Profile: Robert Verrue, EC director general of tax and customs

Just a week after the D-Day celebrations, which saw European leaders from across the European Union united to commemorate the 60th anniversary of the landings in Normandy, Europe has never been more divided – certainly from a tax perspective.

For Robert Verrue, director general of tax and customs union at the European Commission, his job is an ongoing battle in the quest for harmonisation, made only more difficult following the accession of 10 new member states at the beginning of last month.

But the charismatic Frenchman appears almost blinkered in his view of the need to press ahead with reform, with corporate tax harmonisation pretty near the top of his agenda.

Speaking at the ICAEW tax faculty’s Wyman symposium last month, Verrue argued in favour of a commission project for a common EU base for company tax. In other words, the same defined profit would be taxable and the same tax allowances, exemptions and distinctions would apply across the entire EU zone.

‘I think the harmonisation of a tax base for so-called European multinationals would hugely benefit UK enterprises,’ Verrue told Accountancy Age.

His views are not shared by all. Speaking at the CBI’s annual dinner on the same day, president Sir John Egan wasted no words in expressing his view on what business wants from the European Constitution, insisting that any new rules should strengthen national control over tax and social policy, not weaken them.

The CBI is not alone in its resistance to harmonisation of corporate tax rates. Irish premier Bertie Ahern said last month that he opposed calls for EU nations to eventually harmonise their corporate tax rates.

‘Tax harmonisation in my view, and tax issues, are a matter of competence of member states and should remain so,’ said Ahern.

‘I have to say I have not yet understood why the CBI has been against this,’ Verrue retorts. ‘I have not seen their arguments. I hope there are some, but I’ve not seen them yet. I find it curious that many other employers associations and federations are thoroughly supportive and yet the UK is not – I don’t know why.’

But then, as one of the EU’s leading lights on tax issues and the head of a department of around 300 eurocrats, it was never going to be an easy ride. Even Verrue admits, in his understated way, ‘it’s a very particular job’.

‘Taxation is one of the few domains where member states still decide on unanimity – others include social affairs, foreign and security policy and defence. I’ve been in the commission for 30 years now and worked in many other areas. For example, I was responsible for the liberalisation of telecommunications for the seven years before I joined this department.

We could construct two different ways of telecom deregulation legislation in six years and have them adopted and implemented because this was a field where member states decided by majority. This has, I would say, a conviction effect.

‘There are a number of issues of common interest where we have to shape proposals – and try to find agreement among 15 member states until last month, and 25 now.’

You can’t help but detect a hint of frustration in his voice, although he downplays the sentiment. ‘I wouldn’t say it’s frustrating but sometimes it is a little bit slow.

The savings tax directive, due to be adopted on 2 June, which Verrue describes as a ‘very big project’, was originally initiated by current EU competition commissioner Mario Monti back in 1996. ‘Of course it’s a very ambitious project and member states were very committed, but of course with different views, so there are reasons why it took so long.

But still, eight years! It’s difficult to believe it’s a priority project if it takes eight years to agree on, and yet it is.’

He is honest in his hope that there will come a day when tax policy no longer relies on unanimity between member states, but equally realistic that the situation is not likely to occur in the near future, if at all.

‘I would hope that time will come, but I do not expect it. From a European integration point of view, taxation is something that has to do with basic choices of political institutions – government and parliaments. It’s very difficult to find arguments in the basic logic of European integration today and in the constitutional texts and treaties, that could justify that qualified majority.

‘We have very strong views on a number of specific issues to do with taxes, where a qualified majority should apply. Tax cooperation in the fight against fraud, for example, but this is not the heart of tax affairs.

Meanwhile, a policy paper due to be published next month will explore the possibilities of enhanced cooperation. ‘Enhanced cooperation is another buzzword,’ Verrue explains. ‘It means if you don’t want to join, fine.

You can stay in the room and have a coffee, but the others will move ahead.

A typical example of reinforced cooperation is the euro.

‘It’s a way whereby progress is made possible for those who want to move ahead together and then if those who weren’t so enthusiastic at the beginning decide to change their mind, they can. It’s inevitable. In fields such as this one where unanimity is not even discussed any more, either we don’t move or we can only hope to move with those who are ready to move forward and make progress.’

