Brussels, 19 December 2006
Direct Taxation: The European Commission proposes an EU co-ordinated approach of national direct tax systems
The European Commission has adopted a Communication announcing a series of initiatives to promote better co-ordination of national direct tax systems in the EU. The aim is to ensure that national tax systems comply with Community law and interact coherently with each other. The initiatives seek to remove discrimination and double taxation for the benefit of individuals and business while preventing tax abuse and erosion of the tax base.
"Discrimination and double taxation prevent individuals or business from reaping the full benefits of the Internal Market and undermine the EU's competitiveness. There is an urgent need to improve coordination of national tax rules to allow them to interact more coherently" said László Kovács, the Commissioner responsible for Taxation and Customs Union. "Moreover, I am convinced that coordination would help Member States to prevent unintended non-taxation or abuse and hence avoid undue erosion of their tax bases"
The main objectives of a coherent and coordinated tax approach are to:
Linked to this Communication, the Commission is presenting two Communications on cross-border loss relief (IP/061828/) and exit taxation (IP/06/1829), which provide the first two examples of specific areas which could benefit from a coordinated approach.
A need for coordination
Under EU law Member States are largely free to design their direct tax systems so as to meet their domestic policy objectives and requirements. However, national tax rules designed solely or primarily with the domestic situation in mind may give rise to incoherent tax treatment when applied in a cross-border context. An individual or corporate taxpayer who is in a cross-border situation may suffer discrimination or double taxation or face additional compliance costs.
The sharp increase in litigation by taxpayers in national courts and the European Court of Justice over the last few years highlights the need for improved cooperation and better coordination between Member States. The purpose of this initiative is to promote solutions to the common problems posed by the interaction of multiple tax systems in the context of the Internal Market.
By coming forward with this initiative, the European Commission demonstrates its willingness to assist Member States in developing the principles for coordinated solutions and in improving the practical arrangements for administrative cooperation.
In addition to specific areas covered by the two accompanying communications, this Communication also identifies other areas of direct taxation (withholding taxes, anti-avoidance rules, inheritance taxes) where the Commission considers there is a need for coordinating activities.
Coordination and corporate tax base harmonisation
This initiative is complementary to the Commission's ongoing legislative initiatives in the direct tax area. The Commission believes that the only systematic way to address the underlying tax obstacles which exist for corporate taxpayers operating in more than one Member State is to provide multinational groups with a common consolidated corporate tax base for their EU-wide activities. The Commission has announced its intention to present a comprehensive legislative proposal for such a Common Consolidated Corporate Tax Base (CCCTB) in 2008.
However, the CCCTB will only apply to companies which are eligible and opt for it. There is still a more general need to ensure better co-ordination for the benefit of individual and corporate taxpayers and to prevent erosion of Member States' tax bases through mismatches and abuse.
This initiative does not aim to replace existing national tax systems by a
uniform Community system. It seeks to improve the functioning of the 25 (27)
national taxation systems in the Internal Market by improving cooperation
between Member States and better coordination of their rules.