www.telegraph.co.uk/politics/2019/02/28/eu-quietly-seizing-control-members-finances/
Over the winter, as Westminster argued about how and when to leave the EU, a vital development in Brussels went virtually unnoticed. Having failed for years to persuade sufficient Member States that the EU should become a fiscal union, in the days before Christmas the European Commission announced its intention that the EU, nevertheless, is in effect about to become just that.
Drawing on legal developments since the 1990s, the evidence tells us this became a two-pronged strategy following the UK referendum in 2016. The first part involves expanding the definition of State aid to increasingly include domestic taxation generally; the second, announced over Christmas, aims to remove the national veto over tax policy itself.
Given the broadly settled definition of State aid (the selective use of state resources to give companies competition-distorting advantages), this had been relatively little debated over the last decade. That began to change in the autumn, as the Withdrawal Agreement de facto committed the UK to harmonised State aid rules but without representation in the bodies that make them.
In this context, the impact of changes to the rules on what constitutes State aid is now becoming apparent. After the Commission failed over the last decade to get Member States to allow harmonised domestic taxation, EU institutions broadened the definition of State aid, which we note achieves a similar goal. The role of the ECJ, whose jurisdiction this will expand, has been crucial. In a recent Spanish case, World Duty Free Group SA vs Commission, it resolved to prohibit a policy treating overseas and domestic share acquisitions differently, with the same process clear in other cases. This means moving from a policy which had prevented ‘selective’ advantages, to one that will likely prevent tax cuts that might make sectors more competitive, or indeed other tax cuts.
Lacking representation, the UK is now liable to be a particular target under the Withdrawal Agreement, giving the Commission the means to do grave harm to the economy of a leading competitor.
The next revelation, directly targeting domestic tax policy, appeared over Christmas. The UK Government position had always been that under the EU law-making system, while the Commission alone may propose legislation, the Council (representing Member States) would retain national vetoes. This has been gradually abolished since 2000, however, to be replaced by Qualified Majority Voting (QMV), the veto remaining only for (most) tax issues. Now a consultation released by the Commission just before Christmas tells us that the EU’s main law-making body intends to scrap this last bastion of the national veto.
The proposal describes how the Commission Work Programme for 2019 will “streamline” decision-making, for “more efficient” tax law, by “removing the need for unanimous agreement by all countries”. The rationale is that with “no effective Single Market in taxation”, this contribution to President Juncker’s “Agenda for Jobs, Growth, Fairness and Democratic Change” will “give renewed momentum to the EU”.
As a non-legislative initiative, the change will not need the approval of the other EU institutions; given that Treaty change is not required, approval from all Member State governments will also not be necessary.
This drastic change is thus likely to happen, and already seems intended to lead to tax rises. The Commission could not help but make this clear in its consultation, stating that QMV is necessary because smaller Member States’ lower corporate taxes to attract investment equal “fiscal dumping” – or what others call worthwhile competition.
Smaller EU members are reacting with shock. With the lowest company taxation in the EU, at 9 and 12.5 percent, Hungary and Ireland, among others, have reason to fear an enforced loss of competitiveness. But as our research at European free-market think tank network Epicenter outlines, many will see that as exactly the point. The change is supported by France and Germany, where it is hard not to perceive a (short-term) advantage in smaller neighbours’ weakened capacity to out-compete relatively high-tax economies.