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Frits Bolkestein

Member of the European Commission in charge of the Internal Market, Taxation and Customs

EU Corporate Tax Reform: Progress and New Challenges

Opening address at European Commission Conference on company taxation

Ostia (Rome), 5th December 2003

Minister Tremonti

Members of the European Parliament,

Members of the Italian Parliament and Senate

Ladies and gentlemen,

It is a great pleasure to welcome you all here to Ostia to our conference on EU corporate tax reform and the new challenges ahead.

I am very grateful to the Italian Council Presidency for agreeing to host this important high-level conference in conjunction with the European Commission. It provides a timely opportunity for an exchange of views on this very important issue.

As you know, just over two years ago the Commission published a comprehensive study and a Communication on company taxation in the Internal Market. Since then, and after a first conference that we organized in Brussels in April 2002, the whole issue has received a new impetus.

I think it is fair to say that it has become increasingly evident that we cannot avoid reforming the way in which companies are subjected to corporate taxation in the EU. Major changes are inevitable if we wish to have a real Internal Market without company tax obstacles. More and more people and institutions acknowledge and support the case for comprehensive reform.

The Commission strategy presented in 2001 is a two-tracked one, designed to tackle the tax-related inefficiencies and obstacles within the Internal Market via

  • targeted, immediate solutions and

  • steps towards a longer-term goal of providing companies with a common consolidated tax base for their EU-wide activities.

You will not be surprised that I personally, as well as the college of Commissioners, still strongly believe that our proposed approach is the best response to the current challenges in the corporate tax field in the EU.

If implemented in full it will effectively tackle the tax obstacles and reduce distortions while fully respecting Member States' fundamental prerogatives in on tax matters, in particular their right to set their tax rates.

Over the last two years we have worked on implementing the work programme that we announced in 2001, taking several actions with regard to both elements of the strategy.

On my initiative, just some days ago, the Commission tabled a follow up Communication which reports in some detail on the developments since 2001 and assesses the progress made. We also give detailed indications about what we see as the best way forward. Most of you will have already seen this publication. Copies are available, in four languages, in the conference hall.

Director-General Robert Verrue will give you a more detailed overview of the Communication tomorrow. Let me outline some of the key points and concentrate on the political message.

Overall, we consider that good progress has been made with the implementation of many of the initiatives proposed by the Commission. However we also have to acknowledge that in some respects it was more difficult to make progress than we perhaps hoped two years ago. This is particularly true for the longer term, more ambitious plans.

Moreover, we are now witnessing very interesting (indeed some might say dramatic) new developments with regard to the jurisprudence of the European Court of Justice. EU company tax matters and Court rulings in the field of direct taxation are making headlines these days, receiving a degree of public attention that was unheard of before.

I think that the relative lack of progress on the longer term issues on the one hand and the increasing importance of litigation and legal proceedings on the other are actually, in a way, just two sides of the same coin.

And in this light, I feel that the time has come to assess the results of the Commission strategy from a more fundamental perspective.

The Commission has published its views in the Communication that I just mentioned. Now we must widen the debate to the public in order to make further progress. That is what this conference is intended to do in an open and transparent way.

I firmly believe that progress on the reform of corporate taxation at EU level is urgently needed if the EU is to achieve its self-set objective of becoming the most competitive and dynamic knowledge-based economy in the world.

For some these may be empty words. Whether they are or will become so largely depends on policy makers. Do we or do we not understand the Lisbon objectives as a commitment to bold economic reform to help European companies to become more competitive? For me there is no doubt that we need such courageous economic reform in order to reinvigorate our flagging economies.

So what does this mean for taxation? There are many reasons for the current problems of an ineffective Internal Market and I certainly do not wish to overemphasise the effects of tax obstacles.

Nevertheless I must put two questions to you:

  • can we really afford to renounce the economic growth that would follow if companies in the EU were not hindered by tax obstacles, problems of double taxation and high compliance costs when they invest or do business in other Member States?

