EU TFEU: Tax harmonisation I

What does the EU Treaty of Lisbon say about harmonisation of tax law? This post looks at the various stages of the treaty reform process and it refers to a sample of the best available general descriptions of the amending treaties.

After this factual exploration, a second post will take a closer look at what to some seem to be unclear points. At the same time, we will take a peek at some wider issues of tax harmonisation, brought to (relative) light during the long reform process.


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Article 113 of the Treaty on the Functioning of the European Union (TFEU) is found in the consolidated version of the Treaty on European Union and the Treaty on the Functioning of the European Union, published in the Official Journal of the European Union, OJ 9.5.2008 C 115/94:

Part Three ‘Union policies and internal actions’

Title VII Common rules on competition, taxation and approximation of laws

Chapter 2 Tax provisions

Article 113 TFEU
(ex Article 93 TEC)

The Council shall, acting unanimously in accordance with a special legislative procedure and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition.

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In Article 2, point 79 of the Treaty of Lisbon (ToL) the IGC 2007 amended Article 93 of the Treaty establishing the European Community (TEC). See OJ 17.12.2007 C 306/69, which says:

TAX PROVISIONS

79) At the end of Article 93, the words ‘within the time limit laid down in Article 14’ shall be
replaced by ‘and to avoid distortion of competition.’.

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The TFEU table of equivalences tells us that Article 93 TEC first became Article 93 TFEU (ToL) in the original Treaty of Lisbon, but later renumbered Article 113 TFEU in the consolidated version (OJ 17.12.2007 C 306/211).

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The current Article 93 of the Treaty establishing the European Community (TEC) is found under Title VI ‘Common rules on competition, taxation and approximation of laws’, Chapter 2 ‘Tax provisions’, in the latest consolidated version of the treaties in force (OJ 29.12.2006 C 321 E/79).

When we compare the current Article 93 TEC with the proposed Article 113 TFEU, we notice two specific amendments, which follow directly from the Treaty of Lisbon (above).

The first specific amendment: the disappearance of the words ‘within the time limit laid down in Article 14’, redundant because it refers to the progressive establishment of the internal market by 31 December 1992.

The second specific Lisbon Treaty amendment to the current TEC is the addition of the words ‘and to avoid distortion of competition’ in the liberated slot at the end of the sentence.

The third difference between the TFEU and the TEC follows from the general choices of terminology for the Lisbon Treaty. Horizontal amendment 3 says that in a number of Articles, among these Article 93 TEC, the words ‘acting unanimously on a proposal from the Commission’ shall be replaced by ‘acting unanimously in accordance with a special legislative procedure’ (OJ 17.12.2007 C 306/42).

These are things we can keep in mind, when we look at the wording of Article 93 TEC, currently in force:

Article 93 TEC

The Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market within the time limit laid down in Article 14.

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We have now seen the small differences between Article 93 TEC in force and Article 113 TFUE .

For the sake of systematic comparison, we look at the provisions on tax harmonisation during the intervening treaty reform stages.

First, we turn to the European Convention, the closest thing to a constituent assembly EU citizens have had. The provisions on tax legislation are located in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 6 ‘Fiscal provisions’.

There are two Articles, III-62 and III-63, of relevance in the draft Treaty establishing a Constitution for Europe. For now, let the contents speak for themselves (OJ 18.7.2003 C 169/38):

Article III-62 Draft Constitution

1. A European law or framework law of the Council of Ministers shall lay down measures for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation provided that such harmonisation is necessary for the functioning of the internal market and to avoid distortion of competition. The Council of Ministers shall act unanimously after consulting the European Parliament and the Economic and Social Committee.

2. Where the Council of Ministers, acting unanimously on a proposal from the Commission, finds that the measures referred to in paragraph 1 relate to administrative cooperation or to combating tax fraud and tax evasion, it shall act, notwithstanding paragraph 1, by a qualified majority when adopting the European law or framework law adopting these measures.


Article III-63 Draft Constitution

Where the Council of Ministers, acting unanimously on a proposal from the Commission, finds that measures on company taxation relate to administrative cooperation or combating tax fraud and tax evasion, it shall adopt, by a qualified majority, a European law or framework law laying down these measures, provided that they are necessary for the functioning of the internal market and to avoid distortion of competition.

That law or framework law shall be adopted after consultation of the European Parliament and the Economic and Social Committee.

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In the Treaty establishing a Constitution for Europe the tax provisions were located in Part III ‘The policies and functioning of the Union’, Title III ‘Internal policies and action’, Chapter I ‘Internal market’, Section 6 ‘Fiscal provisions’.

As compared with the draft Constitution, the IGC 2004 shortened the end of the section with fiscal provisions by leaving just an Article III-171 at the end (OJ 16.12.2004 C 310/73):

Article III-171 Constitution

A European law or framework law of the Council shall establish measures for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation provided that such harmonisation is necessary to ensure the establishment and the functioning of the internal market and to avoid distortion of competition. The Council shall act unanimously after consulting the European Parliament and the Economic and Social Committee.

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This far, we have been able to see real aspirations to change the provisions on the harmonisation of taxes during the European Convention and the return to the narrower view from the Constitutional Treaty onwards.

This opens up an interesting second level of inquiry, but let us first follow our standard mode of operation, which is based upon a sample of more or less official documents focused on the similarities and differences between the existing treaties and the proposed Lisbon Treaty.

What has been said about Article 113 TFEU, with regard to the current Article 93 TEC?


United Kingdom

Professor Steve Peers covered the Treaty of Lisbon in a number of Statewatch Analyses. ‘EU Reform Treaty Analysis no. 3.3: Revised text of Part Three, Titles I to VI of the Treaty establishing the European Community (TEC): Internal Market and competition’ (Version 2, 23 October 2007) includes the current Title VI Common rules on competition, taxation and approximation of laws.

