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Algirdas Šemeta

EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud

A Smart Tax Agenda for Europe

Figures and graphics available in PDF and WORD PROCESSED

Economic and Monetary Affairs Committee, European Parliament

Brussels, 28 June 2010

Madam Chair,

Honourable Members,

From my last appearance in this committee, I recall your strong interest in taxation issues. I am here today to share with you my ambitions for the years to come so that we can work together on what I believe is a common agenda. I will take this occasion to highlight the main elements of the Commission Legislative and Work programme in the field of taxation.

The crisis has led Member States to fundamentally re-examine their economic policies. Putting Europe back on the road to prosperity will take considerable fiscal consolidation and budgetary adjustments at a national level, as well as joint efforts at European level.

Recent events have shown how interdependent Member States' economies are. Therefore, I am convinced that the EU coordination here is crucial and the Commission has an important role to play. I am prepared to mobilise every tool at my disposal to ensure, where necessary, that national tax policies are working in unison.

I am convinced that Europe needs more space for policy debate on tax. For that reason, I would like to come regularly to this Committee and exchange views with you on this issue. I know that you have very valuable input and feedback to provide.

I hope that today we will have a constructive exchange on the three main pillars of my tax agenda: the quality of revenue in the context of reinforced economic coordination, the contribution of tax policy to sustainable growth; and good governance in the tax area.

First, Quality of revenue

Let me first say a few words on the importance of the "quality of revenue" in the context of the crisis exit strategy.

In the light of the current economic and financial difficulties, the Member States are challenged to design ambitious fiscal consolidation programmes.

Nobody questions the significance of the quality of expenditure in relation to growth. However, considering the quality of tax revenue is equally important.

Member States will be facing fundamental questions: How to rethink their tax systems? How to shape them to encourage employment and investment, and support a greener, more knowledge-based economy?

Each Member State will need to decide upon its own approach. However, I am convinced that 27 unilateral and uncoordinated approaches is not the most efficient way forward.

With this in mind, I am currently working on an analysis of national tax schemes and tax reforms in the context of the exit strategy. Based on this analysis, I intend to examine with the Member States how best to shape future policy initiative.

To allow for such discussions, I have already re-launched the Tax Policy Group, which I will chair. I have asked Finance Ministers to appoint a personal representative so that we can examine together, at political level, how we can progress on a pro-growth European tax policy.

It is in this context that I intend to address the issue of the contribution of the financial sector to the costs of the crisis.

The political debate is controversial and several questions still remain open: Should the institutions or the transactions be taxed? Should we favour harmonisation or coordination at EU level? Should the EU act alone? How should the revenue of such taxes be allocated?

The Commission has already proposed a first step and suggested to introduce a bank levy as an element of a credible resolution framework, which was welcomed by the EU Council. Following the adoption of a resolution proposed by your Chairwoman last March, we are analysing the wider issue of introducing bank taxation, amongst which the FTT.

I believe that the outcome of the discussions at the G20 meeting this week end clearly demonstrate the huge challenge we face in finding a global approach. We now need to determine if Europe can and should go alone in taxing the financial sector beyond the resolution levy. As a result, if we want to progress, we must now assess the potential impact of bank taxation on the competitiveness of the EU economy.

Second, Taxation for sustainable growth

Let me now turn to the re-launch of the Single market, a major instrument to support sustainable growth in the context of the Europe 2020 Strategy. As recently underlined in Professor Monti’s report, a strong, stable EU economy relies on a strong, functioning Internal Market, in which businesses and citizens can realise their full potential.

Good tax policies are essential for the smooth functioning of the Internal Market. In our efforts to rebuild and reinforce our economies, they can also contribute to wider objectives, such as environment and climate change.

Still too many tax obstacles exist in the single market. I am convinced that we can improve taxation to make it cheaper and easier for businesses to operate cross border and to invest in the EU.

