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European Commission

MEMO

Brussels, 18 June 2014

Preparation of Economic and Finance Ministers Council, Luxembourg 20 June

The EU's Council of Economic and Finance (ECOFIN) Ministers will take place in Luxembourg on 20 June at 10.00. The European Commission will be represented by Olli Rehn, Vice President for Economic and Monetary Affairs and the Euro, Michel Barnier, Commissioner for Internal Market, Algirdas Šemeta, Commissioner responsible for Taxation and Customs Union, Audit and Anti-fraud and Janusz Lewandowski, Commissioner for Financial Programming and Budget. A press conference is expected to take place after the meeting.

Draft General Budget for 2015 (PF)

Commissioner Lewandowski will present the draft 2015 budget for the EU (IP/14/665), adopted by the Commission on 12 June 2014. The draft budget focusses on projects that make Europe economically stronger and takes into account the financial implications of Member States' recent political decisions in areas such as energy or Ukraine. Payments in areas supporting Europe's economic growth and jobs, such as science & research, energy or youth employment, increase by +29.5%.

The share of the functioning cost of the EU remains stable at around 4.8% of the total budget. Its increase is around the expected rate of inflation; therefore it does not increase in real terms. The draft budget also includes the third 1% staff reduction in three years.

More information:

http://ec.europa.eu/budget/index_en.cfm

Closing loopholes in company taxation (ET)

The Council is expected to reach political agreement on closing an important loophole in the Parent-Subsidiary Directive which has been used by some companies to escape taxation.

In November 2013, the Commission proposed amendments to the Parent-Subsidiary Directive, which included preventing specific tax planning arrangements (hybrid loan arrangements) from benefiting from tax exemptions (IP/13/1149). With this amendment, companies will no longer be able to exploit differences in the way Member States tax intra-group profit distributions, in order to avoid paying any tax at all. The result will be that the Parent-Subsidiary Directive can continue to ensure a level-playing field for businesses in the Single Market, without opening opportunities for aggressive tax planning. This proposal was one of the actions announced by the Commission in its Action Plan to fight tax fraud and evasion (IP/12/1325).

Bank contributions under the Bank Recovery and Resolution Directive/Single Resolution Mechanism (SRM) Regulation – state of play (CH)

The European Union has agreed new resolution rules for all EU banks (MEMO/14/294). It is now essential to make the national resolution funds established by the Bank Recovery and Resolution Directive (BRRD) (MEMO/14/297) and the Single Resolution Fund (SRF) established by the Single Resolution Mechanism Regulation (MEMO/14/295) a reality.

The European Commission is empowered to adopt a delegated act on banks’ contributions to the national resolution funds under BRRD and a proposal for a Council implementing act on banks’ contributions to the Single Resolution Fund under the Single Resolution Mechanism Regulation (SRM). Both acts will clarify how and how much individual banks will pay towards the Funds in order to meet the target levels set by the legislation.

The Commission services are now working on these texts, and discuss with experts appointed by Member States and the European Parliament in regular meetings of the Expert Group on Banking, Payments and Insurance. This work will be complemented by a public consultation of all interested stakeholders. The Commission intends to adopt both acts by September 2014 to ensure consistency and an efficient adoption process.

Commissioner Barnier will inform the Council of the state of play of those discussions. He looks forward to the constructive cooperation of Member States. In particular the work of the Commission depends on high quality data that Member States have been invited to provide on their respective banking sectors.

Code of Conduct on Business Taxation (ET)

The Council is expected to adopt conclusions on the report of the Code of Conduct Group on Business Taxation. The Code of Conduct Group reports to the Council on progress achieved by the end of each Presidency. The main issues in the current report are:

Patent Boxes: (Patent boxes are a form of tax incentive to encourage research and development). In December 2013, the Council invited the Group to analyse the criteria to determine economic substance by the end of June 2014 and assess all patent boxes in the EU by the end of 2014. Patent boxes are the Member States covered by the assessment process are Belgium, Cyprus, Spain, France, Hungary, Luxembourg, Malta, The Netherlands, Portugal, and United Kingdom.

The Group was due to report back to the Council with its analysis of the substance criterion, but has not yet been able to reach consensus on this point. Nonetheless, in order to meet the December deadline, the Group has asked the Commission to prepare draft assessments of all Patent Boxes, apart from elements related to the substance criterion. These draft assessments will then be completed once consensus has been reached on the substance question.

Dialogue with Switzerland: In 2011, the Group identified five Swiss company tax measures which it regarded as harmful. Through a dialogue between the Commission and Switzerland, it became clear that Switzerland was ready to abolish the five harmful measures, as part of a reform of its company tax rules. In June 2014, the dialogue was concluded. All Member States have agreed to a joint statement with Switzerland.

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Contribution to 26-27 June European Council - European Semester 2014 (SOC)

The Council is expected to endorse the Country-Specific Recommendations (CSRs), which the Commission proposed on 2 June for each member States (except the programme countries) under the European Semester (IP/14/623) (MEMO/14/388). These recommendations cover a wide range of public finance and structural reform issues, including areas such as taxation, pensions, public administration, services and labour markets. Tailored to address the specific challenges of each country, the Country-Specific-Recommendations are intended to underpin the return to sustainable growth and jobs. They include in particular measures to combat youth unemployment.

As Vice President Rehn said: "The Commission's task is to present credible, realistic and realisable policy initiatives, and that's what [our] recommendations are about. They provide policy recommendations to the EU Member States and also to the euro area in its entirety on what is needed to boost sustainable growth, to boost investment, create sustainable jobs and ensure sound public finances."

