Parliament sees crisis as ‘opportunity’ for tax harmonisation

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The economic crisis could present an opportunity to harmonise taxation policy across EU member states, according to officials at the European Parliament who contributed to a major report on the future development of the EU.

Policy experts advising the Parliament are predicting deeper integration of European economies and potentially closer ties on direct taxes – a suggestion likely to raise the hackles of several Anglo-Saxon and Eastern European finance ministers. 

The comprehensive document, released with minimal fanfare at the end of 2009, was prepared by researchers in the EU assembly’s five policy departments. 

Klaus Welle, secretary-general of the European Parliament, stressed that the reports are the views of individual policy experts rather than the official line. 

The report sets out three possible scenarios likely to emerge over the next five-to-ten years, saying further harmonisation of direct taxation would be “desirable but has not been realistic until now”. 

Unified corporate tax rates, a long-standing target of European federalists, is set out as an objective. This will cause controversy in some corners, not least in Ireland, which last year was given assurances by European leaders that the Lisbon Treaty would not affect its relatively low corporate tax regime. 

The officials suggest the window of opportunity may not last long. 

“It remains to be seen whether the crisis presents a lasting opportunity for more harmonisation in direct taxation legislation, such as the Common Consolidated Corporate Tax Base (CCCTB),” the report says. 

Advisors propose single euro debt market 

The policy advisors also suggest other forms of “fiscal coordination” could be in the offing, although this could mean a eurozone bond – a common eurozone public debt market – rather than an EU-wide tax. 

“The problem with common fiscal and tax policies is that decisions in the EU are taken on a unanimity basis and the European Parliament has little legislative role,” according to the report. 

The Stability and Growth Pact has taken a battering since the outbreak of the crisis and risks becoming no more than a “shallow pact with no real impact” unless it is reformed, it says. 

The threat of bankruptcy of EU member states has become a “realistic scenario,” say the authors, who add that this might provide some hope for increased coordination between governments. 

Despite the ‘no-bailout’ clause in the European treaties, the experts fully expect EU governments to come to the assistance of any de facto bankrupt country in the euro zone. 

The thorny issue of corporation tax raises its head again when the report looks at ways of facilitating SME access to the single market. It says a longer term option to boost market access would be a common corporate tax rate or “home state taxation,” whereby small businesses would be taxed only in their home country, independent of where the income was earned. 

The European Parliament’s crystal ball 

The lengthy foresight report also addresses hot-button issues such as financial regulation, climate change, job creation, patent reform and developing a common security strategy, as well as emerging challenges like biodiversity and establishing a common European migration policy. 

Officials said the documents are meant to be “food for thought” rather than the official view of the Parliament. 

This was echoed by the Parliament’s Secretary-General Welle who, writing an introduction to the document, promised more strategic reflection on big-picture challenges. 

“I am strongly in favour of encouraging greater in-house thinking among our staff on future trends and the wider policy context in which the Parliament works,” he said. 

Foresight is currently the order of the day in Brussels as a new crop of commissioners prepares to take office for a five-year term just as the EU executive’s consultation on its ‘EU 2020’ strategy draws to a close. 

Meanwhile, MEPs are pushing for a new system of inter-institutional forecasting which will help Europe plan for future tensions and threats. 

UK Conservative MEP James Elles has tabled an amendment to the Parliament’s 2010 budget which would earmark €1 million for a system akin to the United States National Intelligence Council (NIC). 

“We need an independent body to feed into the debate, like the NIC, which can look dispassionately at issues and public documents to inform debate,” he told EURACTIV. 

Elles said the implications of climate change, demographics and competition from Asia need to be rigorously examined if Europe is to prepare in a proactive manner. 

With Brussels in the throes of thrashing out a new '2020' strategy for growth and the nomination of a new EU executive, policymakers are looking to the longer term. 

The European Commission recently published a foresight exercise entitled 'The World in 2025', mapping out the likely challenges facing the next generation of Europeans. That report predicts that China and India could overtake Europe and the United States to become world leaders in research in the coming two decades (EURACTIV 25/09/09). 

The European Parliament has made an additional €1 million available to beef up long-term policy research capabilities. A proposal for an inter-institutional system has been tabled which would link the planning arms of the European Parliament, European Commission and Council of Ministers by 2012. 

Critics of foresight exercises note that game-changing advances in IT and communications were not foreseen 20 years ago, just as the rise of China over the past decade has been more dramatic than anticipated. Similarly, climate and environmental issues were below the radar in the 1980s. 

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