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No 6 (January 97/Janvier 97/Januar 97)
The European Council in Dublin of 13-14 December stressed the importance of creating a tax environment that stimulates enterprises and the creation of jobs as well as a more efficient environment policy, and particularly highlighted the need to make tax and social security systems more employment friendly. In particular, the European Council noted the report on the development of taxation systems in the European Union adopted by the Commission on 22 October (COM(96)546 final) and underlined the need for further work on this issue. The European Council also welcomed the Commission's intention to continue discussions in a tax policy group, paying particular attention to the effects of taxation on employment.
EU Economic and Finance ministers welcomed the Commission's new and comprehensive approach to tax policy during their informal meeting in Verona on 13 April 1996 (see SMN N.4). They decided to appoint their personal representatives to a high level reflection group on taxation to undertake further work under the chairmanship of Commissioner Mario Monti. This group met 4 times between June and October 1996. The Commission's report of 22 October summarises the views expressed in that group, and gives the Commission's own assessment of the right way forward including the broad lines for a future work programme.
The Commission's approach is based on the importance of taxation policy to addressing vital common objectives, notably the completion of the Single Market, the fight against unemployment and the protection of the environment. Its report identifies ways of gearing tax policies towards helping achieve these aims, while at the same time stabilising tax systems against the threat of fiscal erosion. In setting out a path for the future, it responds to the European Council's request for a report on the development of tax systems in the light of these objectives.
Closer and better co-ordination
The Commission's report recommends building on the experience of Commissioner Monti's High Level Group. While fully respecting the principle of subsidiarity, it believes that it is necessary in future to ensure closer and better co-ordination of taxation policies at European level. The Commission therefore proposed setting up a new, more permanent group to take a strategic overview of tax policy; to act as a forum for the exchange of experience; and to oversee the work of existing committees, both in direct taxes and in the indirect tax field. The Commission proposed to chair this group, with the Member States being represented at the appropriate political level.
On 11 November Finance Ministers meeting in the ECOFIN Council welcomed this proposal and asked, in particular, for the new tax policy group's discussions to take place in the context of the need to ensure a smoothly functioning Single Market. This position was endorsed by the European Council in Dublin.
Commissioner Monti is following up the European Council's endorsement by writing to Finance Ministers and inviting them to appoint personal representatives to the new group. As well as following up the High Level Group's work on enterprise, employment, the environment and fiscal erosion, there are a number of further issues that it should consider. These include the role and functioning of double taxation treaties between Member States; the interaction of taxes and social security contributions, particularly for cross-border workers; and the impact of new technologies and the communications revolution on international services.
Sharing more information on policies and measures in other Member States will enable the group to address the question of tax competition, as was also requested by the ECOFIN Council on 11 November. Unfair or harmful competition from other jurisdictions can erode certain tax bases. This particularly affects internationally mobile capital and services, but it also extends to VAT and excise duties on cross-border shopping. The downward pressure on tax rates for the more mobile factors of production can increase the burden on less mobile factors, such as labour, with damaging knock-on effects for employment.
The report proposes a number of initiatives which the Commission will take forward to limit the harmful effects of tax competition. These include initiatives directed at:
Enterprise and the Single Market
The Commission underlines the need for action to tackle obstacles and disadvantages to doing business in the EU in order to harvest the full benefits of the Single Market. Eliminating obstacles to cross-border income and capital flows will reduce the complexity and therefore the costs of doing business. In the longer term, a tax-neutral environment conducive to business and wealth-creation is one of the most helpful ways to the competitiveness that is essential in an international context.
The Commission is not seeking wholesale tax harmonisation. But it is, on the other hand, convinced that a joint and co-operative effort is vital to build up non-distortionary and Single Market oriented tax systems. There are already a number of useful Court decisions in this area, particularly in relation to the fundamental Treaty principles of free circulation and non-discrimination, but it is now necessary to supplement those decisions with concerted action. The Commission will take practical steps towards achieving this. In particular, it will:
The report draws attention to the distortions that differences in the taxation of savings can cause. During discussions in the High Level Group, a number of personal representatives of Finance Ministers thought that the sensitivity of savings to taxation would increase significantly following the introduction of the single currency. For its part, the Commission believes that effective action should be taken now. It urges the Council to restart its examination of the existing proposal to introduce a minimum withholding tax for interest paid to residents of other Member States (COM(89)60). Such a measure would be a valuable first step towards eliminating distortions, by ensuring at least a minimum level of taxation within the EU.
