Ladies and Gentlemen,
Thank you for inviting me to your annual tax policy conference. It is my pleasure to be joining you today and to contribute to your discussions. Three years ago, one of my very first speaking engagements when I took office as France's Minister for the Economy and Finance was an invitation from "l'ordre des experts comptables français". Some of you in the room today may have been in attendance then. You will see that my views on tax policy have remained consistent.
As Commissioner for Economic and Financial Affairs, Taxation and Customs, I am convinced that we need an ambitious blueprint for taxation in Europe. In the next few years, I will aim at advancing an agenda focused on fairness, transparency and a truly single market from a taxation point of view. I am well aware of the limitations imposed on this agenda by the unanimity rule. But I do believe that we can make substantial progress on taxation at European level in the coming years.
Taxation is not some dry, technical matter: it is part and parcel of the growth agenda President Juncker has been implementing with determination since November. Taxation must support the objectives of the European Union, and in particular help boost economic recovery:
- From a business perspective, today's fiscal rules fragment the internal market along national lines, increase the administrative burden of doing business in several European countries and reduce legal certainty. SMEs in particular, who have limited resources, typically do not resort to tax optimisation techniques, and face a clear disadvantage in competing for market shares beyond national borders.
- From a government's perspective, aggressive tax planning leads to deficiencies in the tax collection mechanism and results in a revenue shortfall - and I completely agree in this respect with the title you chose for your conference today: "the future of tax policy" is indeed "a matter for society as a whole".
- Finally, from a political perspective, aggressive tax planning and the overall lack of transparency across Europe have a corrosive effect on the principle of "no taxation without consent". Democratic accountability is also at risk when large corporations are in a position to make Member States compete to house their headquarters or operations: the prerogative to set the level of taxation is no longer exercised by citizens and their representatives, but by multinational corporations. This is a key issue for all of us.
The European Union needs an ambitious roadmap to put an end to the distortionary nature of its tax policy and regulatory framework. In my view, the way forward is clear:
- The EU must enhance transparency in tax matters;
- And Member States must coordinate their tax systems to counter tax base erosion.
Let me first address transparency. Increasing transparency across the board is in my view the first step forward.
There is no doubt that the situation has improved remarkably in recent years, notably through the automatic exchange of financial account information. However, when it comes to corporate tax issues, cooperation and information exchange between Member States' tax administrations remains unstructured and weak, leaving them vulnerable to base erosion where companies exploit this information vacuum.
Much more progress must be made on transparency in corporate taxation if we are to tackle corporate tax avoidance. This progress can only be made if national tax authorities cooperate significantly more than they do at present.
You will all be aware of the package of measures on transparency announced last month. This proposal will help improve cooperation between tax authorities by requiring Member States to automatically exchange information on tax rulings.
Tax rulings are not in themselves a problem. Indeed, they are important tools which give taxpayers the legal certainty and predictability they need in order to take investment decisions. It is vital for companies to know in advance how their activities will be taxed.
But these rulings are often shrouded in secrecy. This can be a problem when decisions taken by tax authorities in one Member State impact other Member States. At present, national authorities are often unaware of what other EU countries offer to multinationals. As a result, the same transaction may be treated differently by different states. And the lack of transparency helps companies play their game and get the best deal. Without visibility on these rulings, governments are not even aware that they need to take action to protect their tax base.
We have also seen that some rulings may not always be in line with fair tax competition. As you may know, the European Commission is currently investigating several tax rulings to determine whether they comply with state aid rules and has asked all Member States to send the full list of their tax rulings.
The Commission proposal on tax rulings will help shed a light on this currently opaque, yet crucial aspect of corporation tax. It is designed to make governments more aware of the effect of others' rulings on their own revenues, and better equipped to react.With the automatic exchange of information, all Member States will have to share details with each other on all of their cross-border tax rulings, systematically, every 3 months. Unlike the current provisions for tax rulings, there will be no escape clauses, and no room for interpretation, on these requirements. The information that tax authorities must exchange will be pre-defined. It will be comprehensive enough to allow Member States to assess whether a tax ruling is relevant to them. But it will also be simple enough to avoid unnecessary administrative burdens. If, after this initial exchange, a Member State believes that it needs more information on a particular ruling, it can request more details.
