Select Committee on European Communities Seventeenth Report


Letter from Lord Tordoff, Chairman of the Committee, to Dawn Primarolo MP, Paymaster General, HM Treasury

  At its meeting on 2 March, Sub-Committee A (Economic and Financial Affairs, Trade and External Relations) considered this document, together with your Explanatory Memorandum of 27 January.

  We are holding the document under scrutiny because of its relationship to Sub-Committee A's new enquiry into taxes in the European Union. In the meanwhile, however, there seems to be some confusion over responsibility for the state aid rules. We understand that they are considered within the purview of the Code of Conduct Group which you chair, yet the (extremely brief) Explanatory Memorandum which you provided says that the Secretary of State for Trade and Industry has policy responsibility. We should be glad to know what arrangements are in place for co-ordination of policy on this topic, particularly in order to help Sub-Committee A to decide whether it will need to take evidence from the Department of Trade and Industry in the course of its enquiry.

8 March 1999

Letter from Dawn Primarolo MP, Paymaster General, HM Treasury, to Lord Tordoff, Chairman of the Committee

  Thank you for your letter of 8 March about the European Commission communication on the application of the State aid rules to measures relating to direct business taxation (13347/98) and my accompanying Explanatory Memorandum of 29 January.

  You ask about responsibility for State aid rules. The European Commission has exclusive competence (subject of course to the European Court of Justice), to enforce the State aid rules and to decide on the compatibility of aid within the common market. The scope of the State aid rules stretches across many other policy areas, including my own area of taxation policy. The Secretary of State for Trade and Industry, Stephen Byers, has overall responsibility for State aid policy, and DTI's State aid policy unit provides a central source of advice on State aid for all Government departments and handles all UK notifications of State aid (except agriculture, fisheries and transport which are handled through MAFF and DETR respectively). I understand that the Commission do not normally present to Council communications on their policy in applying the State aid rules.

  In this particular case, however, the Commission's communication arose from an undertaking made as part of the wider "package" of measures on taxation policy agreed at the ECOFIN Council on 1 December 1997 and noted in the Code of Conduct on business taxation adopted at that Council. As you know, I chair the Code of Conduct group on harmful business taxation.

  As you say, work on fiscal State aid requires co-ordination of policy and my officials work closely with DTI. Questions on UK tax measures and how this Notice applies to them should be directed in the first instance to the Inland Revenue. Questions on the place of the Notice in the wider context of rules on State aid policy and procedures generally should be addressed to DTI.

  You also mention the work of the Code of Conduct Group, and I should like to clarify the relationship between the work of the Group and State aid rules. The Code of Conduct for Business Taxation was agreed by the European Council as part of a package of measures to tackle harmful tax competition. The Code is not legally binding. It is a political agreement by Member States not to introduce new tax measures that are harmful within the meaning of the Code and to re-examine their existing laws and practices with a view to eliminating any harmful measures taking into account the Council's discussions following the review process.

  The State aid rules fall within the competition chapter of the Treaty of Rome (Articles 92-94 EC). It is the European Commission, not the Code of Conduct Group, that has responsibility for enforcing the state aids rules. The work of the Group is independent. The State aid rules do not determine the Group's work, but at the same time the Group cannot modify, amend or detract from the State aid rules, nor does it govern the work of the Commission in enforcing State aid law. That said, it is clear that some of the tax measures covered by the Code may fall within the scope of the provisions on State aid. With this in mind, the Commission undertook to clarify the application of existing State aid rules to direct business tax measures, and that is the context in which this Commission communication was produced.

19 May 1999

Letter from Lord Tordoff, Chairman of the Committee, to Dawn Primarolo MP, Paymaster General, HM Treasury

  Thank you for your letter of 19 May, in reply to mine of 8 March.

  Sub-Committee A had been awaiting your reply before deciding whether to invite evidence from the Department of Trade and Industry for its current enquiry on "Taxes in the EU: co-ordination, harmonisation or imposition?". It is now in any case too late to fit such a witness into the programme, but the Sub-Committee has concluded from your letter that any questions it might wish to raise on this document can be put to you when you give oral evidence on 22 June. Meanwhile, the document is still being held under scrutiny because of its relevance to the enquiry.

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