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Speech - "Boosting tax revenue, maintaining competitiveness"

European Commission - SPEECH/14/322   10/04/2014

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European Commission

[Check Against Delivery]

Algirdas Šemeta

Commissioner responsible for Taxation and Customs Union, Statistics, Audit and Anti-fraud

"Boosting tax revenue, maintaining competitiveness"

At hearing before the Senate of French Republic

Paris, 10 April 2014

Honourable Senators, Ladies and Gentlemen,

Let me start by thanking the French Senate for inviting me today at a very topical moment for the European Union, just a few weeks ahead of the European elections.

I am delighted to be here to discuss EU tax policy today – and the direction it should be heading for in the future.

Over the past few years, we have seen EU tax policy propelled to the heart of our political agenda. This created new opportunities and new impetus for progress and consensus in taxation, that we couldn't have imagined a few years ago.

Of course, I don't claim that it is all plain sailing. We still have the unanimity rule, which yields slow results.

However, there is also a new understanding that the biggest threat to tax sovereignty is an isolationist approach.

Our shared goals for stronger growth, and our intertwined economies, demand a common approach. This has prompted a shift to more tax coordination and, indeed, more harmonisation in some areas.

In this light, I would like to briefly present what has been achieved – and what has still to be done – in EU tax policy to promote greater competitiveness and boost revenues.


Turning first to the question of competitiveness.

No one questions that for greater competitiveness, we must create a more business-friendly environment in Europe.

Investors need stability, legal certainty, less administrative burden and fewer compliance costs when working within the EU.

Improving the tax environment is core to this, and has therefore been one of my top priorities in this mandate.

In some areas, tax harmonisation is still the best way to achieve results. Take VAT, for example. Harmonised VAT rules are the only way to avoid major distortions between businesses and between Member States. Since 2010, we have done a lot to create a simpler, more efficient and more robust VAT system.

For example, our new VAT e-invoicing measures alone can save companies €18 billion a year, while the standard VAT declaration that I proposed will eliminate one of the biggest headaches that our cross-border businesses face.

From 2015, we will have a mini-One Stop Shop for e-services, broadcasting and telecommunication service providers – making it infinitely easier for them to work cross-border.

And before the end of my mandate, based on a wide consultation, the Commission will adopt a White paper on the way forward for a definitive VAT regime.

If we look to the medium term, I would place greater harmonisation in VAT as a core objective.

It is well documented that VAT implementation still ranks amongst the top administrative burdens for businesses. At the same time, the revenue raising capacity of VAT is increasingly compromised by the proliferation of exemptions, reduced rates and exceptions, which vary from one Member State to the next.

I do believe that we need to cut out the disparities and complexities that are a nightmare for businesses. And Member States should find ways other than reduced VAT rates to support important social goals, especially given that the impact of reduced rates in achieving fair redistribution is doubtful.

Still on the issue of competitiveness, the Common Consolidated Corporate Tax Base proposal can be a key tool. It would make it easier and cheaper, notably for SMEs, to grow beyond domestic markets.

In this context, I would like to encourage for greater efforts in the joint work that France and Germany have undertaken in the coordination of their respective corporate tax regimes. If well framed in a European approach, this could speed up the progress towards an agreement on the EU directive.

Let me also mention here the Financial Transaction Tax which also contributes to the idea of a more stable and predictable business environment. It can avoid a patchwork of national approaches, as well as responding to citizens' demands for fairer taxation.

Of course, the CCCTB, FTT and also the Energy Tax Directive -that I have proposed to introduce CO2 taxation in the EU- have all to be agreed before they can yield their benefits. I am not so optimistic as to imagine that all 3 will be done and dusted before the end of my mandate.

But I do expect Member States to invest properly in order to facilitate quick progress. And, in this context, France can play a decisive role as it has always been supportive, persuasive and assertive in the tax field.

Let me open a parenthesis here on the issue of unanimity in taxation. The reality of our decision-making process is that the convoy currently moves at the pace of the slowest ship.

We have to ask whether that is sustainable in the long-term, as our economic and monetary integration becomes ever deeper.

Already we have seen an urge to move away from the constraints of unanimity with the enhanced cooperation on FTT.

And I can imagine that the more ambitious Member States will increasingly look for ways to make progress in the future if unanimity is slowing them down.

There are both opportunities and risks to this. On my side, I would favour anchoring tax policy to the deepening of our monetary union, to maintain coherence and avoid a purely “a la carte” integration.

Boosting Revenues

Honourable Senators, Ladies and Gentlemen,

Facilitating business, by breaking down tax barriers, is clearly an essential part of EU tax policy.

But so too is our support for taxation's more traditional function: revenue collection.

Particularly when budgets are squeezed, Member States must rely on the solidarity of their partners – within the EU and internationally – to collect the revenues that they are due.

In recent years, the rules on administrative cooperation have been modernised considerably to ensure fair and efficient taxation.

But with billions being lost to tax evasion every year; with companies engaging in large-scale tax avoidance; and with tax competition causing tensions between our Member States, we have had to up our game.

You are no doubt aware of the major work that has been done to clamp down on tax evasion. I am proud that the EU kick-started this process and continues to drive it. And I am grateful for the constant support of France in these efforts.

With our own ambitious Action Plan against tax fraud and our measures to shut-down tax avoidance opportunities we have proven that we can continue to set the global pace in tax good governance.

