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.