Important dossiers concerning European tax policy – from digital tax to Common Consolidated Corporate Tax – cannot be finalised, because the Council of the European Union requires unanimity in tax issues. However, the European Commission has presented a proposal on 15th January 2019 to make qualified majority decisions in Council in regards to tax matters possible from now on.
In 2018, the Austrian Council Presidency did not succeed to finalise even the most pressing tax issues in the European Union. Whilst under the Austrian Presidency, the Financial Transaction Tax has been buried once and for all; regarding the digital tax, member states have not even been able to agree on a very business-friendly version, which only wanted to tax advertising revenues and not the total revenue. To ensure that in future not every individual Member State will be able to block overdue reforms, the European Commission intends to restructure decision making in the Council of the European Union.
In his State of the Union Address 2018, Commission President Jean-Claude Juncker addressed the necessity for the EU to be able to act fast and powerful. In doing so, he referred to Article 116 of the Treaty on the Functioning of the European Union, which contains the so-called “Passerelle Clause“. This clause would allow the Council to make decisions by qualified majority (16 of 27 Member States), which means an end to relying on unanimity, which not least proved increasingly problematic in respect of tax issues. Article 116 TFEU states that if the Commission finds that a difference between the provisions laid down by law, regulation or administrative action in Member States is distorting the conditions of competition in the internal market and that the resultant distortion needs to be eliminated, it shall consult the Member States concerned.
If such consultation does not result in an agreement eliminating the distortion in question, the European, Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall issue the necessary directives. Any other appropriate measures provided for in the Treaties may be adopted. Decision making by qualified majority is possible if distorting the conditions of competition due to different tax regulations shall be eliminated and if these cannot be changed by consultations of the Member States.
With regard to legislative tax proposals, in particular those concerning the fight against tax avoidance and optimisation respectively, this would be a way out of the deadlock, which has been hampering progress for quite some time (see Financial Transaction Tax). However, there is a catch here too: the clause can only be activated by unanimity, which might prove difficult in practice. The Irish government has already announced its opposition to the plan of the Commission. Malta, Cyprus and Sweden are also against the proposal.
On 15th January, Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici presented a Communication from the Commission, which shall prevent a blockade of tax policy, legislative initiatives in the European Council. He referred to Article 48, Clause 7 of the Treaty on the European Union, another “Passerelle Clause”, which represents the most practicable solution for the Commission. Pursuant to this Article, the European Council may adopt a decision authorising the Council to act by a qualified majority under certain circumstances. However, such an initiative requires a majority in the national parliaments of the Member States and in the European Parliament. In view of the resistance by some Member States, Moscovici remarked that one had to persuade Member States politically. Such a change would be for their own benefit and would enable a progressive policy in the European Union. Unanimity in tax issues would be a relic from the 1950s, when the EEC only had six members; this was outdated in an EU of 27 said Moscovici. The Commission was not striving to change EU competencies in tax issues; Member States should continue to be able to set their tax rates as they would see fit. The sole aim was to increase efficiency to be able to react faster to common challenges.
It is not up to the Commission to activate both clauses. Thus, it must rely on the good will of the Council and therefore wants to invite the latter to consider such a procedure. Official sources let it be known that above all one wanted to start a debate. With this purpose in mind, the Commission had also initiated a public consultation, which ended on 17th January 2019.