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Algirdas Šemeta

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

"EU tax policy in support of the EU 2020 Growth Strategy"

The FEE Tax Day 2011

Brussels, 11 October 2011

Ladies and Gentlemen, Honourable guests,

I am honoured to be invited here today to present to you the European Commission’s policy and my main projects in the taxation area.

The current economic situation and the challenges European Member States are facing show how crucial EU tax policy coordination is in the context of stronger economic policy coordination.

If you allow me, I will run through the main elements of what some already refer to as the “2011 tax package”, which launches the foundations of a major renewal of the European tax policy in support of our Europe 2020 Growth strategy.

Let me begin with direct taxation in the Single Market.

Common Consolidated Corporate Tax Base – CCCTB

The tax-related costs that businesses bear when they operate cross-border and have to deal with up to 27 different tax systems across Europe are significant. Current evidence estimates compliance costs of 2% to 4% of corporate income tax revenues. This is a real concern as every euro spent in red tape does not contribute to productive investment.

Improving business environment is at the heart of our initiative to harmonise the corporate tax base, better known as the 'CCCTB'. I know that you have been following with interest this project and have proactively contributed to the dialogue with the Commission from the very early stages.

The CCCTB is expected to eliminate tax obstacles on cross-border activities within the Single Market and to encourage foreign investments into the EU. Let me briefly repeat for you the main benefits of the CCCTB.

  • First, the CCCTB would ensure that companies opting into the system follow the same rules for calculating their tax bases in every Member State.

  • Second, cross-border loss relief would be allowed for companies and permanent establishments operating in the EU as a group. This would eliminate the current over-taxation that arises from the inability to set off cross-border losses.

  • Third, companies within the same group would no longer have to comply with transfer pricing requirements, and cross-border restructuring operations would be made simpler.

And finally, I should stress that the CCCTB is not about tax rates. It is about creating greater transparency with regard to the effective corporate tax situation in Member States.

I am particularly encouraged by the commitment of some of our Member States which, earlier this summer, invited the Council to end the technical discussion on the CCCTB before the end of 2012.

In taxation field, I believe that the time has come to move ahead from “business as usual” towards an active and voluntary negotiation process. Businesses and Citizens expect that the community method delivers, and delivers quickly.

Double taxation and non taxation

Other actions need also to be considered in the direct tax area, as EU enterprises in cross-border situations may suffer double taxation.

Unrelieved double taxation in cross-border situations increases the overall tax burden of enterprises operating in the Single Market and can, therefore, have a negative impact on capital investment.

Current unilateral, bilateral or multilateral actions at Member States level only very partially solve the problems that the citizens and businesses are facing.

I will, therefore, propose shortly to the Commission to table a strategy to address double taxation in the direct tax area. What can be done?

  • First, enhance existing EU instruments to combat double taxation. This includes the Directive on withholding taxes on interest and royalties between associated companies and the Arbitration Convention on transfer pricing.

  • Second, develop new instruments such as a binding resolution mechanism to eliminate double taxation in the case of a dispute between Member States.

The removal of double taxation within the EU is clearly one major issue, but I am also concerned about the cases of non-taxation in the EU. These may arise due to mismatches between the Member States' tax systems. In times of huge pressure on national budget, the EU needs to support its Member States.

Indeed, tax avoidance and tax fraud threaten government revenues in many countries. It shifts the tax burden from dishonest to honest taxpayers. It also encourages governments to introduce countermeasures with a risk of undermining regular business investment or distorting competition.

Although we already achieved significant results in the area of transparency, exchange of information and fair tax competition in the EU, further efforts are needed notably to counter aggressive tax planning. I intend to make concrete proposals, in close cooperation with other international partners such as OECD, G20 and UN.

Ladies and Gentlemen,

Let me now turn to our work in the area of indirect Taxation, which is equally important for the Single Market.

Review of the VAT System

Since the beginning of my mandate, I felt that the time had come to have a fresh look at the European VAT system. The Green Paper on the future of VAT presented in December last year was the first step in this process.

The massive reactions from stakeholders confirmed this debate was long awaited and I am grateful to FEE for its contribution.

One obvious conclusion that we can draw from the stakeholders' contributions is that no aspect of the current VAT system should be left aside of the reflection.

The present system is generally perceived as too complex, primarily because of the existing divergences across the EU. This is quoted as a major obstacle to maximising the benefits of the internal market. These divergences result from both the many options left to the Member States in the VAT Directive and its diverse application at national level.

Uncertainty about the VAT rules applicable in another Member State deters businesses, in particular SME's, from cross-border activities.

Whilst expectations are high, several respondents indicated that there is also a need to remain realistic. Member States are understandably unwilling to take any risks with this tax, accounting for 21% of national revenues in the EU.

By the end of this year, I will propose to the Commission to set out the broad objectives for the future VAT system and to pursue a number of concrete actions as a first step.

Of course, the issue of the regime of intra-community transactions will be part of this overall vision. It is time now to move away from a transitional system to a definitive regime in the Single Market.

However, priority should also be given to easing the life of businesses in the short term. I will notably improve the communication channel between business, national tax authorities and the Commission, and ensure easier access to information on VAT in the EU for businesses.

Taxation to serve wider policy goals

I could not end my intervention today without saying a few words on the use of taxation in support of wider policy goals. I consider that taxation, beyond its primary role in raising fair and legitimate revenues to finance public goods, is an appropriate market based instrument to contribute to achieving specific policy objectives. Let me give you two recent examples.

First, I am convinced that the use of environmental taxation can support environmentally sustainable growth as well as promote employment. Expanding environmental taxation can indeed make a contribution towards more growth-oriented tax systems.

In this context, the Commission proposed to review the energy taxation directive. This is an important proposal which contains a measured and balanced approach.

Our objective is less about introducing a new tax than about restructuring energy taxation. The introduction of a CO2-tax element would help meeting the EU's goals in the climate change and energy policies. It will also be an opportunity to consider environmental taxation in the shift of the tax burden away from labour taxation.

Second, as an answer to the 2008 financial crisis, the EU launched a major reform of the financial markets regulatory framework. The objectives are to avoid excessive risky behaviours and to better manage systemic risks for the economy, which lead to costly public intervention.

In parallel, the Member States have various taxation schemes to complement the regulation and ensure a contribution of the financial sector. This situation can generate double taxation or non taxation and increases the relocation risks.

It is in this context that the Commission recently proposed to introduce a financial transaction tax in the EU as a first step.

My approach was to design a tax to cover the widest possible range of financial instruments (shares, bonds, structured products, derivatives agreements etc.). In order to avoid relocation of activities and incidence on real economy, the tax would be levied on financial institutions, where they are established.

Once adopted, this initiative will ensure that financial institutions make a fair and substantial contribution to public revenues. It will also set incentives to reduce overly risky transactions and activities such as High Frequency Trading which benefit for our economy is questionable.

It therefore complements the regulatory tools towards a safer financial environment for our businesses and citizens.

Ladies and Gentlemen’s

Tax is back on the European agenda. The Commission is convinced that this policy can greatly contribute to the consolidation and growth objectives that we share for the Union.

Let’s work so that common views emerge around the table of the Council, which will make things happen for the benefit of all, and of the Union.

Thank you for your attention.

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