The Commission adopted, on 2 May, a Communication outlining the remaining steps to be taken to establish a single tax base for European companies by 2010. But the plan is opposed by at least seven member states which fear for their national tax sovereignty.
On 2 May 2007 the Commission adopted a second Communication on progress towards harmonising national tax systems for companies, outlining a number of key areas that still need to be tackled before a legislative proposal is made next year.
Stressing the fact that the Commission is not looking to harmonise the tax rates applied by member states and that countries would retain full sovereignty over their tax revenues, the Communication calls for a CCCTB that is “broad, simple and uniform with as few exceptions as possible”.
Nevertheless, Taxation Commissioner László Kovács said that he would not deny member states the possibility of applying a certain number of tax exemptions and incentives in order, for example, to encourage R&D or climate-friendly activities.
The CCCTB would remain optional for companies, allowing those operating at a purely national level to stick to their known national systems. However, Kovács said that he expected many SMEs to opt for the EU system, allowing them to broaden their horizons to the entire single market.
The financial sector would, initially, be excluded from the scope of legislation.
- National opposition expected
Kovács’ plan is expected to spark opposition in a number of EU capitals, particularly those using low tax rates to attract foreign investment, such as Ireland and many of the new member states.
The main fear is that the measure could serve as a ‘Trojan Horse’ for rate harmonisation across Europe, forcing them to raise their rates. Also, countries with flat tax rates, such as Slovakia, fear their tax base could be reduced by EU rules, slashing government revenues (EURACTIV 11/04/07).
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.
But Kovacs made it clear that he would not allow the veto power of a few countries to block his project. He said that he would envisage, “as a last resort”, going ahead with a pioneer group of states, under the so-called enhanced co-operation mechanism. This would allow a minimum of eight states to push forward with the initiative even if it were blocked by others.