Taxation and tax heavens

The European Union has no competence over taxation (Photo: European Central Bank)

Taxation and tax heavens

In November 2014 most European media wrote about Luxembourg as a tax heaven. 31 media in 26 countries cooperated transnationally for covering a leake from the auditor company Price Waterhouse Cooper. 548 documents were released from pwc. French journalist Edouard Perrin involved the International Consortium of Investigative Journalists for the common revelations.

They disclosed secret agreements between big companies and the Luxembourg tax authorities allowing the companies to avoid taxes in other countries. The new president for the Commission, Jean-Claude Juncker, came under heavy fire because he had been resppnsable as prime minister in Luxembourg for almost 19 years.

The disclosures started a debated for harmonisation of taxation rules between member states. Are the Luxembourg agreements national tax policy or breach of competition rules? Countries like Holland, Ireland and Austria also came unde fire.

Breach of competition rules can be decided by the Commission and the EU Court and lead to heavy fines. 

Tax policy is a symbol and an important element of national sovereignty, and forms part of a country’s overall economic policy. The EU had no power (competence) over direct taxation, only over indirect taxation - and then only if approved unanimously.

The Lisbon Treaty added the avoidance of  "distortion of competition" as an aim of the tax paragraph in Art. 113 TFEU and thus opened the way for more Court cases outlawing distorting tax rules, whether in relation to indirect or some direct taxes, such as low corporation taxes, different taxation rules for foreign-owned assets etc.

The Lisbon Treaty also defined the Internal Market as an area without distortions of competition under Protocol No. 27 (On the Internal Market and Competition). This should strengthen the hand of the Court  in applying the internal market rules, which are decided by qualified majority vote, to get rid of such distortions.  

The Commission has proposed to harmonise the tax base for corporate taxation based on the article dealing with indirect taxes. It was in the annual work programme for 2008, but has been postponed until after the second Irish referendum on the Lisbon Treaty.

In an Irish Declaration it is stated that the EU will have no new competences on taxes.

Discriminatory taxation is already forbidden. This rule is used by the EU Court to put pressure on member states, for example, in judgments by the EU Court or in court verdicts on the taxation of pensions.

Making taxation consistent across the EU (harmonisation) requires unanimity among the EU states.

The EU can invent new joint EU taxes according to Art. 311 TFEU - it requires unanimity.