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Algirdas Šemeta EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud "Europe's tax agenda for the future" CEPS conference Brussels, 11 avril 2011

European Commission - SPEECH/11/254   11/04/2011

Other available languages: none

SPEECH/11/254

Algirdas Šemeta

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

"Europe's tax agenda for the future"

CEPS conference

Brussels, 11 avril 2011

Ladies and gentlemen,

I am grateful to the European Tax Policy Forum and Centre for European Policy Studies for the invitation and the opportunity to address this distinguished audience. In my speech today I will focus in particular on the four issues which you will be discussing today: financial sector taxation, corporate taxes, tax obstacles faced by citizens and, finally, CO2 taxation.

But let me first say a few words on the place of tax policy in the political debate.

The current economic environment, and the challenges our Members States are facing in terms of fiscal policies indeed show how crucial EU tax policy coordination is in our interdependent economies.

This is more than natural as taxation is at the cross-roads of most of our current common challenges: smart consolidation, business competitiveness and fair competition. The Commission has decisively addressed the challenges ahead in the Europe 2020 Strategy and in the Annual Growth Survey. I was also encouraged by the renewed appetite for tax policy coordination recently expressed by the European Council.

Financial sector taxation

Let me now start with the taxation of the financial sector which has recently gained significant political momentum. At the beginning of March, the European Parliament adopted a report on innovative financing, calling for the introduction of a Financial Transaction Tax.

In addition, the last European Council agreed that the introduction of a financial transaction tax should be explored and developed further at global level.

In this field I aim to promote simple and straightforward principles:

First, taking into account the financial sectors' taxation environment and, in particular, the VAT exemption, there are good political and economic reasons for ensuring that the sector is making a fairer contribution to public finances.

Second, a new taxation scheme should bring a double dividend: securing revenues and at the same time contributing to decreasing the volatility of the financial markets.

Third, the introduction of the tax should be designed in such a way as to avoid risks for the competitiveness of the EU economy. At a time of gradual growth recovery, it would be counterproductive to introduce measures that impact negatively on the cost of access to finance for businesses, especially for our SMEs, or to endanger risk-taking in long term public or private investment projects.

Finally, an EU approach would be desirable to prevent divergent national initiatives creating new obstacles to the Single Market.

Some options are under consideration: Financial activity tax which is a tax on profits and wages, Financial Transaction Tax and also various other bank levies, which are not properly taxes but are intended to pay for any future government support for the sector. The issue of geographical scope of the instruments (EU wide or global) is also being discussed.

We do not have much time available. By summer, the Commission will define its policy orientation. This will be based on a thorough analysis of the various options, of the ways to mitigate their main identified risks, and of their cumulative impact taking into account the ongoing regulatory reform of the financial sector.

Corporate taxes and their impact on research and development

Let me now turn to the issue of corporate taxes and in particular their impact on research and development.

This is an important subject. In their search for revenues, Member States need to define how best to shape tax reforms to provide the right incentives for employment, innovation and long-term investment.

In this context, the fragmentation of the Single Market with 27 divergent corporate tax schemes is a serious obstacle for businesses, leading to over-taxation and high compliance costs. In order to improve this situation, the Commission proposed last month to offer businesses a common way to compute and consolidate income tax bases in the EU - the Common Consolidated Company Tax Base or CCCTB.

This new scheme would mean that a group of companies operating across borders within the EU would no longer have to comply with the burdensome transfer pricing requirements of several Member States. Furthermore, it would mean that cross-border loss relief would be allowed within the group, eliminating current situations of over-taxation.

Once implemented the CCCTB would enhance the attractiveness of the internal market for foreign investors. International restructuring operations would be made simpler and situations of double taxation and discrimination would be eliminated.

Today, incentives implemented through corporate tax schemes have grown to become a major instrument used by many Member States to increase private R&D.

Taking into account the diversity of the national R&D schemes, it was impossible and also not advisable to try to incorporate these in our proposal for a common corporate tax base. The price would have been too high in terms of complexity!

In this context, we have chosen an approach which favours research and innovation by allowing a full and anticipated deductibility of all R&D costs. And we extended this approach to research and development expenditure of a capital nature.

In practice this means that, when a company invests in a research laboratory, not only the cost of the staff, but also the machinery, equipment and even the building used for R&D could be deducted in the year of construction or acquisition.

With this ambitious project, my aim is to offer both big and small enterprises a modern, attractive and simple corporate tax regime within which to operate in the Single Market. I do hope that the legislative negotiations on this proposal will progress quickly in order to respond to the expectations of our businesses.

Tax problems faced by citizens

Let me now say a word about tax obstacles that EU citizens are facing in the Single Market. These are still far too heavy and for sure far too costly.

At the end of last year, after intensive research and public consultation, we have identified the following issues as the most pressing ones:

  • Higher taxation for non-residents or for income with a foreign source

  • Tax obstacles to e-commerce;

  • Double taxation notably in the field of car registration taxes and cross border inheritances;

  • Practical difficulties encountered by citizens in contacts with national tax administrations, in obtaining information on foreign tax rules and in dispute settlement.

  • As we all know there is no simple or immediate solution to all of these problems. But in the months to come, I will push for progress:

  • First, by combating, as guardian of the Treaties, all forms of tax discrimination;

  • Second, by proposing to Member states better coordination tools to make citizens' lives easier in their contacts with national administrations;

  • And finally, in appropriate cases, by legislation or the coordination of national legislation in order to abolish tax obstacles which are deterring cross-border activity.

European Carbon Tax

Finally, let me address the question of the European Carbon Tax.

As you know, the current taxation of energy products in the EU is not consistent. It gives wrong incentives for more polluting products and does not sufficiently contribute either to our energy efficiency policy or to our climate change goals.

The day after tomorrow, the Commission will discuss a proposal to put in place a common EU framework for energy and CO2 taxation allowing Member States not only to make their tax systems "greener" but also to ensure that they foster growth and employment.

What are the main elements of the proposal?

  • First, it will introduce two elements in the rate structure: one element based on CO2 emissions and another based on the energy contents of each product. Taxation will then be based on objective criteria and will provide for a consistent treatment of the energy sources and energy consumers.

  • Second, by introducing a CO2 element in the taxation of energy products, it will provide a framework for Member States to apply CO2 taxation in all areas where the EU Emission Trading System does not apply.

  • Third, it will ensure an adapted framework for the taxation of renewable energies, in particular biofuels, reflecting their lower CO2 emissions and energy content.

Our objective is less about introducing a new tax than about restructuring energy taxation (with a CO2-tax element) so as to meet the EU's high priority goals of climate change, energy efficiency and fair competition. It will also be an opportunity to reflect on environmental taxation as a potential candidate in the endeavour to shift tax away from labour.

Conclusions

Ladies and gentlemen,

All four topics outlined raise interesting questions that will be discussed in today's conference. I am confident that all participants will acquire a wealth of knowledge from today's speakers and from the debates. The discussions will help to feed the current EU policy debate which, in my view should be based on sound, empirical evidence and country experiences.

I thank you very much for your attention and I wish you a fruitful and successful debate.


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