Select Committee on European Union Fortieth Report


Letter from Rt Hon Dawn Primarolo MP, Paymaster General, HM Treasury to the Chairman

  I am writing in response to your comments on the Commission's work on a common Consolidated Corporate Tax Base in your letter of 14 November 2005[4] to John Healey.

  You refer, in particular, to the Financial Times report of 25 October 2005, which gave the impression that the Commission might have in mind "a non-binding voluntary instrument", and say that you are interested in how this might affect UK companies' competitiveness compared to their EU counterparts.

  You will since also, of course, have seen my Explanatory Memorandum of 21 November 2005 (EM 14042/05) on the Commission's Communication on "The Contribution of Taxation and Customs Policies to the Lisbon Strategy" (COM (2005) 532 final) which also touched on the Commission's intentions in this area.

  In autumn 2004, the European Commission established a new technical working group, the Common Consolidated Corporate Tax Base Working Group (CCCTB WG) initially for a period of three years. The group's work is being taken forward without political commitments from Member States. The CCCTB WG has met on five occasions to date and the Commission's work on this complex, technical exercise is still at an early stage.

  The UK Government remains clear that fair tax competition, not tax harmonisation, is the way forward for Europe. Moreover we consider that it is essential for discussions on corporate tax to be set in a global, and not just an EU, context. So we do not see need for the Commission's technical work in this area. UK officials are nevertheless participating in the technical work on a strictly without prejudice basis. We will continue to make clear that we are sceptical about both the principles and the practicalities of the Commission's ideas in this area and to argue for a change in approach.

  In its recent Communication (COM (2005) 532), the Commission admitted that the technical work on a CCCTB was a "challenging exercise" but nonetheless reiterated its intention to present a Community legislative measure on a CCCTB by 2008.

  The reference in the FT article of 25 October, however, is to the possible use at some point of the Treaty provisions on enhanced co-operation, on which the two recent Commission Communications (COM (2005) 330 and 532) are silent but which was referred to briefly in the Commission's 2003 and 2001 company tax Communications (COM (2003) 726 and COM (2001) 582). As set out in the Treaty, an initiative for enhanced co-operation may only be launched as a "last resort when it has been established within the Council that the objectives of such co-operation cannot be attained within a reasonable period of time by applying the relevant provisions of the Treaties." Enhanced co-operation is also only permissible if a number of conditions are met. Inter alia, it must not undermine the internal market nor constitute a barrier to trade or distort competition between Member States, and it must respect the competences, rights and obligations of non-participants.

  In a global economy, the UK does not believe that the competitiveness of the EU would be helped by a harmonised company tax base. However, provided the process in the Treaty was followed, the use of the enhanced co-operation provisions would be a matter for those Member States that wished at some point to be involved. Member States participating in such a CCCTB would of course no longer have the same freedom to adjust corporate tax provisions in the light of national circumstances, including businesses' needs, and in the face of global pressures and developments.

  The UK will not contemplate any action at European level that could threaten jobs and the competitive position of UK business.

12 January 2006

4   Correspondence with Ministers, 45th Report of Session 2005-06, HL Paper 243, pp 59-60. Back

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