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Modern EU Policies: Integration in Action. Publications series.Vol.5. Part I

Eugene Eteris, BC International Editor, Copenhagen, , 13.07.2016.Print version
The publication is inspired by the active European Commission’s integration plan that was adopted in mid-2014. Although “the plan” was shaped as a political guidance, it has held an overwhelming “agenda for jobs, growth, fairness and democratic change”.

The new Commission college is clearly on the way to create both social and political unions, coped with some other integration prospects for the banking, energy union and digital agenda, to name a few. Not all the EU member states are excited about such deep integration aspirations being afraid of serious reduction of national sovereignty.

 

Present series of publications is aimed at revealing practical steps that the EU institutions (mainly, the Commission) have undertaken for practical implementation of the new Commission’s political guidance for the member states.

 

The series follow those EU policies’ developments that have been, in fact, actively regulated during the last couple of years. The main sources of information for the series are recent Commission’s press releases, EU documents, speeches of the EU officials and various media resources, mainly during 2014-16.

 

Out of ten vital spheres of activities for the next five years elaborated by the Commission, present materials in the series’ volumes are a reflection on recent EU’s actions in certain socio-economic sectors rather than critical analyses, i.e. these are so-called “news & facts collection”, rather than comments; the judgments are that of readers.

 

The series’ publication is envisaged as the quickest way of delivering most recent data on EU’s efforts in social-economic integration development to the wide public, including researchers and students in European studies.

 

Previous publications in the series are at:


Vol. 1. Modern EU Policies: EU’s integration through modern European planning process, 20 July 2015; in:  eng/direct_speech/?doc=108419&ins_print;

Vol. 2. Modern EU Policies: EU’s efforts to stimulate growth and investment, 4 September 2015. In: eng/analytics/?doc=110260&ins_print;

Vol. 3-1. Modern EU Policies:  Financial services through EU’s policies and legislation, Part I. 02.02.2016. In: eng/analytics/?doc=116090&ins_print; Vol. 3-2. Modern EU Policies: Financial services through EU’s policies and legislation, Part II.  02.02.2016. In: eng/analytics/?doc=116199&ins_print;

Vol. 4. Modern EU Policies: Banking Union through EU policies and legislation”. 04.04.2016. In:

eng/analytics/?doc=118941&ins_print

 

Vol. 5. EU Taxation Policy and Law: new approaches (2014-16) 

 

Introduction. Present publication covers EU efforts in streamline European taxation policy and legal regulations during last two-three years, i.e. 2014-16.

The new Commission team that came to office at the end of 2014 has announced in the “political guidelines” for the five-year’s period that the general idea was to make the European Union “to be bigger and more ambitious on big things, and smaller and more modest on small things”.

 

Taxation policy issues appeared to be among “modest and small things”: they have been mentioned only in one, the fourth policy guidelines (out of totally ten), i.e. nr. 4. “Deeper and Fairer Internal Market with a Strengthened Industrial Base”.

Commission President underlined that “… While recognising the competence of Member States for their taxation systems, we should step up our efforts to combat tax evasion and tax fraud, so that all contribute their fair share. I will notably press ahead with administrative cooperation between tax authorities and work for the adoption at EU level of a Common Consolidated Corporate Tax Base and a Financial Transaction Tax. The proposed reinforced Union rules against money laundering should be adopted swiftly, and with an ambitious content, notably when it comes to the identification of beneficial owners and improving customer due diligence”.

 

Some of the taxation issues have been covered in the Baltic Course Magazine (www.baltic-course.com); see e.g. Rethinking EU’s “architecture”: towards a more efficient Europe. In:
eng/baltic_states/?doc=99015&ins_print and Commission’s political commitment: only now it is liable for actions. In:

eng/analytics/?doc=100055&ins  

 

The present volume publication covers only four most sensitive and active in reforming process modern taxation policy issues in the Commission’s agenda (they are dealt with in four different parts): 1. Administrative cooperation among member states’ tax authorities; 2. Corporate taxation: new trends; 3. VAT & customs regulations through modernisation; and 4. Modern EU customs system.  

 

Other taxation policy issues are, generally, within the EU member states’ competence.

 

Part I. Administrative cooperation among member states’ tax authorities

  Already from the start of 2014, the Commission initiated some steps to coordinate tax activity in the member states.   With this in mind, the Commission launched two public consultations in 2014 and created an expert group to gather ideas on how to tackle tax obstacles that hinder the cross-border activity of individuals in the EU’s Single Market. At the same time, the Commission has launched new web pages aimed at providing useful tax information to individuals who are active across borders.

