Date: 7 November 2005
 
Speakers: Malcolm Gammie, Chairman of the CEPS Expert Group
László Kovács, European Commissioner for Taxation and Customs Union
Stella Raventos-Calvo, Chairwoman, Subcommittee on Direct Taxes, CFE 
Chairman: H. Onno Ruding, Chairman of the CEPS Board of Directors
 
After introducing the speakers, Onno Ruding’s introductory words stressed the importance of achieving a pan European tax base, in order to reduce distortions and administrative costs for companies operating across Europe.
 
Malcolm Gammie underlined the importance of the 25 EU member states agreeing upon a single tax base framework across Europe. The efforts made by the European Court to enforce community law and to reconcile national tax systems by removing elements that obstruct the proper functioning of the internal market  will not suffice alone, not least because the Court is very reluctant to design a European  tax base through case law. As stressed by the European Commission, the imperative of achieving a common consolidated corporate tax base (CCCTB) could be facilitated by the EU-wide applicability of IFRS for listed firms. Thus, there currently exists a common denominator for a pan-European corporate tax base. The extent to which IFRS offers an opportunity to provide a resolution to the political difficulties of agreeing upon the foundations of a European tax base will depend whether accounting and tax principles are truly compatible, and also on where the discrepancies between the national accounting principles lie. The conclusions of the report suggest that there are no fundamental incompatibilities between tax and accounting principles, which suggests IFRS could indeed serve as the foundation of a possible European tax base. Malcolm Gammie also stated that the report finds no evidence of fundamental inconsistencies between national tax systems that would render the exercise futile. Nevertheless, the linkage between accounting for financial reporting and for tax purposes has traditionally varied considerably across member states.
 
Finally an important issue raised by Gammie concerned the ability to pay principle and the impact of tax payments on corporate liquidity. Another concern is that the steady stream of government revenue generated by tax accounting could become more volatile if the tax base follows accounting for financial reporting. Thus, the financial accounting standards of IFRS would have to be modified for tax purposes. According to Gammie, three potential difficulties in pushing for corporate tax base harmonization can be identified. The determination of a pan European tax base is surely the first task to tackle, which will be a politically difficult exercise, but its consolidation will be even more crucial and even harder to agree upon. Additionally, the formula for apportioning tax revenues is likely to be a technically difficult and politically sensitive point. (The report does not specifically offer recommendations on how to proceed in this area). Finally, the scope for member states deviating from the common base through exemptions, exceptions and special regimes will have to be strictly limited. While national tax authorities use the creation of tax incentives as a crucial policy tool, the politically painstaking exercise of developing a common tax base would be futile if discretion is granted to member states to deviate from it.
 
Commissioner Kovacs framed the discussion of a common tax base in the context of the Lisbon strategy, since the gap between the European Union and the United States has even widened since the year 2000. Above all, Kovacs argues, whatever solution is adopted must enhance the EU’s ability to respond to the challenge of global competition. Since the internal market serves as a powerful engine of growth by unleashing competitive forces within the EU economy, taxation should focus on improving the internal market according to Kovacs. This is particularly important since tax-induced obstacles to free trade, along with the administrative burdens associated with complying with 25 different tax regimes prevent the proper functioning of the internal market. Thus the enhancement of the EU’s international competitiveness demands an appropriate fiscal response at the EU level. Another crucial point raised by Kovacs is that the creation of a harmonized tax base across the EU, rather than serving as a dampening effect on competition, will on the contrary help achieve more transparent tax competition between national member states. The current system of fragmented tax bases mean that headline corporate rates are not comparable, since some tax bases are wider than others, effective rates do not match statutory rates, etc. Finally, the concern of a harmonized tax base acting as a Trojan horse for the imposition of a single set of European corporate tax rates is an exaggeratetd fear in Kovacs’ opinion. Very significant is the Commissioner’s assertion that the Commission is prepared to proceed with corporate tax base harmonization with a core group of member states (i.e., an approach of reinforced cooperation as opposed to consensus) if a blocking minority continues to prevent progress in this field. Nevertheless, a “variable geometry” approach would only be employed as a last resort.
 
The last speaker Mrs. Raventos-Calvo, complimented the added value of the report, its clarity and policy relevance. However, she admitted that within CFE not all members are supportive of the Commission’s agenda in this domain. Mrs. Raventos-Calvo especially stressed the necessity of a broader application of the common tax base beyond only pan- European companies. Finally, she underlined the necessity to conduct further research in the field of transfer pricing, a topic which she suggested could be covered in a future CEPS task force.