Analytics, Energy, EU – Baltic States, Financial Services, Legislation, Taxation

At a time when debate about Europe is concentrated on discussions between believers and non-believers, the “summit” would unite those who “like to talk” from those who are “willing to act”, and those who prefer to “attract attention to themselves from those who are determined to achieve results for citizens”, argued the Commission’s president.

The member states are very much concerned of the immediate growth prospects for Europe; this challenging outlook should galvanise the EU and the states’ efforts to mobilise every growth lever and give any impetus to help citizens and businesses through the difficult times.

On the agenda of May 2013 European Council meeting there are two issues: first, energy, where there is so much more benefit to be reaped, both for citizens and for the European business’ competitiveness (through more European integration and investments); second, tax fraud and tax evasion, where by sharpening common European tools against tax avoiders the EU can start to restore the sense of fairness that citizens and small businesses have lost as a result of the financial crisis.

European energy issues

A stronger European energy policy is a particularly important tool to achieve growth prospects. Europe is not endowed by abundant natural riches; global energy situation is changing fast, and in order to avoid losing in the global race for resources, the EU has to step up member states’ joint efforts.

While the United States is on its way to become a net exporter of gas instead of an importer, as a result of the shale gas boom, Europe's import dependence is further increasing and, for oil and gas, is set to grow to over 80% by 2035. Already in 2012, industry gas prices were four times lower in the US than in Europe. For electricity prices, the EU is almost twice as expensive as the US; therefore, it is above all a debate about European energy security and its competitiveness.

The situation for citizens is also increasingly problematic: energy bills are rising, adding up to a share of between 7 and 17% of average household expenditure throughout different Member States. The weakest income groups are even harder hit: hence, it is also a debate about social equity.

Bottom-lone: as soon as the EU cannot change long-term global trends, it can clearly influence them by stepping up European efforts and make its energy policy more secure, competitive and sustainable. Different member states have different energy mixes; yet the added value of stronger European integration in this field is evident, said the President.  

Reference: Speech/13/434 by President Barroso on the preparations of the European Council of 22 May, Brussels, 21 May 2013.

Urgent steps after the “summit”

First, it’s crucial to complete the EU internal energy market by the end of 2014, as was agreed by the Heads of State and Government. Market opening has brought prices down for consumers wherever real opening was achieved.

However, there is still plenty of room for improvement, including in cross-border trade, integration and fair competition. The member states urgently need to implement the 3^rd Energy Package to keep stable the prices for consumers and businesses.  

At the same time, it is not just commodity prices but policy choices of the EU states – like taxes, levies, support mechanisms etc. – which have a great impact on price variations, where the EU institutions must take steps to avoid fragmentation.

In the preparation for the European Council, the Commission has prepared a comparison of the price structure in the member states; it is important to see that differences are great across Europe, precisely because of different national policies that in fact make it almost unavoidable to have a completely fragmented internal market in this area.

Secondly, the member states have to push for more public and private investment in energy infrastructure, the backbone of the internal market. The financial crisis has limited the means for such indispensable investments; but the needs are huge – by 2020, the EU will need about one trillion euro for the optimal energy sector.

These investments will have to come from the private sector mostly; however, the EU is going to play a vital role: it is expected that the EU will devote some 5 billion euro of the next MFF to energy interconnections, through the Connecting Europe Facility, which must become operational rapidly. The member states can also devote a bigger share of their structural funds to investing in energy and energy efficiency.

Thirdly, the EU and the member states must continue to strengthen the internal and external diversification of supplies, which includes tapping new international sources, for instance through the Southern Gas Corridor which the Commission has been pushing hard and on which decisive decisions are expected soon. It also means speaking with one European voice on global energy matters; whereas internally, it requires a more coordinated approach among the states on the positive rise of renewables.

Last but not least, Europe needs a balanced, Union-wide approach on using the potential of unconventional hydrocarbons, such as shale gas, on which the Commission is preparing an initiative.

Therefore, the conclusions on energy are the following: the right EU policies are in place and the member states know the way forward. But implementation is too slow: there is a clear "cost of non-Europe" here, argued the President: “we must do more together to ensure economic competitiveness and energy equity; we are not heading towards an age of cheap energy, but we have the choice whether we invest scarce resources in our own sustainable and smart energy, or pay for imports”.

The EU has to complete the internal energy market, become more energy-efficient, invest in infrastructure and innovation, exploit renewables more cost-effectively and further diversify Union’s external supplies.

