Tax competition again under fire by European Commission

The European Commission is attempting to secretly consult member states on unanimity voting on tax issues through a consultation process launched just before Christmas.

In his recent piece titled “Don’t give The EU Commission more power to introduce new taxes“, Values4Europe blogger Anders Ydstedt lays out the pro-liberty case against the European Commission’s push against Council voting unanimity on tax matters. I would like to echo his assessment of the urgency of this situation. Through qualified majority voting, a number of countries would see themselves outvoted on an institutional level and stripped of the advantages of tax competitiveness. The reality is this: harmonisation of tax rates would level the amount of tax paid upwards, not downwards.

But the European Union could also introduce new taxes, such as the digital tax currently being pushed by France.

The introduction of such a tax would be unwise, both economically and politically. The administration of US president Donald Trump will see a digital tax on US companies like  Google, Facebook, Amazon and Apple as further evidence of EU protectionism. And no wonder: EU leaders continuously bemoan the fact there are no European versions of these tech giants, and Trump will correctly identify a sense of envy in this proposal.

The reason why there is no European Silicon Valley, however, isn’t because we are taxing businesses too little, but rather because we’re already taxing them too much. The US is a safe haven for technological creation because it guarantees relative economic freedom. In Europe, conversely, we don’t embrace innovators: we overtax and over-regulate them.

Were Brussels sincere in its desire to attract  the innovators of the future, it would reduce market-entry barriers by encouraging states to lower regulatory burdens such as operational licenses and lower taxes like the corporate income tax and value added tax.

Returning to the Commission’s consultation, which will end this coming Thursday, the consultation says in its description:

“These matters would instead be decided by a weighted system (“qualified majority voting”) where measures can be carried if supported by a minimum number of EU countries, representing a minimum share of the EU population. This is one of a series of major new initiatives to give renewed momentum to the EU.”

What exactly is brewing in Berlaymont to suggest that “a minimum share of the EU population”  could possibly be considered an adequate way of reaching a deal on extended or new tax policies? Would the population of France and Germany combined be a significant share of the population, given that they make up almost a third of the EU’s inhabitants? Are we to expect a Franco-German directorate on tax policies, on top of all other policies on which we need Berlin and Paris to sign off?

There is no definitive answer to this question, just as there is no definite answer as to who will oppose it. The Irish Times reported on the consultation, but could also only speculate that Dublin would strongly oppose the measure. Could Prime Minister Leo Varadkar make a deal with Brussels on other matters, particularly given the current dispute over the Irish border with the United Kingdom? Denmark could also present a hurdle. Back when French Finance Minister Bruno Le Maire starting backing the digital tax, Danish Finance Minister Kristian Jensen came out against it: “I’m always sceptical about new taxes and I think that Europe is taxed heavily enough.” Then again, given that Denmark’s Prime Minister Lars Løkke Rasmussen is part of the liberal-democrat European political family ALDE, we might not see a significant opposition from the Scandinavian country, either.

In reality, it’s these countries, including my own home country of Luxembourg, that need to set up a coalition against rule changes in the European Council. If not, we’ll regret it very, very soon.

This article was first published by Values4Europe.

Pictures are Creative Commons.

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About Bill Wirtz

My name is Bill, I'm from Luxembourg and I write about the virtues of a free society. I favour individual and economic freedom and I believe in the capabilities people can develop when they have to take their own responsibilities.

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