This then helped us to push forward international developments. Thanks to the work of the OECD, we are in the midst of a fundamental overhaul of the global tax environment.

In February, G20 finance ministers backed a new standard of automatic exchange of information, which will bring unprecedented transparency to taxation worldwide.

At EU level, after years of negotiation and good progress from our Luxembourgish and Austrian friends, the Savings Directive has finally been adopted.

A stronger Savings Tax Directive is crucial for transparency, and has also acquired a new significance in the global trend towards the end of bank secrecy. I congratulate France for its political impetus in this file and also for leading the momentum towards an early adoption and implementation of the Global standard.

In terms of corporate taxation, the OECD Base Erosion and Profit Shifting project, which we fully support, will pave the way for a global approach to ensuring a stronger link between taxation and the place of economic activity.

So what remains to be done in the fight against tax evasion, and campaign for fairer tax competition?

Well, in the coming months, I expect to see agreement on a number of crucial proposals that will pin down the EU's political commitments in this field.

First, on our proposal on the Administrative Cooperation Directive. This text will ensure automatic information exchange on all types of income. Swift agreement on this proposal will allow the EU to move seamlessly and coherently towards implementing the new OECD global transparency standard.

Second, we are currently negotiating an improved parent-subsidiary tax directive which will close loopholes in corporate taxation. The result is that it will not be possible anymore to misuse this legislation, initially designed to avoid double taxation in the Single market, to allow double non taxation.

Third, we have taken on a new, but very much linked, challenge. How to tax the digital economy, to ensure sustainable revenues and fair competition, is a major question. I know that a lot of analysis of this issue has already been done in France. I also know that there are no ready-made answers. I have therefore set up a High-Level expert group to examine the problems and propose solutions in this area.

The report that they will present this summer will serve as the basis for future Commission initiatives to ensure that the digital sector prospers in Europe – but pays its fair share too.

Finally, the Commission will continue to use every tool at its disposal – whether state aid rules or the Code of Conduct on Business Taxation – to ensure that Member States play fair amongst themselves.

In a Union striving together to renew growth and competitiveness, there is no room for one neighbour undermining the revenue-raising efforts of another through harmful tax practices.

I am quite convinced that the issue of fair tax competition is going to be an increasingly central one in EU tax policy in the years to come. And rightly so.

In the EU, we should compete with the rest of the world – on the basis of the strong merits that we have - and not between ourselves on the basis of unfair tax regimes.

Agreement on the CCCTB, which I have already spoken of, would be a big step forward in tackling base erosion and profit shifting at Union level.

And – as I said when I presented the Action Plan in 2012 - I believe that Member States need to make better use of the tools at their disposal at Union level to address tax competition grievances they might have. The same is true for our relations with the rest of the world. Third country operators should not be able to use loopholes in bilateral relations with any Member State for pure tax optimisation purposes. Therefore, the development of common tools in relation to international partners is an avenue worth pursuing.

In this context, the Commission is continuing negotiations with Switzerland, Liechtenstein, Monaco, Andorra and San Marino on stronger tax agreements, based on automatic exchange.

I intend to conclude these negotiations before the end of the year so that we can progress in parallel with the EU internal legislation.

Let me also mention here that we are making good progress on the dialogue that we have with Switzerland corporate tax regime. Our neighbour is now committed to roll out a number of harmful regimes both at cantonal and federal level.

Competitiveness and Revenues

And now to my final point. The work we do at EU level to ensure growth-friendly, competitive and smart taxation has to be underpinned by complementary measures at national level.

Business-friendly VAT legislation and EU initiatives to tackle loopholes will not compensate for national tax systems that are instable or imbalanced, unfair or misdirected.

For that reason, taxation has been made a key pillar in the European Semester, and objectives to guide national tax reforms are set out in this process.

The Semester process has the advantage of allowing quicker progress than under the normal decision-making procedures for tax and tailor-made solutions to steer each Member State.

We have already seen some positive outcomes from this process in the reforms that Member States have implemented or committed to in their national reform programmes this year.

I know that France is currently launching an impressive set of reforms which, we believe go in the right direction. We are looking forward the specification of these pro-growth and competitiveness measures in its forthcoming national reform programme.

Obviously, change in this field will be felt gradually. Tax reforms cannot be made overnight.

But using the European semester towards quality tax reforms is an innovative way to ensure that the right decisions on tax policies are taken at the right level, for the benefit of our global competitiveness and growth.

In this context, my vision for the future is for continued and even stronger cooperation between Member States in helping each other to be the best that they can be.

Community oversight, mutual assistance and exchange of best practice will help improve the quality and stability of each Member State's tax system.

Which, in turn, will deliver a Union of 28 complementary tax systems supporting growth, employment and investment.

We may seem far from that now, but we have taken the first important steps down that path during this mandate, and perseverance will reap real rewards.


Honourable Senators, Ladies and Gentlemen,

I have given you some flavour of the critical role of EU tax policy in bringing Europe back towards more competitiveness and growth.

Much has changed and much has been achieved. But it doesn't stop here.

Coming closer together as a Union on tax matters reinforces every Member States' capacity to offer a sound and competitive business environment.

It strengthens every Member States' ability to deliver a fair and equitable tax burden in our societies.

EU tax policy will remain central to our shared route towards greater economic well-being, sustainability and dynamism – now and long into the future.

Thank you for your attention

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