We also have to care for citizens. The EP report prepared by Mr. Grech emphasises that "we have to put back at the heart of the internal market those who live in it and use it daily". Every day, I am made aware of tax obstacles that cause huge problems for our citizens. Tackling their problems of double taxation or tax discrimination is therefore on top of my priorities.

What has been achieved so far?

On 27 of April, we launched a public consultation to ask individuals and companies for information on double taxation problems that they have encountered when operating across borders. Last Friday, we launched a further public consultation focussing specifically on cross-border problems with inheritance tax. The aim is to assess the nature and the extent of these problems. On this basis we will define policy responses.

As regards reducing compliance costs, I am very happy that the Council reached an agreement on the VAT invoicing proposal. Even though it did not go as far as the Parliament and the Commission proposed, it is, however, a big step towards less compliance costs for operators.

For the future, I will further undertake actions to strengthen the Single Market in the taxation area. These will include:

  • First, the harmonisation of corporate tax base. By creating common EU rules, we could eliminate costly mismatches between national systems and significantly reduce compliance costs for enterprises operating in more than one Member State.

  • Second, I will launch a green paper on the review of the VAT system with the objective of creating a more favourable environment for business and a simpler and more robust system for the Member States.

  • Third, on the basis of the outcome of the public consultation I will propose to the college a Communication defining an action plan to fight against double taxation problems, including those related to inheritance tax, withholding tax, tax relief procedures, which citizens suffer from.

  • Finally, I believe that it is time to pursue a "green" taxation agenda, in line with our wider climate change goals. The revision of the Energy Taxation Directive is a central part of this.

The College of Commissioners had an orientation debate last week on the revision of the Energy Tax Directive. Consensus was reached on the fact that the current system does not work as well as it could in supporting common goals such as greater energy efficiency and the fight against climate change. Many interesting issues emerged during the debate. I will take them into account in finalising the impact assessment that will accompany the proposal which I intend to bring forward as soon as possible.

Third, Good governance in tax area

Let me finish by highlighting how important it is to maintain the Member States' ability to collect their revenues – especially in this time of economic difficulty. To this end, the EU must step up its fight against tax fraud and evasion, and continue to lead the campaign for good governance internationally.

I am happy that the Council reached an agreement on the setting-up of EUROFISC at the beginning of this month. EUROFISC will be a multilateral early warning mechanism for combating VAT fraud.

At international level, progress has also been made with the Communication on tax and development which promotes the good governance principles in developing countries. The last ECOFIN also called on the Commission to start discussions with Switzerland and Lichtenstein with a view to encouraging them to apply the principles of the Code of Conduct on harmful tax competition. My services are already beginning discussions with Switzerland this week on this matter.

For the future, I am convinced that we have to maintain our efforts in the fight against harmful tax competition both within the EU and with our international partners. I share the views of Mr. Domenici in his report on good governance in tax matters. Extending the principle of the Code of Conduct to third countries is not enough: the scope of the Code of Conduct itself should be re-examined in cooperation with Member States.

Another priority is to see progress in the discussions in ECOFIN on the so-called good governance package, which includes the savings directive, the Directive on Administrative cooperation and anti-fraud agreements with third countries. Until now, the results have not been as conclusive as both the Presidency and the Commission had hoped. Negotiations are difficult. However, I will work closely with the Belgian Presidency to reach an agreement on these files.

Madam Chair, Honourable Members,

I have reflected on the three pillars of my tax agenda and the corresponding Commission work programme initiatives for 2010-2011.

I believe that there is a new momentum behind the European tax agenda, fuelled by the wider recognition that we cannot reach our objectives by maintaining the status quo or by acting in isolation.

If we harness this momentum, I am convinced that we can deliver quality taxation that is fair to citizens, businesses and the Member States.

My actions will be driven by this vision. The Council will decide. You have an important political role to play as well. Voicing your support here in the Parliament and also in your home countries is of key importance to progress in what is seen by most of our businesses and citizens as an unfinished dimension of European integration.

Thank you for your attention. I look forward to a fruitful exchange of views.

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