  • can our companies compete with US companies that benefit from a real home market without double taxation obstacles which gives them a strong basis from which to expand abroad, for instance into Europe?

These are real questions that we have to address. And tackling these issues is a far cry from engaging in harmonisation of Member States' tax systems. Let me be blunt about this. The notion that Brussels has a long-term agenda of wholesale tax harmonisation is just utter nonsense.

The continuing tax barriers between our Member States often amount to legal discrimination in the terms of the EU Treaty. At the same time, they result in real substantial losses to the welfare of our economies and our citizens. It may be difficult to put a figure on the losses but businesses active 'in the field' know all too well that they occur.

For both these reasons the tax barriers must be removed, in the short term by targeted measures and in the longer term by a systematic solution such as a common EU tax base.

I think it is essential to bear in mind that the issues at the core of the current debate and of this conference are very important, in legal and economic terms.

If, for instance, we take a brief look at the first issue on our agenda today, we come back to the role of the European Court of Justice in the corporate tax field which can hardly be underestimated. Many people may regret the increasing number and significance of Court decisions in the tax field.

I do not.

Mr Wathelet will talk extensively on this issue shortly but I think it is fair to say that the Court is simply doing its work and applying the EU Treaty in the tax field.

Amending the Treaty as some have suggested to prevent the Court from being able to take tax decisions would not be the right response, in my view. Such an action would be a fundamental step backwards and would endanger the whole concept of the Internal Market.

Closer co-operation is the right response. And I say co-operation, not harmonisation.

In my opinion it is high time that policy makers in the Member States come to grips with their failure to ensure that their tax systems are in line with their EU Treaty obligations.

The area of double taxation treaty policy is particularly interesting in this respect and I am certain that major developments lie ahead in this field.

'Tax Treaty traditionalists' might regret this. But these developments are a natural consequence of the exploitation of the Internal Market that was created by the Member States in the EU Treaty. Member States can choose either to welcome these developments and contribute to the design of the future system or to oppose change and find themselves inevitably on the losing side as more and more issues are brought before the Courts.

The Commission has repeatedly made proposals for more open and constructive co-ordination in important and legally problematic fields of Member States' company tax laws.

I hope that these will eventually gain wider support.

The second issue on the conference agenda is, in a sense, more political. Some observers still consider the Commission plans for a common consolidated EU tax base as very long term indeed. The "Financial Times" recently even rated the chances of success of such plans as equal to those of pigs flying!

Before we laugh too much I should remind you that similar words were used not so long ago by opponents of the euro!

Clearly, much work still needs to be done and technical issues need to be resolved. But nobody can claim that we are not making progress, although perhaps not as quickly as I should like. I think we are moving in the right direction, and this is helped by the ever-growing level of public awareness of the existing problems.

However, all of these ideas and initiatives will fail if there is not enough support and political will on the part of the Member States themselves.

I should therefore like to appeal strongly to Member States to live up to their responsibility and take a constructive approach to building an Internal Market that is not compromised by tax obstacles and inefficiencies!

Ladies and Gentleman,

I am very pleased by the high degree of interest and participation in this Conference.

Without prejudging the discussions and debates ahead of us, I would like to think that the very high-level participation in itself shows that the business and tax advisor communities in the EU are well aware of the importance of the issues to be debated today and tomorrow. This should make us optimistic and encourage us in our efforts to get to the root of the Internal Market's tax problems!

Concluding I should like to express my particular thanks to you, Minister Tremonti, for having made EU corporate tax reform one of the priorities of the Italian Council Presidency. I should also like to congratulate you and your colleagues on an ambitious and successful Presidency. We have been able to achieve important advances and successes over the last six months.

I wish to thank the Italian Ministry of Finance and the Guardia di Finanza for the excellent hospitality and organisation of the conference here in Ostia. Finally, I wish to thank all of our very distinguished speakers for agreeing to contribute to this event and I look forward to an interesting and fruitful debate.

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