Taxation issues

The European Council will also debate the EU common engagements against tax fraud and tax evasion. The issue is urgent; Commissioner Algirdas Semeta presented the Commission's views on these two very important tax issues: the fight against tax fraud, tax evasion and tax havens.

The Commission has seen a strong support from the European Parliament for the EU strong joint efforts in this crucially important area.

The Commission has been putting these issues on the table in very concrete terms for several years now; with the proposal in 2008 the gaps in the savings directive was closed; with the proposal in 2011 a mandate was negotiated with neighbouring countries; with the June 2012 communication and the Action Plan presented in December 2012 the EU elaborated two recommendations – on tax havens and on aggressive tax planning, also in 2012.

There is a growing interest in these issues amongst the EU member states which was not there before; therefore there is a favourable momentum to make progress and answer some burning questions, such as: how can the EU explain to honest households and businesses who are feeling the squeeze yet still paying their fair share of taxes, that there are other parts of society and enterprise who are deliberately avoiding paying up?

How can the EU justify that fiscal consolidation is requiring Member States to make difficult choices to reduce expenditure, yet at the same time there are whole piles of cash that should be in the public purse but are never collected?

The total loss of revenue due to illegal fraud and unacceptable evasion is estimated to be around one trillion euros a year, which is nearly double the 2012 combined annual budget deficit of all EU-27 states. It is more than the total spent on health across the EU in 2008. It is more than 6 times the size of the annual budget of the EU. In other words, this money is roughly 1 Multiannual Financial Framework. And, at the same time, the amount is equal to the investments necessary to cover the needs in the European energy sector by 2020. “That is a huge amount of money to simply let through the net”, added the President.

The EU, national and international actions have to be accelerated and better coordinated.

First, at national level, the reform of tax governance and tax administrations will feature prominently in the Country Specific Recommendations the Commission is going to present. The member states also need to get on and implement the Commission's Action plan on tax evasion and avoidance (adopted in December 2012), and the Commission Recommendations on tax havens and aggressive tax planning.

Second, at EU level, it is necessary to implement an impressive toolbox to support the states' ability to fight tax fraud and evasion. The EU needs to reach agreement without delay on the proposals the Commission has already made to go further: that means concluding the negotiations on the revision of the Savings Taxation Directive, further closing loopholes by extending it to investment funds, pensions, innovative financial instruments and payments made through trusts and foundations.

The summit will push for a political commitment on one very simple principle: that on 1 January 2015 the European Union should have automatic exchange of information for all forms of income. The Commission will shortly table a proposal to amend the directive on administrative cooperation. This already applies automatic exchange of information for a range of income (such as employment, pensions, and insurance) from 2015. The new proposal will further extend the scope of automatic exchange of information between all Member States to cover all relevant types of income, such as dividends and capital gains.

With the Savings proposal on the table, the existing provisions on administrative cooperation, and the forthcoming Commission proposal, this is indeed a feasible target – provided the political will is there, argued the President.

The pending proposals on tackling VAT fraud, on the Common Consolidated Corporate Tax Base, which will deal with the problems of transfer pricing, and the revision of the EU anti-money laundering framework also have the potential to make a real difference.

For example, in the beginning of May 2013, a mandate to start negotiations on savings agreements with Switzerland, Liechtenstein, Andorra, Monaco and San Marino was adopted, and the Commission is taking these negotiations as a priority.

However, through the adoption of the savings directive, all EU member states have to signal their agreement.

At global level, the upcoming G8 and G20 summits are an excellent opportunity to make progress, and the EU is taking the lead by the EU’s experience and expertise. Thus, an automatic information exchange has been the underlying principle of the EU approach since the 2005 Savings Taxation Directive; the principle of automatic exchange becomes the standard at international level as well, and the EU will continue to work together with international partners to keep up the momentum.

It could be done, added the President, “if we speak with one voice, if we have done our concrete homework internally, if we speak and act as a Union”. Some Member States have signalled their readiness to go further, faster; but if the EU wants to be really effective, internally and globally, there is no alternative but to go all the way, together and building on the common EU framework.

Conclusion

Two mentioned themes for debate are crucial at this moment of time; they matter for the EU public finances, for the competitiveness of businesses and for the cost of living of citizens. Even more, they are essential for the credibility of the EU’s efforts to fight the crisis, for the political capital it is willing to invest in it and the legitimacy of the demands the crisis makes on those who struggle to pay their energy bills or pay their taxes.

“Now is the time to go further, not with more words and further analysis but by approving and implementing concrete proposals and actions”, concluded the President.

General source: http://europa.eu/rapid/press-release_SPEECH-13-434_en.htm?locale=en