Speech: EU Tax policy and Competition policy – A complementary approach to fair taxation
European Commission - SPEECH/14/117 11/02/2014
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Commissioner responsible for Taxation and Customs Union, Statistics, Audit and Anti-fraud
EU Tax policy and Competition policy – A complementary approach to fair taxation
Brussels, 11 February 2014
Ladies and Gentlemen,
I am delighted to welcome you all to this year's Competition Forum.
Secretary-General Gurria has already described macro-economic trends and has spoken on the OECD's significant achievements in fighting base erosion and profit shifting.
I would like to offer you the EU perspective, briefly outlining how the Commission works to ensure that fair tax competition prevails amongst our Member States.
Why do we need fair tax competition
Why is fair tax competition so important?
To put it simply, our social and economic model relies on it.
First, fair tax competition is essential to preserve the integrity of our Single Market. And a strong, well-functioning Single Market will help propel Europe's return to growth and prosperity.
The four freedoms which underpin our Single Market are fiercely protected and promoted by the Commission.
However, these do not include the "Freedom to do what you like, at the expense of your neighbour". An effective Single Market is one which is based on solidarity, trust and mutual respect.
Therefore, we cannot accept national measures that encourage tax shopping by citizens and businesses, or that are designed purely to steal the tax base of neighbours.
Secondly, fair tax competition is crucial for the fiscal sustainability of our Member States. Each Member State must be able to collect the revenues that it is due. In an increasingly connected world, with increasingly mobile and intangible economic activity, there needs to be a framework which enables countries to deal with the tax consequences of cross-border activity.
Finally, fair tax competition is vital to protect undistorted competition amongst businesses. Countries should not have to compensate for the aggressive tax planning of some companies, by increasing the burden on the rest of the business community. Nor should smaller, local and less "well advised" businesses be at a disadvantage, in trying to keep up with their tax-avoiding competitors.
Despite all these considerations, we still face many challenges to fair tax competition today. Global cooperation between countries in their approach to taxation is limited. An uncoordinated tax design leads to unintentional double non-taxation, and loopholes for abusive tax planners to exploit.
Therefore, the European Commission ardently believes that, for fair competition, we need greater tax cooperation between Member States, and beyond.
Let me be clear, however.
I do not advocate an across-the-board harmonization of Member States' tax systems. Tax competition can be something very positive, too.
Healthy and fair tax competition can contain the tendency of certain governments to use tax hikes as the solution to all their problems.
It can make Member States compete on the quality of their tax systems, rather than on quantity rates. We know from many studies that tax rates are not the first – and certainly not the only - factor which businesses take on board when deciding where to invest.
Reducing red tape, easing compliance, ensuring stability and making tax administrations more service-minded are fundamental to creating an attractive tax system.
In a nutshell, tax competition can contribute to simpler, more transparent and growth-oriented tax systems.
But those positive impacts can only materialise if the competition is fair and takes place within an agreed and transparent framework, with universally accepted rules.
How to ensure fair tax competition
So what are we doing at EU level to ensure fair tax competition?
Quite simply, we are using every tool at our disposal: tax law, competition law and also non-legislative instruments, which are very important and can be extremely effective.
In terms of EU tax legislation, we are confronted with the challenge that unanimity is required for every decision. I will not deny that this often curtails the pace of progress.
Nevertheless, Member States do recognise that EU law is needed to ensure fair tax competition in certain areas, especially indirect taxation, when we enjoy the free movement of goods. EU rules for VAT and excise duties are harmonised, to prevent major distortions within our Single Market.
A major initiative of my mandate has been the proposal for a Common Consolidated Corporate Tax Base CCCTB. This offers a double-dividend: simplifying life for businesses with a single tax rule book and removing opportunities for profit shifting. As such, it is an important tool for fair tax competition.
Turning now to our non-legislative work, tax coordination has been high on the agenda of EU tax policy for a number of years now. In the context of tax competition, two instruments in particular must be highlighted.
First, we have a Code of Conduct on Business Taxation, under which Member States have committed to eliminating any regimes deemed to be harmful from a tax competition viewpoint.
Time does not permit me to give you a full picture of the importance of the Code of Conduct for fair tax competition. But let me give you a snapshot, with a few examples of issues that are currently being dealt with under this Code.
Patent Boxes are currently being examined. And as part of this work, the question of how to interpret the criteria on real economic activity has been raised. This discussion is extremely important, as it could result in solutions to the wider approach to profit allocation.
The transparency of tax rulings is another important topic recently addressed under the Code. And as a result, Member States have agreed to a policy on spontaneous information exchange.
And third, we are in dialogue with Switzerland, within the framework of the Code of Conduct. The aim is to secure a Swiss commitment for a precise timetable to phase out certain harmful regimes that do not comply with our standards.
The second important coordination tool I want to briefly mention is the Action Plan to tackle tax evasion and avoidance, which I presented in 2012. This is the EU response to the challenges that are being tackled globally through the BEPS Action Plan that Mr. Gurria has already presented to you.
Let me finish with some words on how competition policy and in particular State aid control can greatly reinforce our tax policy work.
Through competition policy, the Commissions has at its disposal a highly effective instrument in tackling tax regimes or practices which create distortions between companies.
Under the EU Treaty, it is the Commission's role to make sure that companies do not receive undue fiscal advantage that would distort competition. Any selective State aid that would give preferential tax treatment to specific companies would be contrary to the principle of the single market.
This approach of investigating taxation from a State aid angle is not new. After Commissioner Monti launched the Code of Conduct in 1997, the Commission has initiated in 2001 a large scale State aid investigation into 15 preferential tax regimes for multinationals.
The majority of the investigation concerned harmful tax schemes under the Code and were finally prohibited because they were found to distort competition in the single market.
Recently, as mentioned by Vice-President Almunia this morning, the Commission is gathering again information on tax planning strategies under state aid rules.
We are looking at various instruments that play a role in tax planning, such as tax rulings.
While the Commission has no problem with tax planning or tax rulings in general, it could be possible that such practices could be considered overly generous and arbitrary.
Sometimes, there is an overlap on what is being covered by the EU tax instruments and the EU competition ones. For example, some tax measures may constitute both state aid and harmful tax competition.
However, pursuing cases under competition rules can make a real difference as they can be enforced directly on the basis of the EU Treaty and should provide results in a precise timeframe.
Overall, I would say that EU tax and competition policy really complement each in pursuing a common objective. Both work to ensure a level playing field for countries and for companies, and to remove distortions in our Single Market.
Ladies and Gentlemen,
Harmful tax competition can be a serious threat, not only for the functioning of the Single Market, but also for the overall global economy.
I warmly welcome the G20 finance ministers' decision last year to fight base erosion and profit shifting BEPS. The OECD's Action Plan, together with EU initiatives, offer all elements needed to ensure fairer tax competition worldwide.
This is a goal worth fighting for.
Because only with fair and competitive tax systems will we retain our European social model, ensure undistorted business competition in the Single market, and secure the acceptance of our citizens for our broader policies.