Tax Competition Crucial for EU

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While we at IME have heralded the positive effect of Bulgaria being a member of the EU for more than 10 years now, we have also been increasingly concerned about some initiatives that aim to shift the European Union away from its founding principles. Such is the case with the proposal to “explore how EU decision-making on certain tax issues could be streamlined by removing the need for unanimous agreement by all countries”.

Here we present our arguments why we strongly oppose this proposal. All quotations are taken from the Roadmap published by the European Commission.

It is no surprise that “since the Treaty of Rome (1958), decisions on taxation in the European Union have been taken by unanimity” and “taxation is the last policy domain where unanimity is the sole rule”. This basic rule reflects the fact that national sovereignty in the EU over tax matters is fully guaranteed.

In other words, you cannot apply EU-wide rules on taxation (including such on the specific rates, the tax base, the tax structure, etc.), without having all countries agree on those rules. This is a fundamental and crucial principle for the Union that allows for tax competition to exist. We believe that tax competition is extremely important within the single market for keeping the pressure on national authorities to have an efficient and competitive tax policy.

On the contrary, in the case of further tax harmonization member states are disincentivized to improve their tax systems and rules in terms of competitiveness and efficiency, but rather rely on the EU to impose EU-wide rules and regulations in the field.

This does not mean that tax harmonization is not possible in certain areas, such as excise duties. There are common rules on excise taxation within the EU and those are extremely specific, including rules on the rates, the excise structure, minimum excise burden and so on.

All countries have agreed on those and apply them. Bulgaria and some other new member states have experienced various negative effects from applying those rules too quickly (for example the recorded boom of the illegal market of cigarettes as a result of a genuine excise tax shock in 2010).

Nevertheless, excise duties are an area where EU member states have a commonly agreed tax harmonization policy that works as far as policy implementation is concerned.

We were shocked to read that one of the main goals of this proposal is to allow for “more efficient law-making in the field of taxation”, because “unanimity in taxation is an obstacle to efficient decision-making”. It appears that we are not discussing tax policies and their effects, but purely administrative issues on removing certain “obstacles” to tax harmonization?

The proposal goes further to argue that, while there are many examples of tax harmonization – “common VAT base rules, minimum rates on excise products or rules to alleviate double taxation of companies”, those were agreed “at a time when there were fewer Member States and so unanimity was easier to achieve”.

It seems that, in this line of thinking, new member states are viewed not as equals in the decision-making process, but as “obstacles”.

We believe that the potential abolition of the unanimity rule is obviously targeted at direct taxation – the taxation of profits and income, and goes directly against tax competition. There can be no tax competition, if a majority of countries, which are not tax competitive due to their own fiscal issues, can impose rules on other countries, which are fiscally sound and can offer better tax conditions for workers and companies.

In our view it is not “unanimity in taxation”, which goes against the effective Single Market, but exactly such proposals, which are limiting tax competition. It is also quite clear that the past few years EU tax policy has been aimed at reducing the competitive advantages of several countries (Ireland, the Netherlands, Cyprus, and, to a lesser extent, Bulgaria) that have managed to attract major foreign investment, especially in the ICT field, due to their favourable tax rules.

It is likely that if unanimous decision-making becomes a thing of the past, so will the competitive edge of smaller, more liberal economies.

Judging from the proposal, we would like to remind why tax competition is beneficial to the EU economy. It is not an attempt to trick or compromise some sort of imaginary fairness; on the contrary, it allows countries to provide the best conditions to its citizens and businesses to work, while tax harmonization hinders their ability to do so.

Because of this, the EU should be very careful when attempting to modify the current conditions and decision-making process, as this could bring harm to the competitiveness of the entire EU economy.

We believe that in order for the EU to prosper as a political, economic and social construct, it needs to be more competitive – including in the field of tax policy, and also to respect sovereignty and find unanimously agreed solutions on major issues. Initiatives that aim at limiting competition and trying to bypass the usual procedures, as written in the Treaty of the European Union, are against the shared values of the EU.


The article is an IME response to the Roadmap for More Efficient Law-Making in the Field of Taxation: Identification of Areas for a Move to Qualified Majority Voting

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