I wrote a few weeks ago about how, despite much fanfare, the European Commission’s proposal for VAT reporting standardization across the EU in 2017 represents a major climb down from Brussels’ original aspiration for complete VAT harmonization in Europe.

In fact, my colleagues at Accordance often remind me not to refer casually to ‘harmonization’: nobody is proposing anything that radical any more.

Well, it turns out that my colleagues also need to have a word with Algirdas Šemeta, Commissioner responsible for Taxation and Customs Union, Statistics, Audit and Anti-fraud (to give him his full title). In a remarkable speech to the French Senate last week, Mr. Šemeta set out his vision for tax policy in Europe: and it is considerably more dramatic than that we had been led to believe.

The European Commission’s proposal for VAT reporting standardization across the EU in 2017 represents a major climb down from Brussels’ original aspiration for complete VAT harmonization in Europe.

Much of what Mr. Šemeta says about EU tax is familiar: tax needs to be simplified if the EU is to be competitive; loopholes need to be closed; avoidance must be curbed. The best way to do this is through central direction – i.e. major progress can only be delivered through Commission initiatives. The message – one that applies to the full range of taxation in the EU, not just VAT – is that it is possible, even essential, to reduce compliance costs in Europe at the same time as improving efficiency and generating extra tax revenue across the Union.

Skeptics may smile to themselves about some of this: hardly a shock to discover that the Commissioner believes only the Commission can do the right thing. And those skeptics will also remember how circumscribed the Commission really is: all tax policy is decided in the EU on a unanimity basis: everyone has to agree before any changes are made.

And that’s where the Commissioner gets controversial:

Let me open a parenthesis here on the issue of unanimity in taxation. The reality of our decision-making process is that the convoy currently moves at the pace of the slowest ship.

We have to ask whether that is sustainable in the long-term, as our economic and monetary integration becomes ever deeper.

Already we have seen an urge to move away from the constraints of unanimity with the enhanced cooperation on FTT.

And I can imagine that the more ambitious Member States will increasingly look for ways to make progress in the future if unanimity is slowing them down.

There are both opportunities and risks to this. On my side, I would favour anchoring tax policy to the deepening of our monetary union, to maintain coherence and avoid a purely “a la carte” integration.

You can’t really exaggerate the significance of these comments as an indicator of the Commission’s deep thinking: it is Euro-Ideology at its purest. The assumption, here stated plainly, is that national sovereignty in tax decision-making must be sacrificed as part of the ‘deepening of our monetary union’. The unanimity principle is not considered an essential element of the checks and balances of the democratic process; it slows things down; it is not ‘sustainable in the long-term’; it is a ‘constraint’.

For Mr. Šemeta, it is self evident that ‘ambitious’ member states would like to ditch the unanimity principle. But where does this leave less ambitious member states? What about those benighted regions (such as the UK) that never even adopted the single currency, and could therefore hardly participate in the ‘deepening of our monetary union’? Will they still have a voice?

Remember that, in a recent statement on EU tax policy to Parliament, UK Exchequer Secretary David Gauke, made the specific point that: ‘the Government will counter unhelpful ideas, including for example those that might lead to an erosion of UK national sovereignty or result in tax matters being dealt with otherwise than in Council under a unanimity basis’.

At some point, the radically contradictory points of view of the Commission and of several member states are going to come into direct conflict. As far as the UK is concerned, this could well be when or if there is a referendum on EU membership. But the fault lines are everywhere. Mr. Šemeta made his speech in France, and was lavish in his praise for the French government’s commitment to further European integration. Yet, as readers of this blog will know, the Commission is currently in conflict with France about its highly individualist VAT policy. In his speech, Mr. Šemeta says that ‘Member States should find ways other than reduced VAT rates to support important social goals’: which is exactly what France has done with reduced VAT rates for e-books and digital newspapers.

And France itself seems to be seriously questioning the European project, perhaps for the first time since the second world war. Ambrose Evans-Pritchard points out in the Telegraph this week that the anti Euro Front National are still leading the polls in the run up to the French election. But the really interesting thing for Ambrose-Pritchard is how the French governing classes and intelligentsia are beginning to publicly doubt the value and purpose of the Euro. This has not happened before.

‘Harmonised VAT rules are the only way to avoid major distortions between businesses and between Member States’, says the Commissioner. He continues:

before the end of my mandate, based on a wide consultation, the Commission will adopt a White paper on the way forward for a definitive VAT regime.

If we look to the medium term, I would place greater harmonisation in VAT as a core objective.

The language is confident and startling. But it begs the question: who is ‘we’?

By |April 16th, 2014|