EU Commissioner for Taxation and Customs Union, Audit and Anti-Fraud
Tax challenges and opportunities in an ever-closer Union
CEPS Conference on Taxation 2012
Brussels, 27 April 2012
Ladies and Gentlemen,
First of all, let me thank you for the invitation and the chance to open today’s conference in front of such a distinguished audience.
I had the opportunity last year to present to you our main initiatives. We now refer to them as the “2011 tax package”: VAT Strategy, Common Consolidated Corporate Tax Base, Financial Transaction Tax and Energy tax Directive. These fundamental proposals lay the foundations for a major renewal of European tax policy, in line with our Europe 2020 Growth strategy.
Since then, it is fair to say that the role of tax policy at European level has evolved even further.
The most significant development is that tax policy has become an important element in the reinforced economic governance framework.
I will start by presenting what I regard to be the priorities for Member States' structural reforms in order to ensure that tax policy contributes to recovery in the best way that it can.
I would like then to highlight the importance of EU tax coordination. With the ever increasing interconnection of our economies, coordination is the only way for the implementation of Member States' reforms to succeed.
Taxation and growth: The Annual Growth Survey
Let me start by addressing a key topic that you will discuss today: the relation between taxation and economic growth.
Stimulating growth is obviously the most important task in exiting the crisis, improving tax revenues and hence bringing public budgets back to a sustainable path. This is why the Commission sees the Europe 2020 agenda as the natural companion to the consolidation process: they are the two sides of a same coin.
As you probably know, in November last year, the European Commission published its Annual Growth Survey. This launched the 2012 European Semester of economic governance. And it was seized as an opportunity to stress the importance of growth-friendly tax policies for our recovery.
What do we mean by this?
First, greater efforts are necessary to shift taxation away from labour towards taxes that are less detrimental to growth, such as taxes on consumption, environment and property.
However, this should be done in a way which maintains the fairness of the tax systems. While tax shifts are economically attractive, increasing consumption and environmental taxes can have a regressive impact. Regressive in the sense that they may pose more burden on low income than on high income households.
Therefore, special attention must be paid to the most vulnerable citizens when carrying out tax shifts. And compensatory measures to accompany such reforms should be considered where necessary.
Second, Member States also need to broaden tax bases by eliminating exemptions, which are often a source of complexity in the tax systems. In particular, the numerous VAT exemptions and sometimes broad application of reduced VAT rates should be addressed.
The ongoing work of the Commission on the future of the EU VAT offers an opportunity to address these issues. I am determined to improve current legislation in this direction. This will be an important EU undertaking, which will benefit Member States, citizens and business.
Finally, the Annual Growth Survey also suggests phasing out hidden tax subsidies, namely in environmentally harmful areas. While improving the tax base, such measures also improve the incentives for better use of our natural resources.
The Energy Tax Directive proposed by the Commission is an important step in this direction. It focuses on the energy content of products and thereby aims to remove inefficient tax subsidies.
Where do we go from here?
In March this year, the European Council invited Member States to review their tax systems. And it defined the orientations: making them more effective and efficient, removing unjustified exemptions, broadening the tax base, shifting taxes away from labour, improving the efficiency of tax collection and tackling tax evasion.
Following this welcome endorsement, the Member States were invited to reflect those priorities in their national reform programmes. These programmes are currently being analysed by the Commission.
The end result of the European Semester process will lead to country specific recommendations for each Member State, in various fields of economic and social policy. This includes taxation.
Let me now turn to the issue of tax coordination.
While growth-friendly tax reforms are important, it is equally important that national tax measures are effective. They should not be undermined by a lack of policy co-ordination.
You will discuss today the effects of the interaction of national tax regimes for international investment, for example the role of personal taxation and foreign direct investment or the location of tangible and intangible assets of companies.
You will probably agree with me that, to tackle these issues properly, we have to work towards better tax coordination and tax administration in the European Union.
Why do we need better coordination?
First, because tackling cross border tax issues in isolation can pose serious obstacles to the proper functioning of the Single Market.
The Single Market has brought countless benefits to Member States, citizens and businesses. It is our best asset in the search for sustainable growth and jobs. By working together for better tax coordination, we can bring more certainty and less red tape – a better environment in which businesses can grow.
In this context, I am very encouraged that Member States are committed to carrying forward the work on the Commission's proposals for Energy Taxation, the Common Consolidated Corporate Tax Base, the Financial Transaction Tax and Savings Taxation.
I am also delighted by the very broad support of the European Parliament towards our initiatives. This reflects the high expectations of citizens and businesses for fair, simple and sustainable tax rules in the EU.
Second, the Single Market, combined with a currency union, has increased the mobility of production factors and goods, but also of profits and savings. We thus have to factor the element of increased tax competition into our analysis of possible solutions.
There is now a higher degree of mobility of factors across Member States, in particular for capital and high-skilled workers. Economic literature provides some evidence that capital movements have become more responsive to the level of capital taxation.
In this context, tax co-ordination should ensure that tax assignment follows economic activity rather than being the result of profit shifting.
We have already taken steps to tackle this issue: The Code of Conduct group on business taxation has been tackling harmful tax competition for years already. And its work is on-going.
However, this group was created at a time when there was less interdependence than today and when mobility of labour, capital, goods and services was limited. So it is time now to reflect on how to expand its scope to fit today's needs.
Third, working together as a Union gives us strength in numbers in fighting tax evasion and tax fraud.
Successfully countering tax evasion and fraud is a key factor in securing tax revenues and ensuring prosperity. In these difficult times we must ensure that taxes are efficiently and fairly collected when they are due.
There have been important international developments over the last three years in this field. They have given a real impetus to ensuring transparency and cooperation against tax fraud.
At EU level, the adoption last year of a new directive on tax administrative cooperation ensured that the EU continues to lead the way, particularly as regards automatic exchange of information.
The promotion of good governance in global fora such as the G20, OECD and UN is also on our political agenda. We aim at using our trade and partnership cooperation agreements with third countries to promote our policy. And specific attention is devoted to improving developing countries' tax systems in the EU's development cooperation policy.
In this context I am particularly pleased that the European Council has called concrete ways to be developed so that we can fight more effectively against tax fraud and evasion. We are now preparing elements of a strategy that will be presented to EU heads of state and government in June.
I do hope that this political endorsement by EU leaders will help to accelerate the adoption of the pending legislative proposals that impact on the fight against tax fraud and evasion, in particular the urgent upgrade of the savings directive.
Ladies and Gentlemen,
The crisis has changed attitudes to how we approach taxation within the EU. Gone are the days when Member States can "go it alone", implementing tax policies in isolation without a thought to what their neighbours are doing.
Heads of State and government have called for stronger coordination through enhanced dialogue on taxation at EU level, putting special emphasis on improving the efficiency of tax collection and tackling tax evasion. Taxation is now repeatedly highlighted as a fundamental component in our recovery efforts.
Most Member States are committed to progressing and to using all the tools available to deliver – and rightly so.
They can count on the active support and involvement of the Commission in this endeavour.
I thank you very much for your attention and wish you fruitful and lively discussions today. I am sure that, like last year, it will contribute to the further shaping of a pro-growth tax agenda for the EU.