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Ecofin Minsters Discuss Latest EU Tax Developments

by Ulrika Lomas,, Brussels

28 November 2003

At the latest session of the Council of Economic and Finance (Ecofin) ministers in Brussels held on November 25 tax issues such as VAT simplification, company tax and the parent-subsidiary directive were discussed by the ministers. Taxation Commissioner Fritz Bolkestein also assured the Council that company tax harmonisation was not on the Commission’s agenda.

The Council adopted a statement noting that all Member States would like current rules allowing Member States to temporarily apply reduced VAT rates to certain labour intensive services, that will expire on 31st December 2003, to be extended for a further two years. Bolkestein indicated to Ministers that the Commission would not present a proposal to extend this regime. In the absence of a Commission proposal, the Council cannot agree such an extension. Reports from Member States on the results of applying reduced VAT rates to labour intensive services indicated that in general, the reduced VAT rates were not passed on to consumers in terms of lower prices and that there was little effect on employment in these sectors.

Commissioner Bolkestein presented the Commission's latest Communication on company taxation, which gives an overview of the Commission's efforts to remove the tax obstacles affecting businesses operating across frontiers within the Internal Market and which has just been presented by the Commission.

Bolkestein categorically denied any suggestion that the Commission had any intention to propose harmonisation of company tax rates. On the contrary, he affirmed that the Commission supports fair tax competition, and pointed out that a single tax base for companies would increase comparability between Member States' tax rates and so favour competition.

The Council gave its agreement without discussion to the European Commission's proposal of this summer to amend the European Community's Parent-Subsidiary Directive (90/435/EEC) (see IP/03/1214). The Council's formal adoption of the proposal will not be possible until the Parliament has given its opinion on the proposal. The proposal is intended in particular to broaden the scope of the existing Directive to cover a larger range of companies, lower from 25% to 10% the inter-company holding threshold required for the application of its tax benefits and improve the mechanisms the Directive provides for the prevention of double taxation. The European Company which can be created from 2004 (see IP/01/1376) is among the new entities proposed for addition to the list of companies covered by the Directive.

In addition, the Council agreed on a general approach on the European Commission's proposal for a Directive introducing minimum transparency requirements for information which must be provided by companies whose securities are traded on a regulated market, such as a stock exchange.

The proposal, a key part of the Financial Services Action Plan, aims to enhance investor protection, attract investors to the European market place and improve the efficiency, openness and integrity of European capital markets. It would also remove certain national barriers linked to transparency requirements, which may discourage issuers from having their securities admitted to trading on more than one regulated market in the EU. In order to achieve these aims, the proposed Directive would upgrade the current level and frequency of the mandatory information that issuers have to provide to the markets throughout the financial year. It would also simplify requirements issuers must meet on the use of languages and on the way information is disseminated.

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