Annexes to COM(2019)8 - Towards a more efficient and democratic decision making in EU tax policy - Main contents

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dossier	COM(2019)8 - Towards a more efficient and democratic decision making in EU tax policy.
document	COM(2019)8
date	January 15, 2019

agreement. In that sense, Member States often hold back from seriously negotiating solutions in the Council, as they know that they can simply veto any result that they do not like. This “unanimity culture” sometimes encourages Member States, Ministers and national administrations to focus on the preservation of their domestic systems, instead of seeking to reach a necessary compromise to safeguard the EU’s general interests. This explains why many taxation proposals require years for Member States to agree, or are simply blocked in the Council without any discussion taking place.

Secondly, even when agreement is reached with unanimity in the field of taxation, it tends to be at the level of the lowest common denominator, limiting the positive impact for businesses and consumers, or making the implementation more cumbersome. For example, the VAT Invoicing Directive ²¹ was adopted at the cost of disparities between invoicing requirements stemming from options left to the Member States.

Thirdly, unanimity in the field of taxationhas brought some undesired effects in the decision-making process, as some Member States can use important tax proposals as a bargaining chip against other demands they may have on completely separate files, or to put pressure on the Commission to make legislative proposals. This was the case, for example, when agreement on the Anti-Tax Avoidance Directive was held up by certain Member States seeking permission for a VAT reverse charge.

Finally, unanimity in the field of taxation is self-defeating. Decisions taken by unanimity can only be undone by unanimity. This often makes Member States overly cautious, dampening ambitions and weakening the final outcome. Member States fear a situation where they would agree on a directive that would prevent them from collecting taxes properly or that would then grant an unwanted advantage to another Member State, as in such situation they would not be able to rectify the legislation without the agreement of such Member State.

Involving the European Parliament would also enhance decision-making in taxation. In recent years, as tax scandals made press headlines every six months, the European Parliament has had a significant impact on EU tax policy. It has used its political weight to push an ambitious agenda for fair taxation, through many ad hoc committees. However, the European Parliament has no voting rights under the current special legislative procedure in taxation. Therefore, political pressure is the only tool it has to influence EU tax decisions. A move towards qualified majority, under ordinary legislative procedure, would allow the European Parliament to make a full contribution to shaping EU tax policy. Unbound by national pressures and interests, the European Parliament could provide fresh input into tax negotiations, which could better reflect the needs of the Union as a whole. If the European Parliament had equal weight in deciding the final shape of EU tax policy initiatives, it would help create an environment for Member States to negotiate in earnest. Ultimately, a move to qualified majority voting under the ordinary legislative procedure could lead to more effective, relevant and ambitious outcomes for EU tax policy.

3.What options exist in the EU Treaties to move from unanimity to qualified majority voting?

This is not the first time that unanimity in taxation has been called into question. The Commission – backed by the European Parliament – has proposed several times to move to qualified majority voting in EU tax policy, in the context of Treaty changes. Some Member States made this a “red-line issue”, however, and the matter was left unresolved. It is time now to open the discussion again, given the growing need for more effective decision-making in taxation, for all the reasons outlined above.

The EU Treaties are clear when it comes to how decisions must be taken on proposals in the field of taxation. The general rule is that the Council must unanimously agree on tax proposals, under the special legislative procedure (Articles 113 and 115 of the Treaty on the Functioning of the European Union (TFEU) ²² ). However, the Treaties also contain other provisions, which give flexibility to use procedures other than unanimity, without having to revise the Treaties themselves.

For a start, the enhanced cooperation procedure ²³ allows a group of at least nine Member States to move ahead with a proposed initiative together when it proves impossible to achieve unanimous agreement in the Council. In 2013, enhanced cooperation was proposed for the Financial Transaction Tax (FTT), which had been discussed by all Member States since 2011. This proposal continues to be negotiated by the ten Member States involved, in order to find a unanimous compromise. Enhanced cooperation can be a good option to advance certain EU initiatives with a smaller group of countries, but it is not an optimal solution to overcome the broader problems with unanimity in EU tax policy, or to ensure progress and consistency for the Single Market as a whole.

The Treaties also contain two targeted articles that allow for qualified majority voting under specific circumstances. With Article 116 TFEU, qualified majority voting under the ordinary legislative procedure is possible in order to eliminate distortions of competition due to different tax rules if the distortion could not be removed in concertation with Member States. This provision is subject to the strict conditions above however, and cannot address all the shortcomings that arise from unanimity today. Article 116 TFEU has not been used so far, although the Commission is ready to employ it should the specific necessity arise. Qualified majority voting can also be used for measures to tackle fraud affecting the financial interests of the Union (Article 325 TFEU). This could be used for certain measures to combat VAT fraud, given that VAT is an EU Own Resource, but the scope of the initiative would need to be well targetted.

