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EU: A new dawn for further European tax harmonisation

A single European market in the area of taxation still does not exist. In practice, this means that multinational corporations doing business in the EU need to navigate their way through (up to) 27 different national tax administrations and administrative requirements, and widely differing national interpretations of EU tax law, directives and regulations.

 But Europe's direct tax policy landscape is changing fast and in a fundamental way as a result of the growing economic and political pressures to manage and find a sustainable solution out of the financial and economic crisis. Highly controversial EU policy options which were previously unthinkable are now tabled. Marked examples are the European Commission's proposals for a common consolidated corporate tax base (CCCTB) and a financial transaction tax (FTT), as well as the relatively quickly adopted EU "six-pack" proposals on financial sector regulation.

Two key players have emerged to sort out the financial and economic crisis: German Chancellor Merkel and French President Sarkozy. Both are up for re-election in 2012, and, importantly, both want further progress on tax policy coordination to support fiscal consolidation and economic growth. At the same time, EC President Barroso is trying to ensure that the EU Commission and Parliament are not sidelined by the intergovernmental plans and ideas presented by Merkel and Sarkozy, which are sometimes referred to in Brussels as the "Franco-German Diktat" i.e. France and Germany imposing their will on the other EU member states.

On August 16 2011, Merkel and Sarkozy sent a joint letter to European Council President Van Rompuy outlining their plans for a "true economic government" for Europe including embryonic plans to "work towards a common corporation tax by 2013" and co-ordinate their annual national budgets, and "revive the idea of a financial transaction tax for Europe". Van Rompuy should chair the twice-yearly meetings of euro area leaders and take on a more coordinating role. The letter reads: "In line with the Euro Plus Pact, Euro area member states should take all the necessary measures to improve competitiveness, foster employment, ensure stability of the euro area as a whole and deepen economic integration. In particular, further progress should be made on tax policy coordination to support fiscal consolidation and economic growth. Member states should commit to finalise the negotiation on the Commission's proposal on "a common consolidated corporate tax base" before end 2012. Euro area member states should be ready to consider enhanced cooperation for further progress on tax coordination (…)."

Enhanced cooperation is a new option under the Treaty of Lisbon. Under TITLE IV, Article 20 of the Treaty on European Union (TEU) stipulates that:

  1. Member states which wish to establish enhanced cooperation between themselves within the framework of the Union's non-exclusive competences may make use of its institutions and exercise those competences by applying the relevant provisions of the treaties, subject to the limits and in accordance with the detailed arrangements laid down in this Article and in Articles 326 to 334 of the Treaty on the Functioning of the European Union. Enhanced cooperation shall aim to further the objectives of the Union, protect its interests and reinforce its integration process. Such cooperation shall be open at any time to all Member States, in accordance with Article 328 of the Treaty on the Functioning of the European Union.

  2. The decision authorising enhanced cooperation shall be adopted by the Council as a last resort, when it has established that the objectives of such cooperation cannot be attained within a reasonable period by the union as a whole, and provided that at least nine member states participate in it. The Council shall act in accordance with the procedure laid down in Article 329 of the Treaty on the Functioning of the European Union.

  3. All members of the Council may participate in its deliberations, but only members of the Council representing the member states participating in enhanced cooperation shall take part in the vote. The voting rules are set out in Article 330 of the Treaty on the Functioning of the European Union.

  4. Acts adopted in the framework of enhanced cooperation shall bind only participating Member States. They shall not be regarded as part of the acquis which has to be accepted by candidate States for accession to the Union."

The Commission presented its proposal for an EU-wide CCCTB directive on March 16 2011. Only a few days later, the Euro Plus Pact (17 euro area member states plus six non-euro area member states of the EU-27), led by France and Germany, called for a CCTB. Following the negative subsidiarity reviews in Spring 2011 of nine national parliaments, and in particular the German parliament, it looks increasingly likely that a mandatory CCTB rather than an optional CCCTB will ultimately be proposed, and adopted under enhanced cooperation, possibly in 2013/2014.

On Friday September 9 2011, the German and French Finance Ministers sent their joint plan for an EU-wide FTT Directive to the other 25 EU member states and the Commission, as a follow-up to the Merkel-Sarkozy letter. On September 28 2011, EU Commission President Barroso announced the EC's proposal to introduce the FTT within the EU by January 1 2014 in his State of the Union speech at the European Parliament. It is likely that the UK will veto the FTT, however, so FTT will also have to go forward under enhanced cooperation.

Bob van der Made (, Brussels and Amsterdam


Tel: +31 88 792 3696

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