EU triggers clash over tax laws

Link: FDs overwhelmingly reject EU tax harmony

The EU Council of Ministers has drawn up a list of 30 tax measures that it deems ‘harmful’ to Europe’s internal market.

The council is demanding that these corporate tax measures must be eliminated or amended to bring their business taxation in line with the principles of EU law by the time they become members.

While the council secretariat has refused to disclose the full details of the measures that ministers deem ‘harmful’, Brussels officials have told Accountancy Age that key areas include VAT, where existing arrangements in some applicant countries are described as complicated, susceptible to fraud and out of date.

Excise duties on tobacco, taxes on fuel and company taxation, particularly cross-border restructuring operations, are also under the spotlight.

One document released by the council said that procedures were already in place to either remove or abolish 27 of the 30 identified problem tax rules.

It added that its confidential contents would be passed to the European Commission, which is composing a report on how the incoming countries are fulfilling commitments to apply EU law in their territories. The report will be released on 5 November.

Auditors from the 10 accession countries have also met with officers from public audit institutions in existing member countries, and from the European Court of Auditors – the EU financial watchdog.

They discussed future cooperation over audits of EU spending by Brussels institutions and national governments, to better coordinate efforts against fraud. It is the latest move towards harmonising EU tax law, a process that has caught the British government.

The UK is facing several cases that could lead to the European Court of Justice ruling that many of its tax laws are illegal.

The most high profile is Marks & Spencers’ claim for £30m in overpaid corporation tax because it was not allowed to offset losses sustained in European subsidiaries against UK-earned profit, which it claims is in direct contravention of Article 43 of the EC Treaty.

The Inland Revenue decided not to appeal against a High Court decision to refer the legal battle to the ECJ, suggesting it is increasingly resigned to the growing power of Europe over UK tax affairs. Should M&S win, it could open a floodgate of similar battles.

A group litigation order based on broadly the same terms as the M&S case could, if won by the taxpayer, cost the Treasury up to £1bn.

The 10 countries joining the European Union next year are Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Solvenia.


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