
the policy of one country impacts on the rest, that the IGC
must exploit its room for manoeuvre to extend the scope for
qualified majority voting on tax policy. National sovereignty
for some tax decisions is an illusion when it is, in fact, the single
market that sets the constraints for national tax decisions. A
theoretical right to make decisions is no real sovereignty at all.

(1) See EESC opinion on COM(2003) 397 final, OJ C 32, 5.2.2004.

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If

the mobile tax base becomes less easy to tax
9.2.
because single market competition has harmonised tax rates
downwards, the tax burden on the working population will
increase and eventually become unbearable in the demographic
scenario that awaits us. The need for transparent tax systems
that are perceived to be fair will thus become even more
important in the future, when demographic change leads to a
reduction in the proportion of the working population that is
paying for social security.

Under the tax policy changes proposed by the
10.2.
Convention on the Future of Europe, EU action can be
legitimate not just for the needs of the single market but
also to address distortions of competition. The Convention
proposes a switch to qualified majority voting for administrat-
ive cooperation, tax fraud and tax evasion, and that this shall
also apply to corporation tax in addition to indirect taxes.

If qualified majority voting rules are adopted, the type
9.3.
of taxes concerned will have to be very clearly defined. Clearly,
corporation tax, and taxation of income from capital and of
environmentally hazardous activities belong in this category.
There is no case for establishing a general right to adopt tax
decisions by qualified majority voting. It must be restricted, as
proposed by the Convention, to taxes that impact on the
operation of the single market or are likely to cause distortions
of competition. Taxation of earned income and, for example,
property must therefore remain a national competence, and
any EU-level decisions on these must be taken unanimously. It
is therefore difficult to set any clear boundary. There are taxes
such as VAT and other sales taxes that affect the single market
in some respects, but any impact they might have does not
constitute such a clear distortion of competition within the
single market.

9.4.
This restriction as to the type of tax concerned is one
of two limitations. The second is that this is not a matter of
harmonisation but only of setting minimum levels. A country’s
ability to set its tax rates as it wishes is only frustrated when
certain countries cut their taxes to such low levels that the
others are obliged to follow suit for the sake of competition.
If, after the minimum levels have been set, a country chooses
to keep taxes higher or even to increase them, it is a national
matter. It can only have a domestic impact, i.e. a negative
impact on the nation’s ability to compete.

10. Summary and conclusions

10.3.
A comparison of the Member States’ tax burdens on
work, capital and consumption, and recourse to environmental
taxes, reveals a complex picture. Data relating to corporation
tax also show that changes in tax receipts can be a result of
the economic situation, without the tax rules actually being
altered.

10.4.
In addition to the main objective of funding the
public sector, taxes are used to impact on income distribution,
the market (e.g. use of hazardous products), employment
supply, and as a strand of economic policy to influence the
business cycle.

10.5. With regard to tax policy, an attempt should first be
made to secure more common rules for calculating taxes,
deductions, etc., and the administration and efficiency of the
systems before addressing tax rate decisions. Differences other
than in tax rates can often be a source of major headaches,
particularly for small firms that are thinking of launching their
products on the single market.

10.6.
As economic integration between the Member States
gathers pace, so does the significance of tax system differences.
Integration goes hand in hand with increased competition,
which can improve efficiency and economic potential. How-
ever, when unable to cope with competition through pro-
ductivity gains, there is a risk of resorting to weaker environ-
mental or social protection, or tax cuts, in order to ‘protect’
firms that are exposed to competition.

10.6.1. Measures that distort competition in areas such as
corporate taxation must be eliminated. Tax policy must
therefore be developed and decisions speeded up to provide a
more level playing field. Taxes that distort competition have
the same impact on the single market as direct state aid.

10.1.
The differences between Member State tax policies
are not just confined to tax rates, but also to tax base
calculation criteria and the way the tax systems are organised.
Consequently, the difficulty encountered in achieving a com-
mon position on tax issues is not just a question of differing
political views.

10.6.2.
Convention proposals for simpler decision-making
procedures for administrative cooperation and measures to
combat tax fraud and tax evasion will only be meaningful if
they are interpreted widely enough to reduce unnecessary
differences in tax systems in order to improve the operation of
the single market.

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After a 14-year debate a decision has now been taken
10.7.
on the gradual introduction, by the year 2011, of a fairer
system for taxing income from interest. Following the aut-
umn 2003 decision, energy taxation will be more uniform,
whereas most areas of environmental taxation appear to have
got stuck in the decision-making machinery. With regard to
corporation tax, a start has been made on the more detrimental
rules, but there is still some way to go before we get a more
comprehensive regulation.

10.8.
The European Union must have competence and be
genuinely able to decide by qualified majority voting in cases
its own taxes is largely
where a country’s ability to set

dependent on the behaviour of the other Member States. If the
mobile tax base becomes impossible to tax, then the tax
burden will
increase on the fixed tax base, which means,
basically, the working population.

Qualified majority voting must be restricted to
10.8.1.
certain types of tax, such as corporation tax, taxation of income
from capital and of environmentally dangerous activities. It
should also apply to taxes that impact on the operation of the
single market or distort competition. It must not apply to any
national differences that have no impact on the market or on
competition. In addition to applying to certain types of tax
only, qualified majority voting must only be used to set
minimum levels.

Brussels, 10 December 2003.

The President

of the European Economic and Social Committee

Roger BRIESCH