Statistics show that there are many EU citizens who move across borders to work or retire or purchase goods or invest in assets other countries. For example, around 14.1 million EU citizens (or 2.8% of the total EU population) reside in an EU member state other than their own and almost 30% of EU citizens purchase offline and online goods from businesses based in other member states.


These situations may mean that taxpayers face complex tax declaration obligations in more than one EU state and double taxation.

 

Taxation issues under scrutiny. The expert group, which was created in April 2014, brought together stakeholders to look principally at elements of direct taxation that may affect an individual’s cross-border activity in the Single Market.

Particular focus will be on personal income taxation and inheritance taxation. However, the group may also look at other taxes that affect the mobility of persons, such as the taxation of vehicles and the taxation of e-commerce.

One of the public consultations covers cross-border active citizens’ tax problems. It includes questions that arise when individuals work or invest in other EU states, as well as questions on measures already in place in certain member states to facilitate tax compliance.

Other consultation focuses on problems related to inheritance taxation; it follows up on the Commission’s Recommendation to the EU states on this issue from 2011. (see IP/11/1551).

 

These three initiatives follow the reviews announced in 2012 (IP/12/340) and in early 2014 (IP/14/31) to identify discriminatory tax rules in the member states.


As work is progressing on combating cross-border tax evasion via closer cooperation between tax administrations, there must now be a corresponding effort to combat cross-border double taxation and compliance burdens.

 

Mobile taxpayers. Furthermore, facilitating tax compliance amongst mobile taxpayers should also benefit tax administrations. On the basis of the feedback received, the Commission will then decide on the appropriate steps to take to tackle the problems identified.

 

Former Commissioner for Taxation Algirdas Šemeta, pointed out that the EU strength relies on people being able to move freely within the Single Market: i.e. to work, study and retire. It is essential that everyone is tax compliant, but tax compliance must be made easy too. This needs particular attention in cross-border situations, where double taxation must be eliminated, he added.  


Source: European Commission, IP/14/416 “Taxation: Reinforcing the Single Market for citizens”, 10.04. 2014. In: http://europa.eu/rapid/press-release_IP-14-416_en.htm

  More information on the issue:= Frequently asked questions: MEMO/14/278; = Call for applications to participate in the expert group in: http://ec.europa.eu/taxation_customs/taxation/individuals/expert_group/index_en.htm; = Public consultation on tax obstacles: http://ec.europa.eu/taxation_customs/common/consultations/tax/2014-04_cross_borders_en.htm

= Public consultation on inheritance taxation in: http://ec.europa.eu/taxation_customs/common/consultations/tax/2014-04_inheritance_tax_en.htm; = Direct tax problems facing citizens, in: http://ec.europa.eu/taxation_customs/taxation/individuals/index_en.htm; = Europe Direct: http://www.europedirect.europa.eu.

= General reference: European Commission, IP/14/416 “Taxation: Reinforcing the Single Market for citizens”, 10 April 2014.


  Agreements on information exchange. Agreement on exchange of tax rulings among the EU member states the EU institutions has been a long waited issue. The EU member states unanimously agreed at a meeting of Economic and Financial Affairs ministers on automatic exchange of information (every six months) on cross-border tax rulings. The agreement was reached just seven months after the presentation of the Commission (the Directive will come into effect on 1 January 2017).

 

The new rules should lead to greater cooperation between the EU member states on tax matters and act as a deterrent from using tax rulings as an instrument for tax abuse. All Union states will be equipped with the information they need to protect their tax bases and effectively target companies that try to escape paying their fair share of taxes.

 

The agreement was reached just seven months after the presentation of the Commission's ambitious proposal on the subject.


 Following the announcement of the agreement, Jean-Claude Juncker, President of the European Commission underlined that the agreement constituted a major step forward. The automatic exchange of information on tax rulings will provide national authorities with insight on aggressive tax planning.

 

He added that it marked a leap forward in the EU efforts to advance on tax coordination and tax harmonisation as the current system of corporate tax rules is unjust and unfit for purpose.

 

Besides, there is a plethora of national rules that allows some companies to win, while others lose out. This unfair competition violates the principles of fair competition within the EU Internal Market.

 

Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici added that all EU states have agreed to share more information on tax rulings provided to companies which operate cross-border.

 

He underlined that this is a major step in combating aggressive tax planning, creating greater transparency in corporate taxation and in providing fairer competition for both businesses and consumers.

 

The agreement is an important signal that the member states are ready to deliver on the EU’s common goal of fair and effective taxation; now the time is to implement these transparency rules worldwide.


 Key elements of the new rules. Presently, the EU member states share very little information with one another about their tax rulings. It is to be remembered that it is at the discretion of the member state to decide whether a tax ruling might be relevant to another EU country.

