|Monday, 9 June 2008||
1. Art. 113 in the Lisbon Treaty is the legal base when the EU shall harmonise the rates for indirect taxes. For direct taxes they may use Art. 115 or the flexibility clause in Art. 352. There is no clear definition on indirect taxes. Corporate tax was normally seen as a direct tax. But the Commission has planned to harmonise the tax base for corporate taxes on the basis of exactly Art. 113. This is now Art. 93 in the Nice Treaty. The articles require unanimity in the Council when taxes shall be harmonised.
2. There is no specific article for the harmonisation of direct taxes. The EU Court has included direct taxation in Case C-35/98 stating ‘although direct taxation falls within their competence, the Member States must none the less exercise that competence consistently with Community law’. Member States shall also respect the Convention of 23. July 1990 (revised 25.5.1999) on double taxation and the directive of 19 December 1977 about mutual assistance in the area of direct taxes.
3. What really matters is the broadening of the concept of the Internal Market. The tax clause in Art. 113 TFEU will be radically changed. Taxes shall not only be harmonised when it is a necessity for the functioning of the Internal Market. Now, the Lisbon Treaty widens the scope unlimited by adding ‘and to avoid distortion of competition’. This concept is much broader. What difference does not distort competition?
4. This broader concept can also be found in the new Protocol no 27 widening the definition of the Internal Market which shall now include ‘a system ensuring that competition is not distorted’. The Protocol even invites the Council to use the flexibility clause in this new area if there is no other legal base. But this still require unanimity when the EU want to harmonise rates.
5. There is a much easier legal base for fighting distorted competition. This is Art. 116 TFEU allowing the Council to decide by a majority vote. The Commission start the process by sending a letter about the distortion to the Member State concerned. If the Member State does not change the distorting element the Commission can go to the EU Court or propose a law to be adopted by qualified majority. Here there is no Irish veto. This article has not been used for taxes, yet. But there is no guarantee that it cannot be used.
6. 17 January 2008 the EU Court overruled a Danish law on the taxation of Danes possessing secondary housing in Denmark or/and abroad. There was no connection to the common market at all.
Finland was forced to change their taxation of pensions in the Danner case. Denmark lost a tax case on pensions as well.
It is naïve to believe that the new Union could not reach the low Irish corporate tax by other means than direct harmonisation of tax rates.
7. The Commission has started the work for harmonisation of the corporate tax base. It is included in the annual program for 2008. The draft has been prepared and may make it impossible for the Irish state to gain revenue from Irish companies turnover in other Member States – if rumours are right. The proposal has been archived” until the Irish referendum’¦
8 . There is only one way to safeguard the low Irish tax, a clear Protocol stating: ‘Nothing in the European treaties shall hinder Ireland from maintaining its lower taxes on companies for their turnover in the whole of the world.’
By Jens-Peter Bonde
Former MEP after 29 years membership, member of the two drafting conventions, author to a readable version of the Lisbon Treaty at euinfo.ie (www.eudemocrats.org) and author to a lexicon explaining all words from the Lisbon Treaty at euabc.com.
President of the EUDemocrats