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Algirdas Šemeta

Commissioner responsible for Taxation

The role of tax and customs in the re-launch of the Single Market

"Single Market: Time to Act!" Conference

Brussels, 8th February 2011

Ladies and Gentlemen,

I am honoured to be here today to share my views with you on the role of tax and customs in the re-launch of the Single Market.

The Single Market and the opening of internal borders has been a main driving force behind growth in Europe. Today, businesses benefit from a market of more than 500 million consumers and citizens enjoy greater freedom of movement. But growth prospects for Europe and the global economy are currently very weak. The most recent forecast predicts EU GDP growing by no more than 2% annually in the next couple of years. At the same time, pressure on public finances has sky-rocketed, due to the economic crisis and ageing populations.

In these circumstances there is a strong temptation, as Professor Monti has pointed out in his report, to roll back and seek refuge in economic protectionism. However, in today's globalised economy, no Member State can deal with the challenges we face on its own.

Only the EU, with a strong Single Market, can protect our common interests and values internationally, ensure a level playing field for businesses and establish a secure environment for citizens.

The re-launch of the Single Market can help us to meet the goals of the EU 2020 Strategy for smart, sustainable and equitable growth. Progressing in fairer treatment of cross border activities and giving more confidence to producers, investors and consumers will help us to exit from the crisis and achieve future success.

It is time to act. I intend to contribute actively to the re-launch of the Single Market with several important initiatives in the areas of taxation and customs.

Among these initiatives are: corporate taxation (i), value added tax (ii), energy taxation (iii), tackling double taxation (iv) and a modern customs Union (v).


Let's begin with corporate taxation. The tax-related costs that businesses bear when they operate cross border are still far too high. The administrative burdens and compliance costs linked to having to deal with up to 27 different tax systems across Europe is a serious obstacle to their expansion.

Current estimates of these compliance costs are in the range of 3% of corporate income tax revenues; that is more than 12 billion EUR a year. It goes without saying that these costs weigh more heavily on SMEs, discouraging discourage them from expanding across borders.

To improve the business environment, I will propose very soon a Common Consolidated Corporate Tax Base, better known as the "CCCTB". This initiative has substantial benefits to offer companies operating within the Single Market, as the business community itself fully recognises.

What are these benefits? First, companies would only have to apply one set of tax rules and deal with only one tax administration across the EU.

Second, an EU group of companies would no longer have to deal with the very burdensome transfer pricing compliance requirements of several different Member States.

Third, cross-border loss relief would be allowed within the group. This would eliminate the current over-taxation of EU groups that arises from the inability to set off losses incurred by one company against profits of another company in the group.

I must stress that the CCCTB is not about harmonising tax rates in Europe. Member States would remain fully responsible for setting their own corporate tax rates at the levels that they choose.

Implementing CCCTB would benefit EU businesses in their expansion across the Single Market, especially SMEs. It would also make the EU a more attractive market for foreign investors. International restructuring operations would be made simpler and situations of double taxation and discrimination would be eliminated.

CCCTB is a pro-Growth initiative: every euro that businesses can save in compliance costs can be used instead for investment, research and innovation or professional training, leading ultimately to more job creation.

(ii) VAT

Let me now turn to another important initiative which I am pursuing: the reform of the Value Added Tax system. We estimate that the burden that VAT compliance places on business in 2009 amounts to around EUR 69.5 billion, or on average 8.5% of VAT receipts.

Despite many Commission initiatives in recent years, the VAT system continues to suffer from numerous shortcomings. Examples include differences in the VAT treatment of domestic and intra-EU transactions, the complex system of rates and exemptions, and the multiplication of special derogations and options offered to individual Member States. Moreover, reporting obligations and VAT collection procedures have not evolved in line with recent IT developments. Finally, the current system is susceptible to fraud, evasion and avoidance: an estimated 12% of VAT remains uncollected for these reasons.

Modernising the VAT system is an ambitious challenge but it is one that we must meet. It would benefit the Single Market and boost growth, whilst securing major revenue for Member States’ budgets.