 

As a result, the EU states are often unaware of cross-border tax rulings issued elsewhere in the EU which may have an impact on their own tax bases. The lack of transparency on tax rulings can be exploited by certain companies in order to artificially reduce their tax contribution.

 

To redress this situation, the new rules will require the EU member states to automatically exchange information on their tax rulings. The EU Directive will remove member states discretion to decide on what information is shared, when and with whom.

 

These rulings will have to be exchanged every six months; they will include all similar instruments irrespective of the actual tax advantage involved. The agreement will also cover existing rulings of the past five years.

 

Besides, the member states will then be able to ask corresponding states for more detailed information on a particular tax ruling.

 

The automatic exchange of information on tax rulings will enable the EU states to detect certain abusive tax practices by companies and take the necessary action in response.

 

It is expected that this initiative will deter tax authorities from offering selective tax treatment to companies once this is open to scrutiny by their peers. This will result in much healthier tax competition in Europe.

 

In addition, the Commission will regularly receive the information it needs in order to monitor the implementation of this directive and ensure that the member states are complying with their responsibilities.

 

However, the member states will have to transpose the new rules into national law before the end of 2016; the Directive will come into effect on 1 January 2017.

 

More information on Tax Transparency Package of 18 March 2015 (IP/2015/4610)

Main reference: Commission’s press review “Tax transparency: Commission welcomes agreement reached by member states on the automatic exchange of information on tax rulings”, Brussels, 6 October 2015, in: http://europa.eu/rapid/press-release_IP-15-5780_en.htm?locale=en 


Taxation in the EU and the Baltic Sea region: differences abound. However, taxation levels among EU states are still quite different. According to the Eurostat, the EU statistical office, differences in taxation are great even among the states in the Baltic Sea region.

 

Thus the tax-to-GDP ratio in the EU has been increasing continuously since its low point in 2010. Among the Baltic Sea states, the lowest tax-to-GDP ratios have been registered in Lithuania (28.0%) and in Latvia (29.2%), while slightly higher rate in Estonia at 32%. 


The overall tax-to-GDP ratio, as the sum of taxes and net social contributions in a percentage of GDP, stood at 40.0% in the EU in 2014, compared with 39.9% in 2013. In the euro area, tax revenue accounted in 2014 for 41.5% of GDP, up from 41.2% in 2013.

 

Over recent five years, the tax-to-GDP ratio, generally, in all EU states has increased continuously since its low point in 2010.

 

According to Eurostat, such tax indicators are compiled in a harmonised framework based on the European System of Accounts (ESA 2010), enabling an accurate comparison of the tax systems and tax policies between EU states.

 

Significant variations. The tax-to-GDP ratio varies significantly between EU member states, with the highest share of taxes and social contributions in percentage of GDP in 2014 being recorded in Denmark (50.8%), followed by Belgium and France (both 47.9%), Finland (44.0%), Austria (43.8%), Italy and Sweden (both 43.7%).

 

At the opposite end of the scale are such countries as Romania (27.7%), Bulgaria (27.8%), Lithuania (28.0%) and Latvia (29.2%), where there were registered the lowest ratios.

 

Total revenue figures from taxes and social contributions in the EU in 2014 (as % of GDP) has shown that below 30% there are 4 states (with Lithuania and Latvia included). Within the range of 30 to 40% there are17 member states, including two Baltic area states (Germany with 39% and Estonia with 32%).

 

Increases in taxation. Largest growth of tax-to-GDP ratio has been in Denmark, while the largest fall is noticed in the Czech Republic. Compared with 2013, the tax-to-GDP ratio increased in 2014 in a majority of EU states, with the largest rise being observed in Denmark (from 48.1% in 2013 to 50.8% in 2014), ahead of Cyprus (from 31.6% to 34.2%) and Malta (from 33.6% to 35.0%).


In contrast, decreases were recorded in eight EU states, notably in the Czech Republic (from 34.8% in 2013 to 34.1% in 2014) and the United Kingdom (from 34.9% to 34.4%).


Table: Total revenue from taxes and social contributions in the EU, euro area and seven Baltic Sea area states, % of GDP


 

                                                        2005        2010       2013       2014

EU                                                    39.0        38.5        39.9        40.0

Euro area                                          39.4        39.2        41.2        41.5

 

Denmark                                          49.4        46.6        48.1       50.8

Germany                                          38.5        38.2        39.4       39.5

Latvia                                               28.1        28.0        28.7       29.2

Lithuania                                         29.5        28.7        27.4       28.0

Poland                                              34.0        32.0        32.8       33.0

Finland                                             42.3        40.9        43.9      44.0

Sweden                                             47.5         44.1       43.8       43.7






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