11 Taxation
| (32617)
7263/11
+ ADDs 1-2
COM(11) 121
| Draft Directive on a common consolidated corporate tax base (CCCTB)
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| Legal base | Article 115 TFEU; consultation; unanimity
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| Department | HM Treasury
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| Basis of consideration | Minister's letter of 28 September 2011
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| Previous Committee Report | HC 428-xxxv (2010-12), chapter 5 (7 September 2011); HC 428-xxv (2010-12), chapter 2 (4 May 2011) and HC Debs, 11 May 2011, cols 1282-1304
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| To be discussed in Council | Not known
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| Committee's assessment | Legally and politically important
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| Committee's decision | Not cleared; further information requested
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Background
11.1 The general background to this proposal is contained in the
Committee's previous Report.[56]
Previous scrutiny
11.2 On 7 September we reported that the Exchequer Secretary to
the Treasury (Mr David Gauke) had written to comment on a number
of the concerns we had raised in a previous Report. In relation
to our legal concerns, Minister said that:
- the Government shared the conclusion of the House's Reasoned
Opinion that the draft Directive did not respect the principle
of subsidiarity and believed there was not a sufficiently strong
single market case for the proposal;
- it had raised the issue of subsidiarity with
the Commission during working group discussions;
- in response, the Commission had highlighted that
the number of Reasoned Opinions received did not represent a third
of all the votes allocated to national parliaments, that it was,
therefore, under no obligation to review the draft Directive and
that there will be no formal review;
- the Commission said that it would respond formally
to all the Reasoned Opinions, but that the process was taking
longer than expected because some parliaments raised wider concerns
as well as the issue of subsidiarity.
11.3 Noting that, during the House's debate on the
Reasoned Opinion and whether or not the proposal complied with
the principle of subsidiarity, the issue of the proposal's legal
base was raised number of times and that we had said that "There
is … no express provision in the Treaty for the harmonisation
of direct taxation", the Minister set out the Government's
view on this matter.
- Article 113 TFEU is the legal
base for adopting provisions for the harmonisation of legislation
concerning turnover taxes, excise duties and other forms of indirect
taxation to the extent that such harmonisation is necessary to
ensure the establishment and the functioning of the single market
and to avoid distortion of competition;
- to adopt such provisions the Council must act
unanimously in accordance with a special legislative procedure
and after consulting the European Parliament and the Economic
and Social Committee;
- Article 114 TFEU provides the legal base for
the adoption of measures for the approximation of the provisions
laid down by law, regulation or administrative action in Member
States which have as their object the establishment and functioning
of the single market;
- to adopt such measures the European Parliament
and the Council must act in accordance with the ordinary legislative
procedure and after consulting the Economic and Social Committee;
- decisions made under the ordinary legislative
procedure involve the Council acting by a qualified majority;
- Article 114(2) TFEU expressly states that Article
114(1) TFEU shall not apply to fiscal provisions—so measures
for the approximation of fiscal provisions cannot be adopted in
accordance with the ordinary legislative procedure and this protects
the Member States' veto on tax measures proposed by the Commission;
- whilst there is no Treaty article which explicitly
provides for measures for the approximation of direct taxation,
Article 115 TFEU provides for Directives for the approximation
of such laws, regulations or administrative provisions of the
Member States as directly affect the establishment or functioning
of the single market;
- the explicit statement in Article 114(2) TFEU
that Article 114(1) TFEU shall not apply to fiscal provisions
does not apply to Article 115 TFEU;
- if it is accepted that a Directive for the approximation
of fiscal provisions of the Member States directly affects the
establishment or functioning of the single market, the Government
believes Article 115 TFEU would be the appropriate legal base
for such a Directive;
- this generally accepted view is supported by
the European Court of Justice (Case C-338/01 Commission v Council);
and
- to adopt such a Directive under Article 115 TFEU
the Council must act unanimously in accordance with a special
legislative procedure and after consulting the European Parliament
and the Economic and Social Committee — this protects the
Member States' veto on tax measures proposed by the Commission.
11.4 The Minister added a reiteration of the sentiments
expressed by the then Economic Secretary to the Treasury (Justine
Greening) during the House's debate on the Reasoned Opinion —
namely, that the Government did not believe that a CCCTB was necessary
for the single market to function effectively and it did not accept
the assumptions that appear to underpin the Commission's proposal.
