The Nordic countries need to block EU assault on tax veto

NEWS Published

TAX For countries with a common currency and a limited common budget, it is particularly important to be able to pursue an active national fiscal policy when an external shock is encountered, writes Claes Hammarstedt.

Claes Hammarstedt

Claes Hammarstedt

Foto: Ernst Henry Photography AB

The EU-Commission has presented a Communication introducing a roadmap to move from unanimity to qualified majority voting (QMV) in tax decisions. This would effectively put an end to smaller countries possibilities to block unwanted tax proposals made by big countries. The proposal for a digital service tax (DST) is the most recent example. The DST constitutes a fundamental change to the international tax system and would shift taxation rights to larger economies with potentially severe tax revenue loss for smaller economies. Thanks to the tax veto, the Nordics and a few other small countries managed to block this populistic proposal at the ECOFIN meeting in December.

Tax sovereignty is essential for countries to implement their national financial and social economic policy. For countries with a common currency and a limited common budget, it is particularly important to be able to pursue an active national fiscal policy when an external shock is encountered. Otherwise, social and business objectives may not be attainable. Introducing QMV in tax policy could infringe on the possibility of countries to react in a suitable way. Furthermore, to retain the policy options may be even more important for smaller Member States since they would be the ones most affected by QMV.

The rules on non-discrimination, the four freedoms and state aid under the Treaty safeguard the fulfilment of the Single Market. The developments in recent years regarding new EU tax rules, state aid and infringement cases have shown that the EU already has the necessary means to secure and strengthen the Single Market. Already under the current rules for the adoption of EU regulation, the reality is that countries are cautious to veto a proposal unless very strong national interests are at stake. The recent Anti-Tax Avoidance directives are examples that illustrate the EU countries’ pragmatism.

It is of utmost importance that tax regulation within the EU strikes a balance between different interests of countries, be it the different size, geographical location or business structure. Introducing QMV would enable larger countries to push for tax initiatives such as the DST at the expense of smaller countries. The risk of abstracting from relevant concerns expressed by a small country if QMV is introduced must be carefully considered. Any EU tax initiative must be based on the principle that it shall result in a fair and equitable economic outcome for all countries in the EU.

How EU decisions impact international cooperation should also be taken into consideration. The need to take decisions in line with major trading partners so that international double taxation is avoided is another concern which may be aggravated if only larger country concerns are taken into account.

Needless to say, we strongly oppose a policy change to remove the unanimity decision in the field of taxation. Our business community is in favour of competition, including fair competition in the field of income and profit taxation because it will lead to an optimization of the allocation of capital and labour. It has and will not lead to a race to the bottom. On the contrary, tax competition makes more investments economically viable thus increasing tax revenues.

Ironically, the Commission needs a unanimous decision by Member States in order to fulfill its plan to change the voting procedure. It is time for the Nordic governments to join forces again and put an end to this biased initiative.

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