18 January 2013

Commissioner Šemeta: Developing a tax environment for growth and competitiveness

Developing a tax environment for growth and competitiveness relies on good synergy between national, EU and global tax measures. At each of these levels, the principles of competitiveness and fairness must be the guiding force.

Competition and tax policy

First, smart, pro-growth taxation rests on two key pillars: Competitiveness and Fairness. Despite a common misperception, these are not mutually exclusive principles. In fact, they can be mutually reinforcing, in contributing to efficient, business-friendly taxation that upholds our social model.

I have said many times, that I regard tax competition to be a good thing. But only so long as it is fair. It must therefore exist within a framework of rules, if fairness is to be preserved. In the EU, the European Commission aims to ensure undistorted competition amongst Member States through state aid, antitrust and merger controls. In this context, the application of tax provisions that are discriminatory and favour only certain enterprises or certain activities is prohibited.

But EU Member States have agreed to go even further than to prevent competitive distortions in the business tax field. They do this through their commitment to the Code of Conduct on Business Taxation. The Code addresses business tax measures which provide for a lower level of taxation than normally applied and which may affect the location of business within the EU.

Since the Code was established, over 400 tax regimes have been assessed within the EU. Around 100 of these were considered harmful, and have been eliminated or changed. The capacity of this Code to ensure fair tax competition within Europe is therefore highly significant. However, I believe that today the Code of Conduct on Business Taxation needs to be reinvigorated. It must be used with more ambition by Member States and expanded to address new cases of harmful tax competition. 

Competitiveness and design of tax systems

Having addressed the parameters for competitive taxation let me now turn to its structure. What are the elements needed in a tax system to support competitiveness and growth? It is not the tax rate alone, as is sometimes believed, and thereby the level of taxation. Rather, a competitive tax system is one which contributes to making the economy of a country more attractive for investment.

As you probably know, to support the Europe 2020 strategy for growth and jobs, EU Member States have agreed on a new system of economic governance, known as the European Semester. This serves to coordinate policy priorities at EU and national level, and to ensure that everyone is moving in the right direction, together.

Taxation is an integral part of the European Semester, and objectives to guide national tax reforms are set out as part of this process. These include:

1. shifting tax away from labour towards consumption, environmental or property taxation which are less harmful to growth;
2. broadening tax bases instead of increasing tax rates, thereby ensuring simplicity and neutrality of the tax system;
3. reducing corporate tax bias towards debt-financing and tax schemes which increase the debt bias of households to avoid financial risks;
4. and improving the fight against fraud and evasion, for fairer and more efficient revenue collection.

This framework, which the Commission defined and the European Council endorsed, should lead our Member States towards competitive and pro-growth tax reforms. Implemented via country specific recommendations, it should allow quicker progress than under regular tax policy decision-making, which requires unanimity. And it delivers tailor-made solutions to the specific situation of each Member State.

Meanwhile, greater coordination at EU level helps reinforce national tax reforms and amplify their positive effects. Working more closely together as a Union on tax matters also fosters a better business environment in the Single Market, by reducing administrative burdens, lowering compliance costs and tackling obstacles, such as double taxation.

In this vein, the Commission has made a number of important proposals over the past two years to improve the Single Market from a tax point of view. These include in particular the revision of the Energy Tax Directive, the Financial Transaction Tax, the Common Consolidated Corporate Tax Base and the review of the VAT system. If adopted, these measures would be a serious boost to competitiveness of our businesses in the EU. We should therefore expect quick progress on them all.

Tax fraud, tax evasion and fairness

Taxation that is easily evaded can never be considered competitive. Nor can it be considered fair. The primary function of a tax system is efficient revenue collection, with everyone paying no more, and no less, than what they owe. Therefore, tackling evasion and avoidance is fundamental to ensuring quality tax systems.

As already mentioned, we have focused Member States on this point in their national tax reforms. In parallel, we have intensified the work in this area at EU level too.

In December, I presented a comprehensive Action Plan to fight against tax fraud and evasion... In the next few months, we will establish a Platform for Tax Good Governance, bringing together all relevant stakeholders, to ensure that the momentum in fighting tax evasion doesn't flag. In this context, and to make sure that full coordination is ensured, I will invite the OECD to participate in the work of the platform.

Full speech

© European Commission