EU Looks to End National Vetoes on Tax Issues

EU Looks to End National Vetoes on Tax Issues

The European Union announced this week that it will push to end national vetoes on taxation issues by the end of 2020, implementing qualified majority voting (QMV) when it comes to tax-related decision-making.

In a press release dated January 15, 2019, the European Commission said a transition to QMV would allow Member States “to reach quicker, more effective and more democratic compromises on taxation matters, unleashing the full potential of this policy area,” while  “taxation decisions would benefit from concrete input from the European Parliament, better representing citizens' views and increasing accountability.”

Jean-Claude Juncker, the European Commission’s President, said, “Our increasingly globalised economies need modern and ambitious tax systems. I remain strongly in favour of moving to qualified majority voting and a stronger voice for the European Parliament on the common future of taxation in our Union.”

Pierre Moscovici, the EC’s Commissioner for Economic and Financial Affairs, Taxation and Customs, backed this sentiment and said, “The EU has had a role in taxation policy since the origins of the Community six decades ago. Yet if unanimity in this area made sense in the 1950s, with six Member States, it no longer makes sense today.”

“The unanimity rule in taxation increasingly appears as politically anachronistic, legally problematic and economically counterproductive. I am fully aware of how sensitive an issue this is, but that cannot mean that the discussion is off limits. So let's begin this debate today,” he added.

The EC did make it clear that this move to QMV would not alterEU competences in the field of taxation, or to the rights of Member States to set personal or corporate tax rates as they see fit.”

Four-Step Plan to Transition to Qualified Majority Voting

Four-Step Plan to Transition to Qualified Majority Voting

As laid out in the January 15 press release, the EC suggested as four-step process on how to transition towards a QMV system.

First, Member States would reach an agreement in which QMV would be applied to “measures that improve cooperation and mutual assistance between Member States in fighting tax fraud, tax evasion, as well as for administrative initiatives for EU businesses, e.g. harmonised reporting obligations.”

Second, QMV would be adopted as “a useful tool to progress measures in which taxation supports other policy goals, e.g. fighting climate change, protecting the environment or improving public health.”

Third, in an effort to modernize Europe’s tax system, particularly as related to VAT and excise duties rules, QMV would “allow Member States to keep up with the latest technological developments and market changes to the advantage of EU countries and businesses alike.”

Finally, QMV would be applied to larger-scale tax policy issues such as the EU’s Common Consolidated Corporate Tax Base (CCCTB) and the design of new regulations on how to tax the digital economy, a huge point of contention between EU Member States.

Opposition Speaks Out Against Qualified Majority Voting

Opposition Speaks Out Against Qualified Majority Voting

Smaller EU jurisdiction like Malta, Cyprus and Ireland have bee adamant in their opposition towards the end to national vetoes on tax matters.

As reported by Bloomberg Opinion’s Leonid Bershidsky, where the EU move towards using QMV in tax-related decision-making, “the smaller nations can be easily outvoted: 55 percent of member states, representing 65 percent of the EU’s population, is enough for a qualified majority,” which, in turn, “could lead to painful changes for the nations that offer aggressive tax-planning opportunities” and “a completely new reality for multinationals operating in Europe.”

Following this announcement by the EU, an Irish government spokesperson said, “Ireland does not support any change being made to how tax issues are agreed at EU level. The requirement for unanimity has not prevented the agreement of a significant number of tax directives in recent years.”

Furthermore, Michael McGrath of Fianna Fail, Ireland’s conservative party, shot down the EU’s announcement.

“This is an issue we highlighted last week. The EU Commission is proposing that the requirement for unanimity around corporation tax policy within the union would be replaced with a system of qualified majority voting," McGrath said.

“It is not in Ireland's national interest that there would be any change in decision making on corporation tax. It would cost us jobs, investment and it would cost us much-valued corporation tax revenue.”

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