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29th Mar 2024

EU summit paper sparks clash over taxation

EU finance ministers have clashed over a German presidency paper on the bloc's future economic policy prepared for the forthcoming summit of European leaders, with some member states opposing a reference to business taxation and to joint EU efforts to tackle "harmful tax practices."

After a similarly lively debate about harmonisation of tax base for companies at their previous meeting in late January, the tax issue sparked another collission of views by finance ministers on Tuesday (27 February).

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  • Some opponents of the common EU tax base argue it will be almost impossible to calculate it so that all are satisfied (Photo: Wikipedia)

Several countries - such as the Netherlands, Denmark, Sweden, the UK and the Czech Republic - opposed the paragraph in a draft paper about economic goals which said the functioning of the bloc's internal market "may be improved through measures at the European level on business taxation."

"It is important to ease frictions between the different sovereign national tax systems," the draft said, proposing that ministers welcome "the ongoing technical work especially in the field of business taxation."

"There should also be action taken to tackle fiscal fraud and continued efforts to tackle harmful tax practices," the controversial document said.

Some new member states as well as the UK supported the Czech Republic's argument that tax competition can be positive, with several delegations - including Sweden and the Netherlands which previously supported an EU push towards a common company tax base - also asking for the suggestion to be dropped.

German minister Peer Steinbrueck told journalists after the meeting the debate had shown once again that the issue is sensitive and countries differ in their views over it.

But he added that most countries still want to keep the paragraph on taxation among the key economic areas highlighted by the March summit paper, replacing the idea of "European measures" by a notion of looser co-operation by member states reflecting that taxes remain under national sovereignty.

Common tax base on the way

Meanwhile, the European Commission is preparing to unveil a second, more concrete document on plans to harmonise the corporate tax base in the EU in May, with Mr Steinbrueck stressing that "a majority of countries are in favour."

The plan - pushed forward by EU tax commissioner Laszlo Kovacs and opposed so far by the UK, Ireland, Estonia, Lithuania and Slovakia, with the Czech Republic now joining their forces - would introduce a set of common rules on what share of businesses' profits are taxed, taking special tax breaks and exemptions into account.

But some believe that a harmonisation of tax bases is the first step towards harmonising the tax rates - a link which the EU executive itself denies.

Mr Kovacs intends to unveil the full proposal on tax bases next year, with a special working group including national experts, currently focusing on the method of calculation of a base which would be acceptable by all countries.

"It is not a very happy move," Czech Finance Minister Miroslav Kalousek of the new centre-right government commented on the Brussels' continued efforts in the tax area.

"Obviously, I cannot forbid anyone their activities but they should then be prepared that some countries would oppose them if they go against their national interest," he added.

A commission official reacted that the whole debate shows a kind of "paranoia" among member states over the tax issue as the EU executive does not intend to touch their national sovereignty over the area.

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