Opinion of the European Economic and Social Committee on the ‘Communication of the Commission to the Council, the European Parliament and European Economic and Social Committee: An internal market without company tax obstacles – achievements, ongoing initiatives and remaining challenges’ (COM(2003) 726 final)
Date: 2004-04-28
Institutions: European Economic and Social Committee
Subjects: basis of tax assessment, double taxation, small and medium-sized enterprises, tax harmonisation, tax reform, type of business

30.4.2004

EN

Official Journal of the European Union

C 117/41

Opinion of the European Economic and Social Committee on the ‘Communication of the Commis-
sion to the Council, the European Parliament and European Economic and Social Committee: An
internal market without company tax obstacles – achievements, ongoing initiatives and remaining
challenges’

(COM(2003) 726 final)

(2004/C 117/10)

On 24 November 2003, the European Commission decided to consult the European Economic and Social
Committee, under Article 262 of the Treaty establishing the European Community, on the ‘Communication
of
the European Parliament and European Economic and Social
Committee: An internal market without company tax obstacles – achievements, ongoing initiatives and
remaining challenges’ (COM(2003) 726 final).

the Commission to the Council,

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 14 April 2004. The rapporteur
was Mr Cassidy.

At its 408th plenary session (meeting of 28 April 2004), the European Economic and Social Committee
adopted the following opinion by 56 votes in favour and 14 votes against, with three abstentions.

1.

Introduction

The Communication is an overview of the European
1.1
Commission's efforts to remove the tax obstacles affecting busi-
nesses operating across frontiers within the internal market. It
is not a proposal for tax harmonisation. It is only concerned
with the elimination of tax obstacles to cross-border business
and to removing an obstacle to the smooth functioning of the
internal market and removing tax related inefficiency arising
from 15 different bases of assessment.

The European Economic and Social Committee (EESC)
1.2
has been consulted on other Commission Communications on
tax matters. In 2001,
it was consulted on the Commission
Communication on ‘Tax policy in the European Union – Priori-
ties for the years ahead’ (COM(2001) 260 final). The rapporteur
of the EESC opinion was Mr Morgan. It was generally suppor-
tive of the Commission's tax policy objectives particularly in
the need to coordinate corporate taxes to eliminate difficulties
particularly for SMEs arising from national variations.

companies is compatible with the tax sovereignty of the EU's
Member States and regions because it preserves their power to
fix the level of tax.

In 2003,

1.5
the Committee issued an opinion on the
Commission proposal for a Council directive amending a Direc-
tive 90/435/EEC on the common system of taxation applicable
in the case of parent companies and subsidiaries in different
member states (COM(2003) 462 final). The rapporteur-general
was Mrs Polverini. The gist of the Committee opinion was to
support the Commission's proposals aimed at eliminating or at
least reducing double or multiple taxation of profits distributed
by a subsidiary in the State of a parent company or permanent
establishment.

In 2003, the Committee gave a further own-initiative
1.6
opinion on common principles of taxation, convergence of tax
laws and the possibility of qualified majority voting on tax
issues. The rapporteur was Mr Nyberg. The conclusion was that
the following three issues be addressed:

1.3
In 2002, the EESC published a further opinion again
with Mr Morgan as the rapporteur on the Commission's propo-
sals concerning fiscal competition and company competitive-
ness. The EESC opinion particularly stressed the need to give
priority to VAT, personal pensions and transfer pricing (1).
Different national regulations prevent the creation of a ‘level
playing field’
in corporate tax treatment between companies
established in different Member States.

— use the open method of cooperation to find the most effi-

cient tax systems;

— introduce a common company tax base;

— use Qualified Majority Voting to establish minimum levels

for the corporate tax rate.

1.4
Also in 2002 an own initiative opinion (rapporteur: Mr
Malosse, co-rapporteur: Mrs Sanchez-Miguel) very strongly
urged the speeding up measures to avoid double taxation, parti-
cularly the proposal to set up a Joint EU Forum on transfer
pricing. Furthermore it approved the aim of having an internal
market free from tax barriers while stressing the importance of
establishing common principles
to encourage an internal
market. The objective of a harmonised tax base for all EU

(1) The prices charged for goods and services provided to companies

belonging to the same group.

2. The current communication

the

The Communication highlights

2.1
tax obstacles
affecting businesses, particularly SMEs, operating across fron-
tiers within the internal market. In spite of its earlier 2001
Communication, the tax obstacles identified then still largely
exist.
It recalls that it has submitted a number of specific
proposals and initiatives aimed at removing specific tax obsta-
cles.