Greece and Cyprus did not receive any Country-Specific-Recommendations as both countries are subject to more regular and separate monitoring under their respective macroeconomic adjustment programmes, which aim to restore financial stability, boost competitiveness and create the conditions for sustainable growth and job creation.

EU Heads of State or Government are expected to endorse these recommendations at the European Council on 26-27 June. The recommendations will then be formally adopted by the Council on 8 July. It will be up to Member States to implement the recommendations when drafting their national budgets and other relevant policies. The Commission will thoroughly monitor this implementation.

More information:

http://ec.europa.eu/europe2020/making-it-happen/country-specific-recommendations/

The Council is also expected to approve the European Commission recommendation on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro.

The economic and financial crisis has clearly exposed the close interrelationship in the euro area. The euro area broad guidelines highlight the policy action at both Member State and euro area levels necessary to improve the functioning of the euro area as a whole. This specifically concerns the areas of structural reform policy, fiscal policy, financial market policy and the deepening of the Economic and Monetary Union (EMU).

EU Heads of State or Government are expected to endorse the recommendation at the European Council on 26-27 June. The recommendation will be formally adopted by the Council on 8 July. It will then be up to the euro area Member States, notably in the context of policy coordination at the Eurogroup level, to implement these guidelines.

More information:

http://ec.europa.eu/europe2020/pdf/csr2014/csr2014_euroarea_en.pdf

Implementation of Stability and Growth Pact (SOC)

After discussion, the Council is expected to decide on the European Commission recommendations (MEMO/14/382) as to the abrogation of the Excessive Deficit Procedure (EDP) for some Member States. As VP Rehn said on 2 June "We are recommending to the Council the closure of the Excessive Deficit Procedure for six Member States: Belgium, the Czech Republic, Denmark, The Netherlands, Austria and Slovakia. These countries have all brought their deficits sustainably below 3% of GDP and I want to congratulate them for this achievement."

Currently there are 17 EU Member States (i.e. all EU Member States except Bulgaria, Germany, Estonia, Italy, Hungary, Latvia, Lithuania, Luxembourg, Romania, Finland and Sweden) subject to an EDP, whereas there were 24 Member States in this situation in 2011. If the Council follows the Commission's Recommendations and adopts the decisions to end the EDP for the six countries concerned, the number of countries in Excessive Deficit Procedure will drop to 11.

"This shows that the Stability and Growth Pact is working, and Europe’s public finances are being repaired", Vice President Rehn said.

More information:

http://ec.europa.eu/economy_finance/economic_governance/sgp/corrective_arm/index_en.htm

Convergence Reports and enlargement of the euro area (SOC)

On the 4 June, the European Commission released its 2014 Convergence Report, which assesses eight Member States' readiness to join the single currency on the basis of the convergence criteria defined in the Treaty. (IP/14/627)(MEMO/14/391)

As Vice President Rehn said: "The countries we have looked at – Bulgaria, Croatia, the Czech Republic, Hungary, Lithuania, Poland, Romania and Sweden – have made uneven progress towards this goal."

Lithuania stands out from this group as it now fulfils all convergence criteria. As Vice President Rehn said "Lithuania credibly meets the five Maastricht criteria for euro adoption: inflation is well below the reference value; the fiscal deficit and public debt are both on a sustainable path; the exchange rate has remained stable vis-à-vis the euro without any signs of tension; and long-term interest rates have converged to low levels. Moreover, the legal framework has been brought fully in line with the Treaty requirements."

The European Commission has therefore proposed that the EU Council of Ministers decides that Lithuania can adopt the euro on 1 January 2015.

The Council will exchange views on the Convergence Reports published respectively by the European Commission and the European Central Bank (ECB). Further, the members of the Council representing euro area Member States are expected to adopt a recommendation on euro introduction in Lithuania.

The General Affairs Council is expected to adopt the formal decision on the matter on 23 July, after EU Heads of State and Government have discussed the subject on 26-27 June, and after the European Parliament has given its opinion.

More information:

The 2014 Convergence Report

http://ec.europa.eu/economy_finance/publications/european_economy/2014/ee4_en.htm

ECB Convergence Report:

http://www.ecb.europa.eu/pub/pdf/conrep/cr201406en.pdf

Energy taxation (ET)

The Council is due to adopt, without discussion, a progress report on the Energy Taxation Directive, which the European Commission proposed on 13 April 2011.

This proposal aims to overhaul the taxation of energy products in the European Union and restructure the way energy products are taxed to remove current imbalances. The proposed energy tax would be split into two taxes – on CO2 emissions and on general energy consumption, (see IP/11/468).

Under the Greek Presidency of the Council, many amendments to the Commission proposal were tabled and discussed. Despite the intense negotiations, unanimous support was not received for these amendments and as yet there is no sign of a political compromise on this file. The upcoming Italian Presidency has signalled its intention to continue the work on the file.

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Contacts:

Simon O'Connor (+32 2 296 73 59)

Vandna KALIA (+32 2 299 58 24)

Chantal Hughes (+ 32 2 296 44 50)

Audrey Augier (+32 2 297 16 07)

Patrizio Fiorilli (+ 32 2 295 81 32)

Olga Leszczynska-Vargin (+ 32 2 296 55 20)

Emer Traynor (+32 2 292 15 48)

Franck Arrii (+32 2 297 22 21)

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