EU Council This Week May Extend Fiscal Powers

Jeremy Hetherington-Gore, Tax-news.com, London

04 December 2000

This coming Thursday, European Union leaders will meet at the concluding Council of the French Presidency at the grandly-titled InterGovernmental Conference, and on the table will be a bunch of intractable dossiers including enlargement, adjusted voting weights, and qualified majority voting (QMV).

QMV already exists in a large number of EU sectors, but a major extension is proposed in order to speed the legislative process in the Union, and some of the proposals relate to taxation. In the words of a Commission fact-sheet:

'The Presidency is proposing a new sole article which would cover all aspects of taxation. The delegations have identified the following aspects as elements likely to be adopted by qualified majority:

  • measures to prevent discrimination and double taxation;

  • simplification and modernisation of the existing Community rules on VAT and excise duties (a protocol annexed to the treaty could describe in more detail which questions this covers);

  • the fight against tax fraud and evasion of the rules;

  • environmental taxation;

  • administrative cooperation between tax administrations.
    There is a consensus to the effect that in no case could tax rates be harmonised by QMV.'

The EU president, Romano Prodi, is presenting the proposals as largely technical, saying: 'I have proposed safeguards to ensure that majority voting cannot apply to sensitive decisions such as harmonisation of tax rates. Yet we urgently need to modernise our tax systems so they can keep pace with the revolution in electronic commerce. The unanimity rule makes this difficult.

'More generally we need to rationalise taxation for the benefit of business without changing the rates of and structures of tax systems. It is absurd that a company based in one EU country should have to wait three years to recover VAT from the authorities of another.'

The unanimity rule on fiscal matters has not completely prevented progress in fiscal harmonisation in the Union. For instance, in 1991, the EU agreed to adopt, with many exemptions, a minimum standard rate of VAT of 15% and minimum rates of excise duty on mineral oils, alcohol and tobacco.

But more important measures have tended to run into the ground due to lack of agreement among ministers. The 1996 tax directive which included proposals for a withholding tax on savings returns and the Code of Conduct on 'unfair tax practices' resulted in a classic fudge with so many conditions attached to it that many people think it will never come into effect. For much of the time, the UK and Luxembourg were the only two countries fighting against it, and if QMV had applied, there would have been a withholding tax years ago, with the various European tax havens out of business under the Code of Conduct.

There are 15 points of view on fiscal harmonisation among the 15 member states. Predictably, France and Germany are the pro-QMV leaders, with the UK equally predictably heading up the antis. Even the UK is willing to see an extension of QMV, and has tabled a list of 29 areas in which it will accept more QMV - but they don't include taxation.

Not all Brits are against fiscal QMV by any means. Well-known ex-Tory wet Chris Patten, EU commissioner for External Affairs, says that there are serious arguments in favour of more majority voting on tax, especially fraud, to make the single market more effective. But the Tories' shadow foreign secretary, Francis Maude, calling the proposals 'fiscal federalism' points out that if QMV had been extended to cover fiscal fraud, then the UK would have been powerless to fight off the withholding tax, which was designed to counter tax evasion.

On the face of it, the official British position is clear: 'We will not cede any loss of the national veto over tax or social security. It is as simple as that,' said a Treasury spokesman. But it is not as simple as that, especially not at 4 am after 18 hours of negotiations when you are one person standing in the way of 14 others who have done a deal and want to go to bed. Expect to see the creeping European superstate creep a little further this week.

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