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Official Journal of the European Union

30.4.2004

2.2
The Commission is continuing to work towards a more
wide ranging, long term solution whereby companies would be
allowed to use a single company tax base (taxable profits) for
all their EU wide activities. The Commission believes that this
is the only way of overcoming tax problems in the internal
market in a systematic way.

The EESC acknowledges the steps the Commission has
the Merger Directive

2.3
taken inter alia for
90/434/EC and the Parent/Subsidiaries Directive 90/435/EC.

the revision of

3. Suggestions

The EESC has been supportive of the Commission in its
3.1
efforts to eliminate distortions of the internal market arising
from different rules and regulations on company tax treatment
in the various member States. This problem can only become
worse after the enlargement of the EU to include ten new
Member States on 1 May 2004.

3.2
So, a new impetus is required towards consolidating the
arrangements for corporate tax such as an agreement between
Member States as to what is allowable and what is not allow-
able against national tax. The need for a common tax base is a
priority.

3.3
The EESC hopes that Member Sates will acknowledge the
difficulties of companies, especially SMEs. They do not have the
resources to cope with 15 (soon to be 25) different rules. It
believes that there is merit in the possibility of ‘Home State
Taxation’ (1) (HST) for SMEs perhaps with a turnover ceiling.

3.3.1
The Commission pilot project on ‘Home State Taxa-
tion’ provides a solution for cross-border activities of SMEs,
making their fiscal administrative burden lighter. A test of an
HST system could start on a bilateral basis and could eventually
be widened to the whole of the EU following a positive evalua-
tion.

3.4
A common European tax base is an important first step.
The EESC believes that the International Financial Reporting
Standards (IFRS) are too burdensome and should not be
imposed on SMEs as they are principally intended for publicly
quoted companies (IFRS rules could be a starting point for
arriving at a tax base). The proposal of the Commission needs
to be adapted in order to be applicable for SMEs. An adapted
set of
the specific
needs of SMEs with respect to the administrative burdens and
taxation, should be developed. A harmonised tax base and new
accounting standard could lead to higher taxation. It should be

IAS/IFRS Standards, taking into account

Brussels, 28 April 2004.

possible for those countries to counteract such a shift by chan-
ging its tax rates. Nor must the needs of the future ‘European
Company’ (Societas Europea) be overlooked.

A further suggestion is that the multitude of double taxa-
3.5
tion agreements between Member States
themselves and
between Member States and third countries such as the USA is
confusing and inconsistent - there is no uniformity. The EESC
urges the European Commission to undertake a study of
double taxation treaties in all sectors aimed at providing a
guide of ‘best practice’ and finding a solution which is accep-
table to all parties.

The Commission Communication puts forward an inter-
3.6
esting suggestion that the principle of ‘most favoured nation’
between Member States might be required at some time in the
future and it notes that first discussions with member states on
this issue are to be held shortly.

3.7
The EESC is once again urging on Member States, the
main influence, the need for an agreement which will allow
and encourage SMEs especially to expand outside their home
country and in the process create jobs, SMEs being the main
creators of new jobs. The EESC firmly supports the Commis-
sion's desire to have agreement between Member States on the
tax base for companies.

The lack of real progress in the EU decision-making
3.8
process on corporate taxation leads to a shift from political
decisions taken by the Council and the European Parliament to
the ECJ. Also without political decisions there is a need for judi-
cial decisions on the different taxations systems. The ECJ's juris-
prudence (2) is beginning to have far reaching effects on tax
systems notably on Member States' dividend tax systems.
Without progress in the Council on taxation matters the EESC
therefore hopes that the Commission will quickly produce its
guidance on interpreting ECJ tax decisions.

3.9
The EESC could endorse enhanced cooperation between
subgroups of member states who wish to make progress on tax
issues as a way of getting round the present unanimity require-
ment.

3.10
Finally, the EESC acknowledges the difficulty faced by
Member Sates changing their present systems. They need to be
able to compare their existing tax take with their likely share
under any new system. This will require open coordination
between them and the need for trust and confidence between
all of them.

The President

of the European Economic and Social Committee

Roger BRIESCH

(1) Tax rules in the home state for a company are used for all its tax
payments but with the tax rates of each country where it has its
activities.

(2) A recent example: C-446/03 Marks & Spencer plc v. David Halsey
(HM Inspector of Taxes) (UK) - cross-border compensation of losses.