Since 1 January 2016, the last piece of the reshuffling of the senior positions of the European Commission, announced in June 2015, is in place, as Stephen Quest has become Director-General for Taxation and Customs Union (DG TAXUD).
Corporate taxation is likely to be the main focus of DG TAXUD in the coming years. International actions on Base Erosion and Profit Shifting (BEPS) outlined by the OECD in October 2015 will be implemented at EU level, with a high level of ambition to confirm the pioneer role of the EU. The dedicated package, expected in early 2016, will provide a roadmap for new initiatives, and bring a new impetus to on-going discussions, the most prominent being the Common Consolidated Corporate Tax Base (CCCTB).
Difficult work lies ahead, to transform political will into legislative actions.
We have identified five challenges that Mr Quest would have to tackle in his very first days at the helm of DG TAXUD.
- Keep EU Member States on board
Not only is unanimity the rule on taxation issues, making progress in negotiations excruciatingly slow, but in 2016 with a UK referendum in sight national sovereignty and sensitivities surrounding this issue will be heightened. On the other hand, corporate taxation has become a key policy area for the Commission, where genuine European progress and deliveries would have to be demonstrated. Finding the balancing point must be at the fulcrum of Mr Quest’s considerations.
On a more granular point: To overcome the stalemate in the CCCTB negotiations, revised proposals are expected in 2016, initially focused on a Common Tax Base, and with the highly debated Consolidation feature added as a second step. Diplomatic skills will be crucial, as any step towards potential tax harmonisation at EU level is seen by many as a breach of State sovereignty. Moreover, some Member States might be tempted to pre-empt BEPS implementation at EU level. Could it be that presenting of the Commission’s anti-BEPS package in early 2016 is a move to keep Member States in line and avoid diverging national approaches to BEPS?
- Manage expectations from the European Parliament
The agenda of fighting tax avoidance and aggressive tax planning has been made a political battlefield by the European Parliament, even more so in the aftermaths of the crisis and the LuxLeaks revelations. Although the Parliament enjoys no decision powers on corporate taxation issues, the temporary committee on Tax Rulings (TAXE) has been active in keeping the momentum on the issue alive in 2015, and its successor, TAXE 2, will continue to do so. A number of recommendations have been put forward, both by TAXE and by the Economic and Monetary Affairs Committee (ECON), to which the Commission would have to give a written answer by spring 2016. Balancing out requests from the Parliament and redlines from the Council is likely to be a complex task, especially for controversial ideas such as a public disclosure of certain corporate tax information on a country-by-country basis.
- Make sure that all Commission services march to the same drumbeat
The above-mentioned public Country-by-Country Reporting (CBCR) provides a good example of an area where different Commission services have to work in cooperation. A dedicated consultation is placed under the remit of the Accounting and Financial Reporting Unit of the Financial Services Directorate General (DG FISMA), and public CBCR was even put forward by the Parliament during the discussion on the Shareholder Rights Directive, managed by the Directorate General on Justice and Consumers (DG JUST). Furthermore, considering that the BEPS implementation will have an impact on all EU operating companies, it is highly probable that Mr Quest will be a focal point for questions from all Commission services.
- Ensure public support beyond the Brussels-sphere
Sensitive by nature, taxation is only supported by tax payers when considered fair and appropriate. Conscious that a Common Corporate Tax Base without Consolidation might impair the well-being of EU-operating companies, the Commission has suggested the creation of an interim cross-border loss offset mechanism, which Mr Quest would have to flesh out. Taxation Commissioner Moscovici has stated on a number of occasions his conviction that businesses should support a CCCTB, which would simplify their EU operations. However, if key selling points for the EU initiative become too granular and technical and compromise in Council too muddled, the recently strengthened broader legitimacy of the Commission as to taxation will be in peril. In parallel, a sense of fiscal unfairness felt by EU citizens and reported by civil society organisations, would have to be managed by Mr Quest.
- Connect ongoing initiatives with other overarching goals
Taxation is far from being a ‘silo’ policy. Improving tax fairness features in Commission President Juncker’s political guidelines alongside other initiatives in his general agenda towards Jobs and Growth in the EU. Devising a tax system that keeps all the opportunities of the Digital Single Market, the Capital Markets Union or the Energy Union alive will be at the core of Mr Quest’s mission. Thus, a range of almost unanswerable questions – the interaction between the Financial Transaction Tax and the Capital Markets Union being just one – must have already been lying on Mr Quests desk when he arrived in his new job 4th of January.
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