THIS WEBSITE IS AN ONLINE ARCHIVE OF THE DANISH EU PRESIDENCY 2012 AND WILL NO LONGER BE UPDATED

Taxation

The EU cooperates on several areas of tax policy, even though tax policy is covered by the national competence of each Member State. This is done to ensure consistency across borders.

© European Union, 2011

During the Danish Presidency of the Council of the EU, a number of dossiers on the area of tax policy are on the agenda. Below you can read more about these matters and the EU’s policy in this area.

A new VAT strategy for the EU

The EU’s common VAT system has existed for more than 40 years. The Commission carried out a European consultation on a modernisation of the system between December 2010 and May 2011. A Green Paper entitled ”Towards a simpler, more robust and effective VAT system” was prepared for use in the consultation.

The objective of the Green Paper was to launch a broad, public debate as a first step towards a new VAT system in the EU. In the Green Paper, a range of questions are directed at the business sector, public authorities and the Member States. With these questions, the Commission draws attention to four different areas within the VAT system which should be improved.

  • VAT treatment of cross-border transactions in the EU
  • Close harmonisation of the current (and differentiated) VAT rate structure, with different rates for different products, which is criticised for obstructing the functioning of the EU’s internal market
  • Whether or not the existing tax exemptions should be maintained in the light of the economic and technical changes over the last 40 years
  • More effective strategies to fight VAT fraud.

Based on the review of the responses to the consultation, the Commission will decide which areas to prioritise in the efforts towards developing a new VAT strategy for the EU. The Commission is expected to publish the chosen areas in a Communication (a so-called White Paper) at the end of 2011.

Common Consolidated Corporate Tax Base (CCCTB)

Companies which run businesses in multiple EU Member States, are subject to different corporate tax rules in the 27 EU Member States. This poses a fiscal barrier when it comes to investment and growth in the EU’s Single Market. The lack of common EU regulations often leads to over-taxation and double taxation as well as administrative burdens for companies in connection with compliance with the different rules.

According to the proposed CCCTB directive, a company can choose one common set of regulations for the calculation of the tax liable income in the entire EU. Furthermore, the company is only required to send in one common tax return to the tax authorities in one EU Member State.

Group companies must equal out the profits and losses that the companies have in the different EU Member States. The common tax base will be divided between the EU Member States where the company runs its business according to a distribution key based on three factors: assets, labour (number of employees and payroll expenditure) and turnover. After the tax base is divided, the Member States will tax their respective part according to the national corporate tax rate.

The Directive on taxation of savings income in the form of interest payments and anti-fraud agreements

Both globalisation and the development of advanced communications technologies have made it easier for people to place their savings abroad. This enables people to place their savings where they receive the highest return. However, it also opens up the opportunity for people to place savings in another country than the one they live in, in order to avoid taxation.

The EU adopted a directive on taxation on savings income in the form of interest payments in 2003. This was done to ensure taxation in cases where a person in one EU Member State has savings income from savings placed in another EU Member State.  However, experience shows that the directive has been ineffective in achieving its goal. One reason for this is that savings can be placed in certain securities which are not included in the directive. Therefore, the Commission suggests an amendment to the directive on taxation of savings income in the form of interest payments. It is the objective of the Directive that all EU Member States automatically exchange information on savings income, which implies an end to bank secrecy in all EU Member States.

In some cases, the EU rules make it possible to move savings out of the EU in order to avoid taxation. Therefore, agreements with countries and areas outside the EU with key financial companies have already been made so they can contribute to ensuring that taxation is enforced.

Revision of the directive on energy taxation

The policy on energy taxation plays a large role in meeting climate and energy targets. The Commission  proposal to revise the energy taxation directive will be a priority during the Danish EU presidency.
The Commission’s revision of the energy taxation directive proposes to:

  • Create neutrality between the taxation of different fuels by basing the duties on energy content and CO2 emissions
  • Lower the duty on sustainable energy sources
  • Maintain or partly maintain duty exemption for biomasses
  • Solve the existing problem of double regulation with CO2 permits and CO2 taxation

The revision is a natural step in meeting the ambitious European targets to develop sustainable energy sources, reducing the emission of greenhouse gasses and utilising energy more efficiently. Energy taxation plays an important part in meeting climate and energy targets. Taxation can contribute to increased energy-efficient investments and lower emissions, thereby contributing to a cleaner and more efficient consumption of energy.

Cooperation on taxation
Although each EU Member State is responsible for determining its own tax policy, the EU still cooperates on relevant aspects of taxation. This applies especially to policies which affect international trade and trade among the Member States. The Member States therefore cooperate on certain aspects of taxation with cross-border effects.

In the past cooperation on taxation primarily concerned indirect taxation. 

For example, the Member States have a VAT system with a common tax base, but with national rates (in Denmark the VAT rate is 25 per cent), as well as common minimum rates for a number of excise duties, which are specific taxes on selected goods or services, for example energy products, alcohol and tobacco.

As more citizens and companies today work and operate across the EU’s borders, cooperation on taxation has become increasingly important.

Due to EU legislation individuals from one Member State now have the right to invest their savings in other Member States. The effect of this could be that individuals invest their savings in other Member States in order to avoid correct taxation. Therefore, the EU has adopted a Savings Directive to ensure effective taxation on income from savings in other Member States.

The EU has also adopted common principles for business taxation to avoid that national tax regimes have harmful effects in other countries.

Tax policy affects other policies
Tax policy is influenced by EU policies in other sectors. For example, the tax rules of the Member States cannot impede the freedoms of the single market, which guarantees the free movement of individuals, goods, services, investment and capital between the Member States.

An example is the right to free movement of labour. This freedom implies that a Member State must provide equal tax treatment of an individual who is a resident of one Member State and has his/her income entirely or almost exclusively from work performed in another Member State.

Here you can find information about the EU's tax policy

European Commission's webpage on Taxation

EU legislation on taxation