11.5 We responded to the Minister's arguments as
follows. We said that amendments introduced by the Lisbon Treaty
reversed the order of Articles 94 and 95 of the EC Treaty, so
that Article 115 TFEU is now to be read without prejudice to
Article 114 TFEU. Additionally, Article 114 is no longer to
be applied by way of derogation from Article 115, as Article
95 was from Article 94. These amendments must have a purpose,[57]
which from textual analysis we said should be construed as follows.
11.6 There is now additional emphasis on Article
115 being read without prejudice to Article 114, the residual
internal market provision, which includes a prohibition on its
application to fiscal provisions. This addition marks a significant
shift in emphasis in the relationship between these two provisions,
and must have an effect on the way in which Article 115 can be
interpreted.
11.7 In addition, if the Minister were right that
Article 115 can be used for the approximation of direct taxation,
as such power is implied rather than explicit there is nothing
to prevent Article 115 from being used for the approximation of
indirect taxation (so long as the measure concerned was a Directive).
11.8 We did not think that an interpretation that
could make Article 113 TFEU redundant in this way should be preferred.
Rather we were of the opinion that if the drafters of the TFEU
wanted to confer a power on the EU to approximate direct taxation,
such power would have been explicitly provided for as a lex
specialis, similar to Article 113, under chapter 2 of Title
VII TFEU, which is entitled "Tax Provisions". No such
specific power had ever been transferred to the EU, the EC or
the EEC, we noted.
11.9 We therefore urged the Government to reconsider
its conclusion that Article 115 TFEU was an appropriate legal
base. Although aware that the Government was not arguing that
the CCCTB would "directly affect the establishment or functioning
of the internal market" (we noted in passing the different
internal market test in Article 115), the inapplicability of Article
115 to direct taxation measures was, we felt, of far wider legal
significance, affecting for example whether enhanced cooperation
could be pursued.
The Minister's letter of 28 September 2011
11.10 The Minister responds by saying that the Government's
view is that the purpose behind the reversal of Article 94 and
95 TEC, which now appear, with minor drafting amendments, as Article
114 and 115 TFEU, was to make it clear that the general rule is
that legislation on the internal market is adopted by Qualified
Majority Voting (QMV), with only a limited category of measures
being subject to unanimity. In previous iterations of the Treaty,
it appeared that the rule was unanimity and only the exception
QMV. The amendments do not change the substance but make the provisions
more transparent in reflecting actual practice.
11.11 Case C-338/01, Commission v Council,
makes it clear that Articles 93 and 94 TEC were available for
fiscal measures. He sees nothing in Articles 114 and 115 TFEU,
and the change of order and purely contextual textual changes,
to suggest a different reading or to lead him to think that the
Court of Justice of the EU would now take a different view. The
new "without prejudice" cross-reference to what is now
Article 114 refers to that provision as a whole, not to the exclusion
in Article 114(2). As such it follows that matters excluded from
Article 114(1) can properly be based on Article 115.
11.12 The Committee's Report argues that if it is
right that Article 115 can be used for the approximation of direct
taxation, as such power is implied rather than explicit there
is nothing to prevent Article 115 from being used for the approximation
of indirect taxation (so long as the measure concerned was a Directive),
and that such an interpretation could make Article 113 TFEU redundant.
In responding to that point I note that the principle that there
should be a power to legislate on indirect taxation matters has
been long established, in Article 113 and its predecessors. There
is no suggestion in Case C-338/01 that Article 93 TEC (now Article
113 TFEU) is somehow redundant. As the CJEU said:
"It follows that, if the Treaty contains a more
specific provision that is capable of constituting the legal basis
for the measure in question, that measure must be founded on such
provision. That is, in particular, the case with regard to Article
93 EC so far as concerns the harmonisation of legislation concerning
turnover taxes, excise duties and other forms of indirect taxation."
11.13 He adds that the Government, in its Explanatory
Notes on the European Union Act 2011, refers to Article 115 as
applicable to fiscal measures. The Minister believes that in doing
so the Government was expressing the commonly held view.
Conclusion
11.14 We thank the Minister again for his considered
reply.
11.15 Our opinions differ on the interpretation
of Article 115 TFEU and the legal effect of Case C-338/01, as
we have already explained, but we see no further advantage in
continuing this exchange of views.
11.16 We look forward to receiving an update on
the negotiations in due course.
11.17 In the meantime, the proposal remains under
scrutiny.
56 See headnote. Back
57
Case C-338/01 pre-dates the entry into force of the Lisbon Treaty. Back
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