Documents considered by the Committee on 19 October 2011 - European Scrutiny Committee Contents


11 Taxation

(32617)

7263/11

+ ADDs 1-2

COM(11) 121

Draft Directive on a common consolidated corporate tax base (CCCTB)

Legal baseArticle 115 TFEU; consultation; unanimity
DepartmentHM Treasury
Basis of considerationMinister's letter of 28 September 2011
Previous Committee ReportHC 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
To be discussed in CouncilNot known
Committee's assessmentLegally and politically important
Committee's decisionNot cleared; further information requested

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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