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EU Launches Assault On 'Harmful' Taxes

Tuesday, April 5, 2011

Speaking at the 'Workshop on the Outlook for Financial Markets, for their Governance and for Finance,' the EU Commissioner for Taxation, Algirdas Šemeta, disclosed that the European Union, as part of a three-point plan to tackle member states' debts, will increase their assault on 'harmful' tax regimes.

He told attendees:

"Today, our member states are facing huge challenges in their efforts to consolidate their public finances. Consolidation by cutting expenditure is of course essential. However this will not be enough given the magnitude of the deficits, and raising taxes has or will have to be considered."

"In this context, member states have to care for the quality of their tax systems. They need to define how best to raise revenues while providing the right incentives for employment, innovation and long-term investment. They must also ensure that their tax reforms are resistant to economic fluctuations and do not rely too much on tax bases that are very cyclical or known to be prone to bubbles."

After discussing possible tax policies for European nations, and the diversification of member states' tax bases, Šemeta discussed the importance of tax coordination, to ensure that member states preserve their "legitimate tax base and revenue."

"This is all about tax competition, tax fraud and tax evasion," the Commissioner said.

"Tax competition is accepted, and may even be a good thing, as long as it does not endanger the capacity of member states to collect the revenue that they would fairly expect."

"The Code of Conduct on business taxation is our tool to ensure that this principle is respected in the EU and beyond. It is a soft law instrument: under a peer-review process, member states examine their potentially harmful business tax measures and commit to correct them."

"It has proved useful in the past. It is not ambitious enough anymore. There is a need to find renew[ed] support on the principles at political level and to sharpen our instruments. In this period of intense consolidation efforts, no margin of manoeuvre exists: transparency and trust is the standard and no one can steal a tax base or tax revenue from its neighbour. And let me emphasize that this principle is also valid in our relations with third countries."

"As for the fight against fraud and evasion, the EU agreed last year that bank secrecy will no longer be a reason to refuse cross-border cooperation. A dynamic approach on multilateral automatic exchange of information has now been launched."

"More is, of course, ahead of us. Where can we make progress?"

"VAT fraud continues to be an important problem: an estimated 12% of VAT remains uncollected for this reason. The forthcoming VAT strategy will concentrate on finding a fraud- proof system."

"Member states should also quickly find an agreement on the improvement of taxation of savings in Europe and on anti-fraud and tax cooperation agreements with neighbouring European states that are not within the EU is also needed urgently."

"Finally, at global level, we will pursue our fight for more tax transparency. In this context, a tougher common European approach should be agreed on the treatment of non-cooperative jurisdictions and tax [havens]," Šemeta concluded.