Firms to press for tax reform

Date: 05/09/1996

By Chris Johnstone

EMPLOYERS will press the European Commission to put sidelined single market company tax proposals at the top of the agenda when they meet Internal Market Commissioner Mario Monti and his high level group on taxation next week.

UNICE, the lobby group for European employers, will tell Monti that priority should be given to putting an end to the double taxation of multinationals' dividend payments and royalty earnings at the meeting on 12 September.

At the moment, earnings of subsidiary companies can be taxed twice - both in the country where the branch or operation is based and in the country where the head office is registered.

UNICE's demands are aimed at injecting new impetus into a dossier which has hardly moved since former Taxation Commissioner Christiane Scrivener dropped a series of company tax proposals in 1991 in protest at stonewalling tactics by member states. EU governments must agree unanimously before any Commission tax proposal can become law.

Employers say the persistence of double taxation in the single market adds up to a heavy bill for companies and harms European competitiveness. The multi-nationals either pay up with no questions asked or they employ large teams of accountants and tax experts to limit the damage.

“Some major companies have hundreds of people working on this,” said UNICE's head of economic and financial affairs Daniela Israelachwili.

The federation also wants Monti and his tax think tank to consider the possibility of a directive to allow multinationals with cross-border operations in the EU to write off profits in one country against losses in another.

This has been accepted in principle in the Commission's own proposal for a European Company Statute - a type of off-the-shelf licence for multi-nationals to set up anywhere in the EU - but has failed to progress further, says UNICE.

“It is a lot to ask but would be of enormous benefit to companies. In some member states, loss compensation is not even allowed at a national level,” added Israelachwili.

Next week's talks follow a meeting in July between the high level tax group and European trade unions which focused on the relationship between tax and employment.

Monti's main brief from finance ministers meeting last April was to investigate how new tax systems could stimulate job creation in the face of sluggish EU economic growth. The tax working group has still to decide whether to quiz financial experts or hold a closed session at its last meeting before reporting its initial findings to Union finance ministers in November.

The Commission is keeping details of how the group's work is progressing under wraps ahead of that meeting. Monti will draw on its findings when the Commission drafts its own report on how taxation systems should develop before the end of the year.

Observers have mixed views on how daring the working group can be when it has been more or less filled by representatives from the 15 national tax or finance ministries. Some say it is a sign that Monti's group has been nobbled from the start. Others say it is a cunning ploy to make some progress by bringing governments on board from the outset.

“They will have to face the proposals sooner or later,” said one tax expert.

Tax reform has been a graveyard for Commission proposals in the past with governments notoriously shy of giving ground in an area at the heart of the debate about national sovereignty, or making any changes which could affect their receipts.

But UNICE believes two factors could help the latest push for action: the recognition that a single currency, whatever its final form, will have knock-on effects for national tax regimes; and a series of pending cases on taxation in the European Court of Justice.

The court cases, challenging such established procedures as preferential tax treatment for nationals and bilateral tax agreements between member states, threaten to cause the collapse of existing national tax regimes.