14 Reform of company taxation
| (25104)
15361/03
COM(03)726
| Commission Communication: "An Internal Market without company tax obstacles: achievements, ongoing initiatives and remaining challenges".
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| Legal base | — |
| Document originated | 24 November 2003
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| Deposited in Parliament | 1 December 2003
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| Department | HM Treasury |
| Basis of consideration | EM of 11 December 2003
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| Previous Committee Report | None; but see (22808) 13365/01: HC 152-xxxvii (2001-02), paragraph 21 (17 July 2002)
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| To be discussed in Council | Not known
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| Committee's assessment | Politically important
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| Committee's decision | Cleared
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Background
14.1 In October 2001 the Commission published a Communication,
"Towards the Internal Market without Tax Obstacles".[48]
The Communication proposed a strategy for reforming company taxation
in order to remove tax obstacles to the Internal Market. The Commission
argued that 15 different tax systems caused the European business
environment to be unnecessarily complex and cumbersome, especially
in the areas of transfer pricing, cross-border loss relief and
cross-border business integration. In the Commissions view, businesses
needed a consolidated corporate tax base for their EU-wide activities.
It argued that a consolidated corporate tax base would contribute
to greater efficiency, effectiveness, simplicity and transparency
in company tax systems and would help stop the loopholes that
allow tax avoidance and abuse.
14.2 The Communication set out the Commissions view
of what needed to be done. The Commission proposed a two-track
strategy for:
- immediate action on targeted
measures; and
- the launch of a wider debate on the future of
company taxation in the Internal Market.
14.3 The Commission discussed four technical possibilities
for achieving a consolidated corporate tax base:
- Home State Taxation: where
companies would, if they wished, be able to compute the taxable
profits for all their EU operations according to the tax code
of their particular home state;
- Common (Consolidated) Base Taxation: where companies
would, if they wished, be able to compute the taxable profits
for all their EU operations according to new harmonised EU rules;
- European Corporate Income Tax: where companies
would, if they wished, be able to compute the taxable profits
according to EU rules, with some or all of the revenue going
directly to the EU;
- Harmonised Single Tax Base in the EU: where national
systems would be replaced and companies would compute their taxable
profits according to a harmonised EU approach.
14.4 The Government reminded us then of its view
that fair tax competition rather than tax harmonisation is the
way forward for Europe and said that "Accordingly we do not
see merit in any of the suggested approaches to tax base consolidation".
We were also told that the Government would scrutinise carefully
any specific policy proposals.
The document
14.5 The 2001 communication included a Commission
promise to report on its policy conclusions by 2003. This document
is the fulfilment of that promise. In the present Communication
the Commission discusses:
- the continuing need, as it
sees it, to adapt company taxation in the EU;
- progress with the targeted measures for tackling
the tax obstacles in the Internal Market, including revision of
the Mergers Directive[49]
and the Parent-Subsidiary Directive,[50]
cross-border loss-offset, transfer pricing and double taxation
treaties. Targeted measures are said to be on track. For 2004
the Commission proposes other initiatives on double-taxation treaties
and on the cross-border offset of losses and paying increasing
attention to developments in the European Court of Justice;
- advances towards a consolidated corporate tax
base for the EU-wide activities of companies. Here the Commission
says a proposal for the experimental application of "Home
State Taxation" to small and medium-sized enterprises could
be considered for 2004, but notes possible problems over discrimination
or competition issues. The Commission proposes to continue to
develop technical work on a common consolidated EU tax base. But
it thinks work on an experimental application for companies created
under the European Company Statute is premature;
- the Commission's conclusions and priorities for
the coming years. Here the Commission summarises its view of what
future developments should be, concluding "bearing in mind
the economic importance of EU company tax reform for the improvement
of the EU Internal Market as a whole, and for promoting economic
growth and employment creation, the Commission remains committed
to a continuing thorough technical analysis and constructive political
debate. Both elements will be key to achieving satisfactory progress".
The Government's view
14.6 The Paymaster General (Dawn Primarolo) tells
us:
"The Commission Communication does not bring
forward any proposals.
"As far as the targeted measures on company
tax are concerned, the Government's view is that, when brought
forward, each will need to be assessed pragmatically on its own
merits, to see where real benefits for business can be achieved.
"Political agreement was reached at ECOFIN on
25 November on the draft Council Directive amending Directive
90/435/EEC on the common system of taxation applicable in the
case of parent companies and subsidiaries in different Member
States [the Parent-Subsidiary Directive]. Discussions are underway
with the Commission and other Member States on the Commission's
proposal to amend Directive 90/434/EEC on the common system of
taxation applicable to mergers, divisions, transfer of assets
and exchange of shares concerning companies of different Member
States [the Mergers Directive]. The EU Joint Transfer Pricing
Forum, which was set up in 2002, is due to report on its work
early in 2004.
"The Government does not accept the need for
harmonisation of company tax, including corporate tax base consolidation.
The Government's view is that fair tax competition, not tax harmonisation,
provides the basis on which Britain and Europe can compete with
the rest of the world. The Government will not support any action
at the European level that would raise business costs and harm
investment and jobs in Britain and Europe and considers that Europe
needs to focus on being open and flexible and facing up to global
competition."
Conclusion
14.7 This document makes clear the Commission's
continuing attachment to tax harmonisation. But we note the Minister's
firm restatement of the Government's contrary view that fair tax
competition is the better basis for Europe competing globally,
and the Government's intention to continue to examine any specific
proposals to see if they offer any real benefit for businesses.
We clear the document.
48 See headnote. Back
49
(24977) 13841/03: HC 63-xxxvii (2002-03), paragraph 24 (12 November
2003). Back
50
(24808) 11935/03: HC 63-xxxiii (2002-03), paragraph 45 (15 October
2003). Back
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