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21st Sep 2019

Public shaming could help EU to pass tax laws

  • Mario Monti with European Commission president Jean-Claude Juncker (Photo: European People's Party - EPP)

Member states can be made to move on issues of common tax policy through a combination of political deftness and public shaming, says a former EU tax commissioner.

Italian senator Mario Monti, the commissioner responsible for tax issues in the late 1990s, on Monday (1 June) advised members of a special European Parliament committee looking into tax breaks for multinationals that those hoping for more EU tax policies need to use "reassurance" and "embarrassment".

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  • Tax issues continue to be bound by unanimity rules, meaning all member states have to agree. (Photo: The Council of the European Union)

Looking back to 1995, when the commission started in earnest to think about how to tackle tax issues - where member states have a veto right - he said: "We dropped the flag of harmonisations and we raised the more modest flag of co-ordination. Semantics- maybe. But much less threatening. Much more reassuring."

And to prevent finance ministers from wielding their vetos "we put into place the embarrassment part of the strategy".

Monti noted that, at that time, youth unemployment was also a problem yet countries had tax regimes in place that were more favourable to corporations rather than helping the labour market.

"Finance ministers could not carry on saying that they were fighting unemployment and yet refuse to tackle the issue of tax co-ordination," he noted.

Monti also noted that policy-makers tend to fixate on a country's "red lines", but that they apparently immoveable positions are always open to negotiation.

Illustrating how the dynamics in a group change, he said that Belgium in the late 1990s wanted to introduce a savings tax directive because it "hated the notion" that Belgian wealthy people put their savings in Luxembourg.

The Grand Duchy, for its part, was "complaining loudly" about Belgium giving tax breaks to multinationals.

In 1997, EU states agreed a tax package that included going towards a savings tax bill; a bill on taxation of interest; and the beginning of co-ordination of corporate tax.

This kind of package meant "you may attract apparently ‘unattractable’ countries," said Monti, referring to Belgium and Luxembourg.

He called the package the “building block” for the subsequent developments in tax co-ordination.

LuxLeaks

Tax has moved back onto the political agenda again following revelations last year about how tax schemes in Luxembourg allow hundreds of multi-nationals to pay almost no taxes - money that would have otherwise gone into government coffers.

The revelations were made more explosive by the fact that governments across Europe have been slashing public spending to cut debt levels.

The European Commission responded by opening an investigation into whether these and similar set-ups in other member states breached state aid rules.

It is also bringing forward a law on the automatic exchange of information on these so-called 'tax rulings' and is relaunching a previously moribund law on creating a common corporate tax base.

But tax issues - as in the 1990s - continue to be bound by unanimity rules, meaning all member states have to agree.

However, Monti indicated that the circumstances today - including anger over multinationals avoiding tax - could lead to another breakthrough in tax issues, this time toward the EU raising its own taxes.

"I believe the synergies intellectually, technically, politically between the handling of national taxation policies, the extent of their coordination and the future of the shape of the EU budget will also be a promising subject," he said.

Monti is chairing a group looking into EU tax-raising powers (also known as 'own resources') which is due come with a final report next year.

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