The report underlines the need to reverse the current trend of imposing an increasingly heavy burden on labour in relation to other tax bases. Between 1980 and 1994, the average implicit rate of tax on employed labour in the EU rose from 34.7% to 40.5%, while that on other factors of production fell from 44.1% to 35.2%. Member States must have flexibility in choosing how to reduce taxes on labour and how to find sufficient and suitable budgetary compensation. The Commission considers the exchange of information and experience essential in order to help identify the most effective measures in terms of job creation.
Moreover, there are great benefits to be gained from co-ordinating tax measures as part of a Community-wide effort to cut unemployment, in the context of President Santer's proposed Confidence Pact. Taxation could be an important element of a general employment strategy. For the longer term, it will be crucial to convince economic agents that from now on taxation structures will be better geared to promoting employment.
Protecting the environment
The Commission acknowledges the need to explore an increased use of energy and environmentally related taxes. Experience shows that environmental objectives are often best achieved when taxation instruments are combined with other measures, used consistently to change behaviour. In deciding on the choice of instruments, the effects on competitiveness, on employment and on the environment must be carefully assessed. It is also essential that differences between Member States' systems are compatible with the Single Market. The Commission will shortly present a Communication giving guidelines on the use of environmental taxes on the basis of current Community law.
Energy taxes have also been identified as an area for Community action in order to achieve the common objective of stabilising CO2 emissions at their 1990 level by the year 2000. The Commission will bring forward new proposals early in 1997 for an overall approach to the taxation of energy products. These new proposals will aim at improving the functioning of the Single Market, while also taking into account environmental, energy and transport considerations. They will provide a common framework within which Member States can vary their own tax systems in the light of national circumstances.
Le Conseil européen, réuni les 13 et 14 décembre à Dublin, a souligné l'importance de créer un environnement fiscal qui stimule les entreprises et la création d'emplois, ainsi qu'une politique plus efficace en matière d'environnement. Ila particulièrement attiré l'attention sur la nécessité de rendre les systèmes d'imposition et de protection sociale plus favorables à l'emploi. Le Conseil européen a notamment évoqué le rapport sur le développement des systèmes de taxation dans l'Union européenne, adopté par la Commission le 22 octobre dernier, et souligné la nécessité d'un travail complémentaire en la matière. Le Conseil européen a également accueilli favorablement l'intention de la Commission de poursuivre les discussions au sein du groupe de réflexion sur la fiscalité, en accordant une attention particulière aux effets de la fiscalité sur l'emploi.
Der Europäische Rat von Dublin am 13. Und 14. Dezember hat darauf hingewiesen, daß es für die Mitgliedstaaten von großer Bedeutung ist, steuerliche Rahmenbedingungen zu schaffen, die Anreize für das Unternehmertum und die Schaffung von Arbeitsplätzen sowie für eine wirksamere Umweltpolitik bieten. Er unterstrich ferner besonders die Notwendigkeit, die Steuer- und Sozialschutzsysteme beschäftigungsfreundlicher zu gestalten. Der Europäische Rat nahm insbesondere Kenntnis vom Bericht über die Entwicklung der Steuersysteme, der von der Kommission am 22. Oktober angenommen worden ist, und wies auf die Notwendigkeit weiterer Bemühungen in diesem Bereich hin. Außerdem begrüßte der Europäische Rat die Absicht der Kommission, die Diskussionen im Rahmen der Reflexionsgruppe zur Steuerpolitik fortzusetzen, und zwar mit besonderem Augenmerk auf die Auswirkungen von steuerpolitischen Fragen auf die Beschäftigung.
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