Verrue is adamant that issues of direct personal taxation should remain in the hands of member states. ‘The only item that is really of any interest at an EU level is elements of legislation, which are potentially distortive, where for example the people to which they apply depending on whether these people are nationals or not. We have no other plan – and indeed we should have no other plan – to be active in direct personal income taxation.’

And yet his claims have met with some scepticism. And it’s understandable why: despite the UK’s opt-out stance, national vetoes on tax are being regularly eroded by decisions made by the European Court of Justice. Take the recent proceedings against the UK for failure to implement VAT rules on road tolls.

By interpreting single market rules, the judges always come down in favour of harmonisation. In the words of the CBI’s Egan, European case law is ‘slowly rendering worthless the national veto on tax’.

The CBI has already called on the government to strengthen UK vetoes on tax and social policy to remove the risk of qualified majority voting, which it believes would lead to higher taxes and excessive trade union law. It also wants to remove clauses saying the EU can review vetoes on tax and social policy without reference to national parliaments.

Again, Verrue is keen to downplay his frustration at the UK’s stance.

‘The attitude the UK has been taking on unanimity is, I think, defendable.

It is unfortunate, and it doesn’t help us move forward in terms of integration, but it is perfectly understandable. It’s difficult to say that it makes no sense or that it has no political foundation – this is not true. It has.

‘On projects such as the idea of looking for a harmonised tax base for enterprises, the UK did not say ‘no’. It simply wants to see what kind of position this will call and it will make up its mind at that time, but it’s not in this position through reasons of principle – not at all.’

Perhaps he has a secret weapon in his armoury, for example the report on industrial policy recently commissioned by Brussels from Dominique Strauss-Kahn, the former French finance minister. One of its key conclusions is that EU member states must be banned from attracting foreign investment with low rates of corporate tax or low employers’ social security taxes.

In a bid to attract foreign investment, most accession states from eastern Europe slashed corporate tax levels, leading to a situation where business profits in those countries are subjected to taxes often below 20%. This is compared with an average 33% in the 15 EU member states before the 1 May enlargement.

It’s a situation that has already prompted Germany and France to ask the European Commission to draw up a bill aimed at ironing out impediments to fair competition across the EU zone caused by varying corporate tax rates in the member countries.

On the eve of the EU’s historic enlargement, Germany unleashed an attack on ‘fiscal dumping’ by some of the 10 incoming EU members and sought to revive a controversial tax harmonisation plan.

‘We must be careful of a one-way fiscal competition to the detriment of net contributors to the EU budget,’ chancellor Gerhard Schroeder said.

Germany currently contributes the most to the budget. ‘If new member states maintain low tax levels and get infrastructure financed by the EU, we will have to have a discussion,’ he added.

As for the EU’s future tax agenda, proposals were submitted earlier this year for another revamp of the VAT framework. ‘This is going on, but it takes time and it is very technical and heavy. We also have a number of propositions in the field of excise duties and other forms of indirect taxes.

‘We will make proposals concerning the taxation of cars, for example, which is extremely disharmonised and where there are many distortions across the EU.

‘We have an agenda which is making reasonable progress,’ Verrue says.

‘We are looking forward to seeing how the EU member states are looking to implement indirect tax legislation in general, which is quite complex.’

This European certainly has a tough job on his hands.

VERRUE ON TAX SOVEREIGNTY

An extract from Verrue’s speech at the ICAEW tax faculty’s Wyman Symposium last month:

Our overall objective is to ensure that the benefits of the enlarged European Union are not hampered through cross-border tax obstacles.

It is certainly not going to be any easier to make progress with this objective in an EU of 25 member states given the unanimity voting rule for tax proposals and given member states’ strong wish to protect their sovereignty in the tax field.

I have spoken to you about certain options that may, given this scenario, have to be considered in addition to proposals for legislation in order to make progress. These could include soft law, such as recommendations and codes of conduct, as well as the use of the “enhanced cooperation” mechanism.

But member states also have to bear in mind that their tax systems are subject to the EC treaty and that, if member states do not agree on coordinated action to remove discriminatory features of their tax systems, there will inevitably be more legal actions.

Tax coordination is not simple. It requires change, in legal and practical terms. But the commission’s approach would, contrary to the belief of some, safeguard national sovereignty in tax matters.