The most practical way to move from unanimity to qualified majority voting in taxation would be to use the “passerelle” clauses in the Treaties. These would allow for a more structured way of moving away from unanimity than the options outlined above.

Passerelle Clauses

Article 48(7) of the Treaty on European Union (TEU) provides for a general passerelle clause. This allows measures in the area concerned, subject until then to unanimity, to be adopted henceforth by the Council by a qualified majority voting or through the ordinary legislative procedure.

To activate this clause, the European Council has to take the initiative, indicating the scope of the envisaged change in the decision-making procedure, and to notify it to the national Parliaments. If there is no opposition from any national Parliament within six months, the European Council can adopt, by unanimity, that decision, after obtaining the consent of the European Parliament.

The general passerelle clause gives the option of introducing qualified majority voting but remaining under the special legislative procedure – where the European Parliament is only consulted. It also gives the option of qualified majority voting under ordinary legislative procedure – with co-decision by the European Parliament.

Article 192(2) TFEU contains a specific passerelle clause for measures in the environmental field currently subject to unanimous voting, including provisions “primarily of a fiscal nature”. This possibility is relevant, in particular, for the fight against climate change and for the achievement of the environmental policy goals.

In order to switch to ordinary legislative procedure for tax measures in this domain, the Council must unanimously agree to do so, based on a proposal from the Commission and after consulting the European Parliament, the Economic and Social Committee and the Committee of the Regions.

As previously mentioned in relation to the question of sovereignty, moving to qualified majority voting would not affect the current competences of Member States in the field of taxation. Indeed, the Treaty of Lisbon includes a Protocol ²⁴ which states that nothing in that Treaty makes any change to the extent or operation of EU competence in relation to taxation. The progressive transition from unanimity to qualified majority voting in some areas of taxation would be consistent with this principle. The respective competences of the Member States and of the Union remain unchanged. There would simply be a change in the decision-making procedure for the future, unanimously agreed to by the Member States in the exercise of their sovereignty.

Moving to qualified majority voting would in any case be a democratic decision entirely under the control of Member States. It was their unanimous decision to include the passerelle clause in the Lisbon Treaty. It will take another unanimous decision of the European Council to activate the paserelle. In addition, any national Parliament may object to this change and the European Parliament would have to validate it.

4.The way forward: a roadmap for a progressive and targeted transition

For the Commission, the question is no longer whether there is a need to move away from unanimity in taxation, but rather how and when to do it. The European Parliament, many Member States and stakeholders have expressed the same view ²⁵ . Qualified majority voting would allow reaching the full potential of EU tax policy and allow Member States to reach quicker, more effective and more democratic compromises. A switch to ordinary legislative procedure would also ensure that taxation decisions benefit from concrete input from the European Parliament, representing citizens' views and increasing accountability.

The best way to move towards this goal would be through a progressive and targeted approach, with clear milestones. This would allow Member States to adapt and feed into the process collectively and avoid any shocks and conflicts that an immediate change could create. The Commission therefore proposes a step-by-step transition towards qualified majority voting under the ordinary legislative procedure for EU tax policy.

In the first step, qualified majority voting should be employed for measures that have no direct impact on Member States’ taxing rights, bases or rates, but are critical for combatting tax fraud, evasion and avoidance and in facilitating tax compliance for businesses in the Single Market. This would include measures to improve the administrative cooperation and mutual assistance between Member States in fighting tax fraud, tax evasion and tax avoidance. It should also cover the conclusion of international agreements between the EU and third countries in this area. Initiatives to combat tax abuse, which Member States have already agreed to at international level, such as those discussed in the context of the OECD Base Erosion and Profit Shifting (BEPS) Actions ²⁶ , would also fall into this category. In addition, the first step should cover initiatives primarily designed to facilitate tax compliance for businesses in the Single Market, such as harmonised reporting obligations. These tax issues tend to be less contentious for Member States and there is clear recognition of the need for EU action. They have usually only been blocked by unanimity when they have been held hostage by other interests or files. Moving to qualified majority voting in these areas would therefore allow for a speedier and more efficient process to agreeing largely consensual matters.

