EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud
"EU tax coordination and the financial sector"
EU tax coordination for financial sector
London, 17 February 2012
Ladies and Gentlemen,
I am very pleased to be with you today. I would like to thank the Lithuanian City of London Club for organising this very timely and interesting event on the impact of recent European tax policy initiatives on the UK and its financial services industry.
Tax is back at the centre of the political agenda in Europe and in the Member States.
And we don't need to look far to see why.
We find ourselves in the toughest economic times since the 1930s, confronted with the twin challenges of consolidating public finance and boosting growth.
Taxation is a linchpin in meeting these challenges, and in successfully moving on from the current economic crisis.
How successful we are, however, depends on the quality of our taxation.
Gone are the days when taxation could be regarded purely as a money collecting tool.
Gone too are the days when each Member State could go off in its own direction, implementing its tax policies in isolation, without a thought to what its neighbours were doing.
The crisis has highlighted the inter-dependence of Member States, and the need for a strong and coordinated approach in all areas of fiscal policy.
We are a Single Market: that is one of our greatest assets. Moreover, it is an asset that we can build on.
The Single Market has brought countless benefits to Member States, citizens and businesses – and to the financial sector too. It can bring many more benefits if we strengthen and deepen it.
But if we want a strong Single Market, we must work together in taxation. Coordinated tax policies mean more certainty and less red tape – a better environment in which businesses can grow. As Member States look for new resources, it is my duty to ensure that the measures taken do not create new obstacles to the Single Market, and that taxation helps, rather than hinders, our collective return to growth and prosperity.
I am well aware that misunderstandings about EU tax policy sometimes generate fear and resistance. I want to tackle some of those misperceptions head-on today.
European tax policy is not a threat to national sovereignty.
On the contrary, it safeguards Member States' ability to apply successful national tax policies, without being undermined by their neighbour's approach.
European tax policy is not a chain around the legs of our businesses.
In fact, it helps create a simpler and more stable market for businesses, by addressing mismatches and tearing down tax barriers.
Most importantly, EU tax policy is not a tool to be used to isolate one Member State from the rest.
Instead, it is an opportunity to join forces and to be stronger on the global scene.
To put it simply, a coordinated approach to tax offers every single Member State the opportunity to have better quality revenues, a more attractive environment for business and a more acceptable tax system to citizens.
And it is in this spirit that I'm working to promote tax coordination at EU level.
Let me give you three examples of particular importance for your industry.
Last year, I proposed a common consolidated corporate tax base for the whole of the EU – a long-awaited proposal by the business community.
A single tax rulebook for 27 countries. A single point of contact for cross-border companies. A pan European system for consolidating profits and losses.
As business representatives, I'm sure you can see where the attractions lie: a massive reduction in red-tape and an end to long and costly transfer pricing disputes. Current costs linked to having to comply with 27 different corporate tax systems will be reduced by around 2 billion euro a year.
As the system would be optional for businesses, and Member States would retain their right to decide the tax rates, there is no threat to national sovereignty.
The CCCTB offers a very attractive tax regime for foreign investors and, fair and healthy competition between national corporate tax regimes for the benefit of all businesses. It can make us stronger globally and contribute to growth and jobs.
Let me take another example.
Last week, US authorities amended their implementation guidelines for the Foreign Account Tax Compliance Act (FATCA). This US legislation is an important tool for fighting tax evasion.
But in its original form would have crippled EU businesses with administrative burdens, compliance costs and legal difficulties.
Thanks to a coordinated approach by the Commission and a number of Member States – including the UK – we could persuade the USA to go for a less burdensome but just as effective approach to applying FATCA in Europe.
The financial industry, in particular, will benefit, as they will be spared billions of dollars through the "government-to-government" exchange of information that has been agreed.
This is a prime example of how the EU offers Member States a strength in numbers in our negotiations with international partners.
Also, by emphasising the importance of reciprocal information exchange on tax matters with our Transatlantic partners, we ensured that Member States' efforts to tackle tax fraud could be re-inforced.
Finally, let me turn to our proposal for an EU Financial Transaction Tax, which no doubt many of you here in the City are particularly interested in discussing!
I am well aware that there has been some controversy over this proposal in the UK, focused mainly within this Square Mile.
Let me reassure you: the FTT is not an attack on the City of London.
As Europe's largest financial centre, the City is integral to the Internal Single Market and it is in all our interests for it to be strong and stable.
For that reason, we have been extremely careful in the design of this tax. The competitiveness of Europe's financial sector will not be harmed. This is due to the low rate, wide base and, crucially, the "residence principle". By taxing on the basis of who is party to the transaction.
As a result, transactions will be taxed in the same way, whether they take place in London, Frankfurt, Zurich or Singapore. So relocation is pointless.
London is not the centre of the financial world because of tax breaks. It is because of the infrastructure, people and economies of scale that you offer. With Greenwich situated in London, you even have time-zones on your side!
Of course the financial sector will have to adapt to the tax and readjust some of its practices, notably in the field of high frequency trading. But I'm sure I don't need to convince you of your own capacity to quickly adjust to a new situation!
It may surprise you to hear it, but London – and the UK as a whole – has a lot to gain from an EU FTT.
The FTT is a first step to re-building citizens' confidence in the financial sector, by showing that the sector is making a fair contribution to public finances and the costs of recovery.
In the UK alone, this tax is expected to generate no less than €10bn (£8.4bn) a year. This is a significant amount, which can be put to good use consolidating finances, investing in growth-promoting activities or contributing to global challenges like development and climate change.
Now put that figure up against the amount given in bonuses in the City last year – an estimated £14bn according to the Office of National Statistics.
If such an amount can be paid in bonuses to a single sector, is it so outrageous to imagine that it could be levied through a small tax to contribute to public finances?
The FTT offers the financial sector the opportunity to regain the trust of the wider population, and an incentive to re-focus its activities more towards the real economy.
I have already outlined how uncoordinated national approaches create tax obstacles for businesses and undermine our Single Market. So there is a big advantage in all Member States – UK included – working together to design and implement one, well-functioning FTT for the entire EU.
A final word on this tax.
Both the UK and the Commission aspire to a global FTT as the ultimate objective. The best way to attain this is for the EU to take the first step. We have been pioneers in global policies before: just look at what has been achieved in climate change as a result of Europe leading the way. This can be repeated here.
Ladies and Gentlemen,
We need to dedramatise the debate surrounding EU tax policy. Instead, let's concentrate on how tax coordination can contribute to the renewed impetus we need to exit the severe crisis Europe is facing.
And lets also look beyond the crisis, difficult as this may be at the moment. Lets reach for gold standard in European tax policy. We can aspire to a Single Market strengthened by taxation that is simple, fair, business-friendly and attractive to investors.
And this can only work if everyone gets on board, especially those who, like you, have a lot to bring in terms of innovation and energy to this recovery process.