TWENTY-EIGHTH REPORT
9 June 1998
By the Select Committee appointed
to consider Community proposals, whether in draft or otherwise,
to obtain all necessary information about them, and to make reports
on those which, in the opinion of the Committee, raise important
questions of policy or principle, and on other questions to which
the Committee considers that the special attention of the House
should be drawn.
ORDERED
TO
REPORT
Taxation and Competition Policy in the
Single Market
COM(97) 564 Commission communication: A package
to tackle harmful tax competition.
6793/97 Proposal for a Council Directive
restructuring the Community framework for the taxation of energy
products. (COM(97) 30) (+ Supplementary memorandum).
7861/97 Commission communication concerning
the Draft Action Plan for the Single Market (COM(97) 184).
9000/97 Commission communication to
the European Parliament on an "Action Plan for the Single
Market" (CSE(97) 1).
1. Last year the European Commission
published a package of proposals to tackle harmful tax competition
and a number of other important documents relating to tax and
competition policy in the single market. The Commission's draft
Action Plan for the single market, published on 12 May 1997,[1]
proposed a combination of improving the working of existing single
market legislation and introducing new legislation where necessary.
The Plan contains four Strategic Targets, each with a number of
proposed action points. The first Strategic Target deals with
making existing single market rules more effective, including
a suggestion that Member States should seek to transpose all single
market legislation into national law by 1 January 1999. The Plan
also proposed a single market scoreboard, to show how well Member
States were performing in both transposition and enforcement.
2. The second Strategic Target deals
with key market distortions. This includes a desire to harmonise
some elements of Member States' direct tax systems, and introduce
a common system of VAT. It also proposes a new framework for taxation
of energy products. The Commission wishes, in dialogue with Member
States, to reduce the overall level of state aids, as well as
restricting the regional areas which might benefit from that aid.
It also proposes to simplify and improve competition rules and
to decentralise the application of anti-trust rules to the Member
States.
3. The third Strategic Target deals
with remaining obstacles to market integration in certain sectors.
A major area for work is in services. The Commission proposes
action to liberalise financial services (particularly investment
and pension funds) and public utilities, and further action to
open air and rail transport markets. In order to improve the environment
for cross-border operations by companies, the Commission wishes
to see adopted its proposals on the Tenth Company Law Directive,
and the European Company Statute. The Commission calls for action
by Member States to deal with the problems of late payments to
small firms. Finally, the Commission wishes to take measures to
ensure confidence in electronic commerce and to seek protection
of bio-technology innovations, as well as ensuring that no barriers
are raised in new sectors such as these.
4. The final Strategic Target aims
to increase the benefits of the single market to all European
citizens. This includes a call for action on eliminating border
controls and on the right of residence. The Commission also wishes
to see social and employment rights further protected in the single
market.
5. In July 1997 Sub-Committee A (Economic
and Financial Affairs, Trade and External Relations) heard oral
evidence on taxation and competition policy in the single market
from the Department of Trade and Industry, HM Treasury, HM Customs
and Excise and Inland Revenue, Unilever and Commissioner Mario
Monti. In addition, a number of witnesses responded to the invitation
to submit written evidence.
6. Since July 1997, when most of the
Committee's evidence was received,[2]
there has been a great deal of activity. Under the Luxembourg
Presidency the Council reached political agreement on three of
the four legislative proposals identified as priorities in the
Single Market Action Plan, namely, gas liberalisation, biotechnology
patents, and the extension of the transparency mechanism to the
Information Society. Limited progress was made on the other proposal
- the draft European Company Statute.
7. There has also been significant
progress on several aspects of EC taxation. In its communication
of 5 November 1997 entitled "A package to tackle harmful
tax competition in the European Union" the Commission stressed
the need for co-ordinated action at European level.[3]
On 1 December 1997 the ECOFIN Council held a wide-ranging debate
on that communication and agreed to a Resolution on a code of
conduct for business taxation. That Council also approved a text
on the taxation of savings as the basis for a Directive in this
field and considered that the Commission should present a proposal
for a Directive on interest and royalty payments between companies.
8. Following the agreement of 1 December,
on 4 March 1998 the Commission adopted a proposal for a Directive
on a common system of taxation applicable to interest and royalty
payments made between associated companies of different Member
States. The proposal is based on Article 100 of the Treaty, and
therefore requires unanimity. It is designed to eliminate taxes
levied at source on payments of interests and royalties between
associated companies of different Member States. It would include
interest and royalty payments made between the permanent establishments
of such companies with cross-shareholdings of at least 25 per
cent. The proposal includes provisions:
(i) to ensure that Member States are not
precluded from taking steps to combat fraud or abuse;
(ii) to allow Member States not to apply
the Directive to payments which qualify for a special tax rate
lower than the rate normally applied; and
(iii) to give a transitional period to Greece
and Portugal; as net importers of capital and technology, these
countries would be allowed to apply a withholding of 10 per cent
during the first two years and 5 per cent during the following
three years following the entry into force of the Directive.[4]
9. On 20 May 1998 the Commission published
a proposal for a Directive "to ensure a minimum of effective
taxation of savings income in the form of interest payments within
the Community". The proposal is based on the "coexistence
model", under which each Member States applies a withholding
tax at source or provides information on income from savings to
other Member States.[5]
10. The preceding paragraphs have outlined
only some of the current proposals on taxation and competition
policy. In the light of the present high level of activity in
these fields in the European Union, the Committee considered that
the evidence which it has received so far on this subject should
be published now, in the hope of informing debate within the House
of Lords and stimulating further debate.
RECOMMENDATION
11. The Committee considers that these
proposals raise important questions to which the attention of
the House should be drawn, and makes this Report to the House
for information.
1 Document 7861/97: COM(97) 184 Final. Back
2
In January 1998 the Department of Trade and Industry responded
to a request to submit a supplementary memorandum to update the
one they had supplied in June 1997. Back
3
COM(97) 564 Final, 5 November 1997. Back
4
Council of the European Union Press Release 6619/98: ECOFIN meeting
Brussels, 9 March 1998. Back
5
COM (98) 295, p 4. Back
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