In the second step, qualified majority voting should cover measures primarily of a fiscal nature designed to support other policy goals. This may include in particular the fight against climate change, protecting the environment or improving public health or transport policy. More efficient tax-related decisions in these areas would make it possible to implement an environmentally friendly energy policy, for example, to support ambitious EU goals on climate change. The specific passerelle clause in the Treaties ²⁷ in the environment field, which in particular covers provisions of a primarily fiscal nature, offers an obvious route to move from unanimity in this area. Although never used so far, the Commission is ready to activate this passerelle clause, should the necessity arise. The general passerelle clause would be needed for all other policy areas.

The third step would be to focus on areas of taxation that are already largely harmonised, and which must evolve and adapt to new circumstances. This would, in particular, cover VAT and excise duties. Faster EU decision-making in these areas would allow Member States’ tax administrations and tax systems to keep up with the latest technological developments and market changes. For example, 25 years after the introduction of the Single Market, the EU still has a VAT system designed over 40 years, which is overly cumbersome for businesses and administrations and prone to fraud. This will not change until Member States agree on the definitive regime to create a sustainable, fraud-proof and business-friendly VAT system in the future. Innovation in the tobacco and alcohol markets also requires a swift response to ensure that the new products are properly regulated from a tax perspective. Qualified majority voting would ensure that the modernisation of harmonised EU rules is not stalled by a few blocking Member States. The fact that VAT is an EU Own Resource reinforces the need for more effective decision making in this area.

The fourth step would be to introduce qualified majority voting on other initiatives in the taxation area, which are necessary for the Single Market and for fair and competitive taxation in Europe. Some major tax projects are needed to complete the Single Market from a tax perspective. As mentioned above, the CCCTB is still progressing very slowly as a result of unanimity, despite the fact that it would provide the future-proof, competitive and fair corporate tax system that the EU needs to compete globally. Qualified majority voting could help end this impasse, and provide certainty and stability for businesses across the EU. The need for a comprehensive solution for the taxation of the Digital Economy is also a pressing issue. Solid EU legislation is required to ensure that companies engaged in digital activities are taxed fairly and effectively. The Union cannot afford delays in this area as Member States struggle to reach a unanimous agreement. A move towards qualified majority voting on a comprehensive solution for digital taxation would help to enhance the fairness and sustainability of tax systems, while also contributing to a stable Digital Single Market.

5.Next steps

The case for the need for more efficient law making in EU tax policy is clear. The Single Market and the Economic and Monetary Union require a tax policy that enables everyone to benefit from the EU’s growing economic and financial integration. The fast-paced changes in the international tax environment, as well as in business and consumer behaviours, call for an EU tax system that is capable of keeping up and competing on the global stage. The wider European goals to fight climate change, promote sustainable growth, jobs and investment, harness the benefits of digitalisation and secure a fair and sustainable social model, need swift and effective tax measures to support them.

The special legislative procedure with unanimity rule and only a consultation of the European Parliament for taxation is out of line with the realities confronting this policy today. Through this Communication, the Commission calls on the European Council, the European Parliament, the Council and all stakeholders to launch an open debate on qualified majority voting in EU tax policy with an increased involvement of the European Parliament, and to define a timely and pragmatic approach for its implementation.

The Commission invites EU leaders:

·To endorse the Roadmap set out in this Communication.

·To decide swiftly on the use of the general passerelle clause (Article 48(7) TEU) for step 1 on issues that have no direct impact on Member States taxing rights, tax bases or rates and step 2 where taxation supports other policy goals, in order to move to qualified majority voting and the ordinary legislative procedure. To this end, the European Council is invited to notify the national Parliaments of its initiative and seek the consent of the European Parliament.

·To consider the use of the general passerelle clause (Article 48(7) TEU) for step 3, areas where taxation is already largely harmonised and step 4, other initiatives that are necessary for the single market and fair taxation , by the end of 2025, in order to move to qualified majority voting and the ordinary legislative procedure in these domains.

(1)

   In particular by the non-discrimination clause in, now, Article 110 of the Treaty on the Functioning of the European Union (TFEU) as well as by the introduction of common rules such as for turnover taxes and the value added tax (VAT).

(2)

   For example the Parent-Subsidiary Directive, the Interest and Royalty Directive, and the Mergers Directive.

(3)

   The Single European Act of 1986 entered in force on 1 July 1987 and replaced unanimity by qualified majority voting as the general rule for harmonising Single Market rules. This was followed by further steps qualified majority voting being extended to a wide range of policies including judicial cooperation in civil matters, harmonisation in the area of criminal law and police cooperation.

