Brussels heading for clash over EU-wide tax base
RENATA GOLDIROVA
02.05.2007 @ 09:26 CET
EUOBSERVER / BRUSSELS – EU tax commissioner Laszlo Kovacs is set to cause controversy today, as he forges ahead with an ambitious project to create a single EU company tax base, something which is expected to prompt a clash within the college of 27 commissioners as well as with EU capitals.
Later today (2 May), Mr Kovacs is expected to reaffirm his intention to table a legislative proposal on harmonizing national tax bases in 2008. He will also outline to his colleagues in the European Commission the steps that are needed before a set of rules - calculating what constitutes a company's taxable earnings - is up and running by 2011.
According to commissioner Kovacs' report - seen by EUobserver - an EU-wide tax base "could make a significant contribution to the success of the internal market".
If companies operating across the 27-nation bloc would follow the same rules, their administrative burden would be reduced while cross-border activities and foreign investment would be boosted, the paper says.
The new uniform base "should be broad rather than narrow", the paper adds. It argues that "a broad tax base with low tax rates is the most economically efficient", while "specific reliefs and incentives should be limited in number and properly targeted and justified".
Mr Kovacs has made it clear that the common rules should apply both to large multinational enterprises as well as to small and medium-sized enterprises, although his paper indicates that some more thought should be given to SMEs due to the possibility of high compliance costs.
A question mark also remains over whether, and to what extent, the financial sector should be included in the common tax base scheme.
However, any harmonization would also require "a coordinated administrative system for assessment and appeal process", something that could eventually pave the way to a single tax authority.
The European body would serve as a one-stop-shop so that EU companies do not deal with 27 different administrative authorities.
Another option is that any appeals are made under one designated national process subject only to appeal at EU level.
Circumventing the national veto
However, Mr Kovacs' ideas are likely to meet with reluctance among his colleagues, with EU internal market commissioner Charlie McCreevy (Ireland) and EU budget commissioner Dalia Grybauskaite (Lithuania) being the most vocal sceptics.
An even stronger backlash is expected when the proposal reaches member states, deeply divided over possible harmonization. Approximately 12 EU capitals are in favour, five to seven against and the rest remain undecided.
The UK, Ireland and several new member states – who use tax breaks to win foreign investment - have ideological objections to the EU becoming involved in tax matters. They also fear that the introduction of a common EU tax base will be a Trojan horse for setting a common minimum tax rate.
Tax is purely a national matter and any proposal would require unanimous support from member states for any reform to take place.
But as unanimity within the bloc is far from likely, the EU tax commissioner has made it clear he is ready to circumvent national veto power by working only with a pioneer group of member states, hoping the rest will join later.
The so-called enhanced cooperation mechanism envisages the possibility of at least eight states pushing forward with initiatives that are opposed by others.
"Member states will have to accept that a single base cannot replicate all the features of all their existing tax bases", the tax commissioner argues in his report. But he denies any intention to link a common tax base with harmonizing tax rates, underlining that individual member states would be free to set their own tax rates.