Greater transparency will also bring greater scrutiny, which will lead to further benefits. Member States will be deterred from granting unreasonable tax rulings: transparency will thus open the door for EU countries to apply peer pressure on one another to amend their systems. For their part, companies will be discouraged from using rulings to shift profits and avoid taxes.
This proposal was welcomed by all Ministers last week-end in Riga.
It represents an essential first step towards a more transparent and fair tax environment in the EU - but it is only a first step. When it released its March package, the European Commission also announced that it is considering whether to introduce further transparency measures – such as public disclosure requirements for multinationals. We have repeatedly heard today how important this issue is to many organisations.
Personally, I am in favour of full tax transparency - for governments and for businesses - but this is not a decision to be taken lightly. The European Commission has therefore committed to undertake a full assessment of the costs and benefits of further action. This analysis will take time, but is it is essential to ensure that new policy decisions are firmly grounded on a thorough analysis of evidence, on sound objectives, and on clearly identified benefits.
A word now on the second front of our taxation agenda: tax coordination.
The Commission has supported the overall principle of tax competition for many years, while also being active in the fight against harmful tax competition, for example through the Code of Conduct on business taxation. However, it is clear that the line between harmful and helpful tax competition has shifted. The political context has also evolved since the 2012 Action Plan on tackling tax fraud and evasion. Public opinions are more sensitive to perceived or actual taxation disparities, and we must respond to our societies' call for greater fiscal fairness at a time when European citizens are still feeling the pinch of budgetary restrictions.
The Commission has delivered significant progress on the proposals listed in the 2012 Action Plan, for example by introducing amendments to the Parent Subsidiary Directive and improving the Savings Directive.
But the earlier focus on improving tax compliance and administrative cooperation has now expanded to encompass an analysis of those features of national tax systems which contribute to aggressive tax planning. This is why the Commission has announced that we will bring forward a new Action Plan before the summer which will refocus our efforts on ensuring that profits in the Single Market are taxed where the value is generated. Profits generated in the EU must be effectively taxed. As I have said before, I believe this issue is fundamental to the EU.
The Commission is working hard to explore how best to achieve this objective. The work here is ongoing, but both President Juncker and I have already stated that the Action Plan will build on 5 key actions, starting with the relaunch of the Common Consolidated Corporate Tax base (or CCCTB), which would harmonise the tax base for many companies operating across borders in the EU and allow businesses to consolidate their taxable profits across Member States.
The CCCTB is a key building block in the agenda for fairness, transparency and a truly single fiscal market I mentioned earlier. It would make the internal market more competitive, as business would need to comply with just one set of tax rules and would allow them to offset profits in one Member State with the losses made in another. But it would also limit the opportunities for these companies to manipulate their tax position, thereby providing a holistic approach to combatting evasion within the EU. We need to assess the modalities of such a relaunch.
We have a fine line to tread. On the one hand we want to put an end to tax avoidance, evasion and aggressive tax planning strategies and ensure that profits are taxed where the value is generated. On the other hand we must be watchful not to penalise legitimate business, either by imposing disproportionate administrative burdens, by creating legal uncertainty or by generating situations which lead to double taxation. For years we have worked hard to enhance the single market and reduce the barriers to cross border activity: we will be mindful not to create new barriers in our eagerness to put an end to harmful tax practices.
In addition, the Action Plan will build on global developments, in particular the work of the OECD on Base Erosion and Profit Shifting which Pascal Saint-Amans described this morning. The EU must be careful to ensure that the outcome of the BEPS project meets the needs of the internal market and respects Treaty Freedoms.
For those of you who enjoyed Margaret Mitchell's novel Gone with the Wind, you may remember the following witticism: “Death, taxes and childbirth! There's never any convenient time for any of them.” There is not much the European Commission can do about death and childbirth, but we are hoping to change the landscape for taxation. Getting it right will not be easy, and that is why it is important to attend events such as this one today. Your voice, as European accountants, matters: it will help develop and fine-tune our initiatives further, and I look forward to your contribution as the European Commission moves forward with its taxation agenda.