(4)

    https://ec.europa.eu/commission/priorities/state-union-speeches_en

(5)

    http://www.europarl.europa.eu/news/en/headlines/economy/20160707STO36204/tax-fraud-75-of-europeans-want-eu-to-do-more-to-fight-it

(6)

   COM(2016) 685 final of 25.10.2016.

    https://ec.europa.eu/taxation_customs/sites/taxation/files/com_2016_685_en.pdf

(7)

Study and Reports on the VAT Gap in the EU-28 Member States 2018 Final Report: https://ec.europa.eu/taxation_customs/sites/taxation/files/2018_vat_gap_report_en.pdf

(8)

   The global amount of the VAT gap for years 2011 to 2016 is more than EUR 960 billion.

(9)

   Considering the size of the EU economy in 2017.

(10)

   COM(2011) 594 final. After it became clear that this initial proposal for a harmonised FTT for the entire EU would not receive unanimous support within the Council, the Commission, at the request of 11 Member States, tabled a proposal for authorising enhanced cooperation in that area (COM(2013)71final).

(11)

   COM(2018) 148 final.

(12)

   COM(2018) 146 final. The Commission’s Communication “Time to establish a modern, fair and efficient taxation standard for the digital economy” indicates that companies with digital business models pay less than half the tax rate of businesses with traditional business models, with an effective average tax rate of 9.5% compared to 23.2%.

(13)

   COM(2011) 169 final.

(14)

    https://ec.europa.eu/taxation_customs/business/company-tax/tax-transparency-package_en

(15)

   Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the Internal Market (ATAD1) OJ L 193, 19.7.2016, p. 1–14 and Council Directive (EU) 2017/952 of 29 May 2017 amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries (ATAD2) OJ L 144, 7.6.2017, p. 1–11.

(16)

   Council Regulation (EU) 2017/2454 of 5 December 2017 amending Regulation (EU) No 904/2010 on administrative cooperation and combating fraud in the field of value added tax, OJ L 348, 29.12.2017, p. 1–6; Council Regulation (EU) 2018/1541 of 2 October 2018 amending Regulations (EU) No 904/2010 and (EU) 2017/2454 as regards measures to strengthen administrative cooperation in the field of value added tax, OJ L 259, 16.10.2018, p. 1–11; Agreement between the European Union and the Kingdom of Norway on administrative cooperation, combating fraud and recovery of claims in the field of value added tax, OJ L 195, 1.8.2018, p. 3–22.

(17)

   Council Directive (EU) 2017/2455 of 5 December 2017 amending Directive 2006/112/EC and Directive 2009/132/EC as regards certain value added tax obligations for supplies of services and distance sales of goods, OJ L 348, 29.12.2017, p. 7–22.

(18)

   Offshore leaks (April 2013), Lux leaks (November 2014), Swiss Leaks (February 2015), Panama Papers (April 2015), Bahamas Leaks (September 2016), Football Leaks I (November 2016), Paradise Papers (November 2017), Dubaï Papers (September 2018), Football Leaks II (November 2018), Cum-Ex Files (November 2018).

(19)

   Council Directive 2003/48 of 3 June 2003 on taxation of savings income in the form of interest payments, OJ L 157/38, 26.6.2003, p. 38-48.

(20)

   Proposal for a Council Directive amending Directive 2003/48/EC on taxation of savings income in the

form of interest payments,13.11.2008, COM(2008) 727 final.

https://ec.europa.eu/taxation_customs/individuals/personal-taxation_en

(21)

   Council Directive 2010/45/EU of 13 July 2010 amending Directive 2006/112/EC on the common system of value added tax as regards the rules on invoicing, OJ L 189, 22.7.2010, p. 1–8.

(22)

   Article 192(2), first subparagraph, and Article 194(3) TFEU also provide that provisions/measures "primarily of a fiscal nature" in the areas of environment and energy are to be adopted unanimously by the Council in accordance with a special legislative procedure.

(23)

   Article 20 TEU and Articles 326 to 334 TFEU.

(24)

   Protocol on the concerns of the Irish people on the Treaty of Lisbon, OJ L 60, 2.3.2013, p. 131–139, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:22013A0302(01)&rid=4

(25)

   EP recommendation of 13 December 2017 to the Council and the Commission following the inquiry into money laundering, tax avoidance and tax evasion (2016/3044(RSP)), §205. See also EP resolution of 16 February 2017 on improving the functioning of the European Union building on the potential of the Lisbon Treaty (2014/2249(INI)), §27.

(26)

    http://www.oecd.org/tax/beps/beps-actions.htm

(27)

   Article 192 (2) TFEU.