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Algirdas Šemeta EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud Tax coordination in Europe: the way forward after the Euro plus pact "Workshop on the Outlook for Financial markets, for their Governance and for Finance" Cernobbio, April 2d 2011
Commission Européenne - SPEECH/11/232 02/04/2011
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EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud
Tax coordination in Europe: the way forward after the Euro plus pact
"Workshop on the Outlook for Financial markets, for their Governance and for Finance"
Cernobbio, April 2d 2011
Ladies and Gentlemen,
It is a great pleasure to be here today. I am grateful to the European House Ambrosetti for the invitation and for the possibility to say a few words before our debate.
Today, tax is back at the top of the political agenda. In Europe, and globally, policy makers are increasingly devoting their attention to tax issues.
Since the very beginning of my mandate, I was of the opinion that tax policy can greatly contribute to meet the challenge defined in our 2020 Strategy for a smart, sustainable and inclusive growth in Europe.
Earlier this year, the Commission has decisively addressed the challenges ahead in the Annual Growth Survey and underlined the important role that taxation plays in fiscal consolidation and economic growth.
In this context, it was no surprise for me when last week the EU Council called for more tax coordination in the "Euro Plus Pact".
Why? First because I am convinced that in our interconnected economies, 27 unilateral and uncoordinated tax approaches is not the most efficient way forward. Second because taxation is at the cross- road of most of our current common challenges: smart consolidation, business competitiveness and fair competition. Let me say a few words on each of these.
TAX CO-ORDINATION TO EASE CONSOLIDATION
Today, our Member States are facing huge challenges in their efforts to consolidate their public finances. Consolidation by cutting expenditure is of course essential. However this will not be enough given the magnitude of the deficits, and raising taxes has or will have to be considered. If so, it should be done in a sustainable and pro-growth manner.
In this context, Member States have to care for the quality of their tax systems. They need to define how best to raise revenues while providing the right incentives for employment, innovation and long-term investment. They must also ensure that their tax reforms are resistant to economic fluctuations and do not rely too much on tax bases that are very cyclical or known to be prone to bubbles.
The "Euro Plus Pact" rightly indicates that, in order to foster employment, particular attention should be given to tax reforms. It is true that economic literature recommends less tax on labour and more on consumption and green taxes. Environmental taxation is an interesting candidate in the search for shifting tax away from labour. Efficient green tax could, as our Italian friends would say, "catch two pigeons with one bean". It may generate much needed revenue while discouraging environmentally-harmful behaviour.
However, economic theory is one thing. Putting it into practice is a real challenge. In order to succeed, learning from each other and exchanging best practices is essential.
I am looking forward to discussing with the ECOFIN Council the way forward on this pragmatic tax coordination. My view is that it should be fully embedded in the European Semester cycle as part of our stronger economic policy coordination.
On the path towards consolidation, we also have to reflect on new and innovative tax bases. In this context, the debate on the taxation of the financial sector is intense.
The Commission has three objectives in this field:
Many policy-makers in the EU – and I am one of them – firmly believe that there are good political and economic reasons for taxing the financial sector. The debate is still open on how to proceed.
We are working on finding the best option to meet our objectives and will come forward with concrete proposals by this summer.
TAX CO-ORDINATION FOR EUROPEAN COMPETITIVENESS
My second point refers to the importance of tax coordination for the competitiveness of European companies. Tax policy cannot be seen only as a tool for coordinated budget adjustment. To improve business environment, tax obstacles should be the next frontier to be abolished in the Single market. To tell the truth, I see no other more significant impediments for businesses to reap the full benefit of this market of almost 500 Million citizens.
Against the current EU growth outlook of not more than 2% annually, there is a stronger need for deepening the Single Market than ever. This will make Europe's economy more competitive and ensure a level playing field for businesses.
Tax obstacles make cross-border activities too cumbersome and much too expensive. This is also a handicap when it comes to attracting foreign direct investment. Professor Monti already identified these shortcomings in his report on the Single Market last year. How can we tackle these obstacles?
A first priority is the fight against cross-border double taxation and administrative burdens.
In this context, the Commission proposes to offer to businesses a common way to compute and consolidate income tax bases in the EU, the CCCTB. This is about bringing corporate taxation, which amounts to less than 3% of our GDP, on the long list of issues that Member States accept to manage together with trust and transparency, for the benefit of the EU competitiveness.
Currently, companies spend a lot of time and money on corporate tax compliance obligations and suffer from over- taxation. The CCCTB could save more than EUR 2 billion per year for businesses and would reduce the cost of setting up a subsidiary in another Member State by two thirds. This would allow SMEs to expand their activities across borders.
We are also examining the European VAT system to see how it can be brought up to date and be less costly. VAT compliance costs on business in 2009 amounted to nearly EUR 70 billions.
We have launched a wide-scale consultation on the future of VAT, a tax which falls on each and every citizen and it is "de facto" administered by businesses. This is why I find it very important to involve all stakeholders in this debate.
Later on this year, the Commission will define its policy orientations for a future VAT strategy. In this field, I will not be afraid to promote an increased level of harmonisation to ensure legal certainty to businesses and secure revenue for Member States.
TAX CO-ORDINATION FOR FAIR COMPETITION AND FIGHT AGAINST TAX FRAUD AND AVOIDANCE
My last point refers to the importance of tax coordination to ensure that Member States preserve their legitimate tax base and revenue. This is all about tax competition, tax fraud, and tax evasion.
Tax competition is accepted - and may even be a good thing - as long as it does not endanger the capacity of Member States to collect the revenue that they would fairly expect.
The Code of Conduct on business taxation is our tool to ensure that this principle is respected in the EU and beyond. It is a soft law instrument: under a peer review process, Member States examine their potentially harmful business tax measures and commit to correct them.
It has proved useful in the past. It is not ambitious enough anymore. There is a need to find renew support on the principles at political level and to sharpen our instruments. In this period of intense consolidation efforts, no margin of manoeuvre exists: transparency and trust is the standard and no one can steal a tax base or tax revenue from its neighbour. And let me emphasise that this principle is also valid in our relations with third countries.
As for the fight against fraud and evasion, the EU agreed last year that bank secrecy will no longer be a reason to refuse cross-border cooperation. A dynamic approach on multilateral automatic exchange of information has now been launched.
More is, of course, ahead of us. Where can we make progress?
VAT fraud continues to be an important problem: an estimated 12% of VAT remains uncollected for this reason. The forthcoming VAT strategy will concentrate on finding a fraud- proof system.
Member States should also quickly find an agreement on the improvement of taxation of savings in Europe and on anti-fraud and tax cooperation agreements with neighbouring European states that are not within the EU is also needed urgently.
Finally, at global level, we will pursue our fight for more tax transparency. In this context, a tougher common European approach should be agreed on the treatment of non cooperative jurisdictions and tax heavens.
Ladies and Gentlemen,
To conclude, let me say a few words on EU tax governance. Each Member State has the right to decide on its own approach. However, closer coordination of tax systems and smarter taxation are crucial for EU recovery and growth..
Within this framework, the Commission is determined to work towards a comprehensive and inclusive answer to the identified need for better tax coordination in the EU, along the lines of the "Euro Plus Pact".
I thank you for your attention and I will be glad to contribute to the debate which will follow the interventions of my fellow panellists.