With the green paper adopted last December, the Commission launched a wide public debate on the future of VAT. This debate will run until end of May and your contributions are welcome.

On this basis, the Commission will publish a new VAT Strategy by the end of 2011.

(iii) Energy Taxation

I remain committed to pursuing a green taxation agenda, in line with the ambitious European climate change goals. This is the third point that I wanted to share with you today. The revision of the EU Energy Taxation Directive is central to this goal.

The current system creates incentives for more polluting products and causes distortions in the treatment of households and businesses. It does not ensure that all sectors contribute appropriately to the energy and climate change targets. It fails to foster the use of renewable energies and creates difficulties for the Member States that wish to introduce CO2 taxes.

As you can see, it is imperative that we re-structure the current taxation framework. Energy sources should be treated in a consistent manner, according to their quality rather than their quantity. Energy consumers should be treated equally regardless of the source of energy that they consume. Energy taxation should contribute to CO2 reduction target policy.

These are the main objectives that I will pursue with the forthcoming revision of the Energy taxation Directive.

(iv) Double taxation

I will now move to my fourth point: the fight against double taxation. This is a problem encountered by many businesses and citizens operating across borders, and one that I fully intend to tackle. This year, I will propose a general framework to address double taxation within the EU, which will be followed next year with specific measures to solve this problem.

Let me highlight at this stage the specific issue of access to long-term financing. Venture capital is an essential source of finance, in particular for start-up EU businesses and innovative SMEs. Nevertheless, venture capital markets in the EU are fragmented and underperforming. The industry claims that cross-border tax difficulties, including double taxation, contribute significantly to this fragmentation.

As stated in the Single Market Act, the Commission is aiming to ensure by 2012 that venture capital funds set up in any Member State can operate and invest freely in the European Union. In that context, tax treatment which disadvantages cross-border activities should be eliminated.

Beyond businesses, the Single Market must also bring tangible benefits to citizens. However, a large number of tax problems still arise when EU citizens work, retire, shop or invest across borders.

Last December, the Commission adopted a Communication announcing plans in many areas where EU citizens have identified problems. It should be the starting point for a broad dialogue amongst national authorities and stakeholders. I invite you to contribute to this debate.


Allow me now to turn to my last point: the flow of goods crossing the external borders of the EU.

Making the most of our Single Market also means making sure that our manufacturers have easy access to the input they need. Facilitating trade is the main objective of the ongoing modernisation of customs.

A study of trade logistics from the World Bank confirms that the customs administrations in all European Member States perform consistently well. But more can and will be done to ensure a smooth flow of goods while safeguarding the interests of European businesses and citizens.

One important task for customs is to protect consumers from dangerous goods entering the EU market. This year, the Commission will issue guidelines for customs controls on product safety, including tools to ensure better cooperation between customs and market surveillance authorities. This will be a first step towards reinforcing European market surveillance at the external borders.

Another critical task of customs is to protect intellectual property rights or IPR.

Customs are well placed to intervene in the supply chain to combat the trade in IPR infringing goods. Last year customs detained more than 43,000 shipments containing about 120 million articles, suspected of infringing IPR.

The policy framework is in place. But the current legislation can be improved. I will present a proposal for a new customs regulation on IPR before the summer.

However, action at the EU border is not enough. Together with Commissioner Barnier, we are developing a comprehensive action plan against counterfeiting and piracy to strengthen IPR enforcement and raise awareness of the potential dangers of fake goods. The European Observatory will play an important role in this context.


Ladies and Gentlemen,

I have presented you with the tax and customs elements of the Single Market Act.

If we want the Single Market to benefit us all in the coming decades, it is now time to act together to improve how it functions. Moving forward with the tax and customs agenda I have just outlined needs strong political guidance and high commitment from Member States who, in the end, must agree unanimously on measures in the tax field.

Still I am confident. There is today, as demonstrated in the European Council debate last week, a new momentum. It is fuelled by the recognition that we cannot reach our objectives by maintaining the status quo or by acting in isolation. Our strength lies in our ability to act as a Union.

I wish you a fruitful debate.

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