Paris has long backed the idea of an across-the-board harmonisation of EU member states’ tax systems. According to French government advisors, this must begin by a common tax base for the European banking sector, EURACTIV France reports.
“There is absolutely no European consensus to harmonise tax systems,” deplored Agnès Bénassy-Quéré, President of the French Council of Economic Analysis (CAE), a government advisory body.
Those in favour of harmonisation have a mountain to climb, but have not backed away from the challenge. Experts across Europe oppose a common tax system on the basis that competition between tax systems is positive and forces governments to be more efficient.
France has one of the highest levels of income tax in Europe and the government argues that low tax rates prevent the smooth working of the European Common Market.
Earlier this year French President François Hollande said he wanted “harmonisation with our largest neighbours by 2020.”
In a report titled Tax Harmonisation in Europe: Moving Forward, the CAE proposed three ways to tackle the negative effects of fiscal competition. The first measure is to continue efforts for a common consolidated corporate tax base (CCCTB). Harmonising tax systems would make “fiscal competition more transparent and healthier,” says Agnès Bénassy-Quéré.
Cooperating on tax bases
According to Alain Trannoy, an economist who co-wrote the report, a CCCTB should be based on “reinforced cooperation or with some countries like Germany, France, the Benelux states and Italy, in order to create a snowball effect in different Eurozone countries.”
Harmonising tax bases would also reduce the risks of optimisation, when multinationals transfer their revenues from one country to another in order to benefit from lower corporate tax. “Corporate tax is an important element, but there is no point if tax bases are not harmonised,” said Alain Trannoy.
Agnès Bénassy-Quéré says that taxation must be rationalised by progressively harmonising tax bases, and not by increasing taxation in Europe.
Fiscal Union after the Banking Union?
The report states that if France wants to promote a common tax system in Europe, it must convince others of the positive effects on economic growth and financial stability.
According to the authors, the Banking Union, which was adopted in April, needs to go further in the area of taxation. This can be done with a Single Financial Activity Tax (FAT) in Europe.
They also advocate a minimum corporate income tax for the banking sector, the receipts of which should be reinvested into infrastructure and long term investments and “form the first building block of a euro area budget.”
The European Commission has long sought to harmonise national corporate tax systems but has faced resistance from a group of countries, including Ireland, the UK, Lithuania, Latvia, Slovakia, Malta and Cyprus.
The EU executive revived proposals for a CCCTB in 2011, hoping that the sovereign debt crisis and moves towards greater fiscal and economic convergence would provide a more favourable political environment.
The European Commission has long sought to harmonise national corporate tax systems, claiming that this will contribute to its goal of creating more growth and jobs in Europe and boosting the competitiveness of EU companies.
Currently, there are 28 different systems in Europe for calculating a company's taxable earnings, making it costly and burdensome for businesses to operate in several member states.
The idea of a common consolidated corporate tax base (CCCTB) was initially voiced in a 2001 communication but progress has been slow due to member states' reluctance to allow the Commission to encroach upon their national sovereignty in this area.
A first report on progress to date and next steps towards a CCCTB was issued in April 2006. The Commission followed up a year later with a communication outlining the remaining steps to be taken to establish a single tax base for European companies by 2010.
But the plan has since been stuck in the pipeline due to opposition from at least seven member states. When the first progress report was debated in 2006, 12 countries were in favour and seven – Ireland, the UK, Lithuania, Latvia, Slovakia, Malta and Cyprus – were against. The rest were still undecided.
With the eurozone crisis and the 'Euro Plus Pact' for greater fiscal and economic convergence, the European Commission believes the context is now more favourable. It tabled a formal proposal in March 2011.