Peers highlighted the changes to Article 93 TEC and TFEU (ToL), to be renumbered Article 113 TFEU in the consolidated version, without comment (page 29).

The analysis 3.3 and other useful Statewatch analyses are available through:

http://www.statewatch.org/euconstitution.htm


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The Foreign and Commonwealth Office (FCO) offers a convenient source of brief annotations on Lisbon Treaty amendments in ‘A comparative table of the current EC and EU treaties as amended by the Treaty of Lisbon’ (Command Paper 7311, published 21 January 2008). It offers the following comment on Article 113 TFEU, Article 93 TFEU (ToL) in the original Lisbon Treaty (page 12):

“Draws on Article 93 TEC. The explicit reference to distortion of competition is new, and the reference to the 1992 deadline is removed.”

The FCO comparative table is available at:

http://www.official-documents.gov.uk/document/cm73/7311/7311.asp

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The UK House of Commons Library Research Paper 07/86 ‘The Treaty of Lisbon: amendments to the Treaty establishing the European Community’ (published 6 December 2007) discussed taxation on page 60 (although the heading ‘2. Taxation’ continued with (tax) harmonisation from page 60 to 61).

Here is the introductory text on Articles 90 to 93 TFEU (ToL), later renumbered Articles 110 to 113 TFEU in the consolidated version:

“Articles 90–93 (Constitution Articles III-170 – III-171) concern taxation. They incorporate the existing tax provisions set out in Articles 90 to 93 TEC. There is a considerable body of European law concerning the harmonisation across Member States of indirect taxes: that is, VAT and excise duties on alcoholic drinks, hydrocarbon oils and tobacco products. At present the Treaty base for this legislation is Article 93 TEC, which states:

The Council shall, acting unanimously on a proposal from the Commission and after consulting the European Parliament and the Economic and Social Committee, adopt provisions for the harmonisation of legislation concerning turnover taxes, excise duties and other forms of indirect taxation to the extent that such harmonisation is necessary to ensure the establishment and the functioning of the internal market within the time limit laid down in Article 14. (122)

The new Article 93 (Constitution Article III-171) has one substantive change. Legislation for harmonising indirect taxes may be adopted (emphasis added) “provided that such harmonisation is necessary for the establishment or the functioning of the internal market and to avoid distortion of competition.” It remains the case that any such legislation must be agreed by the Council acting unanimously.”

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Footnote 122 stated: Article 14 refers to the establishment of the single European market on 1 January 1993.
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The Library Research Paper 07/86 is available at:

http://www.parliament.uk/commons/lib/research/rp2007/rp07-086.pdf

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The House of Lords European Union Committee report ‘The Treaty of Lisbon: an impact assessment, Volume I: Report’ (HL Paper 62-I, published 13 March 2008) is a valuable resource on the Treaty of Lisbon, but I found no reference to Article 113 TFEU (Article 93 TEC and ToL).

The report is accessible at:

http://www.publications.parliament.uk/pa/ld200708/ldselect/ldeucom/62/62.pdf

In case anyone wants to dig deeper, taxes, unanimity and harmonisation are discussed ‘passim’ in Volume II of the report ‘Evidence’.


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Sweden

The consultation paper ’Lissabonfördraget’ is still valuable as a description of the Lisbon Treaty amendments for anyone interested, and it is available at:

http://www.regeringen.se/content/1/c6/09/49/81/107aa077.pdf

The Swedish government’s draft ratification bill ‘Lagrådsremiss – Lissabonfördraget’, was published 29 May 2008 and sent to the Council on Legislation (Lagrådet) for an expert opinion. It has since become my standard reference.

The draft deals with the EU’s internal policy areas in Chapter 23 ‘Unionens interna åtgärder’, and section 23.1 presents the internal market (Inre marknaden), on pages 175 to 181.

Tax provisions are dealt with on page 179 in a section called ‘Bestämmelser om skatter’. The government of Sweden remarks on the essentially unchanged nature of the tax provisions in general and it then explains the clarification of Article 93 TFEU (ToL), with the added words presented within quotation marks, but with no comment other than the description as a ‘clarification’ (förtydligande):

”Bestämmelser om skatter

Bestämmelserna om skatter är i princip oförändrade. I artikel 93 i EUF-fördraget om harmonisering av lagstiftningen om omsättningsskatter, punktskatter och andra indirekta skatter eller avgifter på den inre marknaden görs ett förtydligande. Som nödvändig förutsättning för att harmonisera lagstiftning anges som tillägg “att undvika snedvridning av konkurrensen”. Rådet ska, i likhet med nu gällande EG-fördrag, fatta beslut med enhällighet i skattefrågor efter att ha hört Europaparlamentet. (Se artikel 2.79 i Lissabonfördraget.)”

The draft bill ‘Lagrådsremiss – Lissabonfördraget’ can be downloaded through:

http://www.regeringen.se/sb/d/5676/a/106277

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Finland

The Finnish ratification bill, ‘Hallituksen esitys Eduskunnalle Euroopan unionista tehdyn sopimuksen ja Euroopan yhteisön perustamissopimuksen muuttamisesta tehdyn Lissabonin sopimuksen hyväksymisestä ja laiksi sen lainsäädännön alaan kuuluvien määräysten voimaansaattamisesta’ (HE 23/2008 vp), under the heading Provisions on taxes and charges (Veroja ja maksuja koskevat määräykset), offers a statement on Article 93 TFEU (ToL), the future Article 113 TFEU. The essential concordance of this provision on indirect taxation with the current TEC and the Constitutional Treaty is noted. Deleting the deadline and the added requirement to avoid distortion of competition are presented as the only changes (page 208):

”93 artikla (uusi 113 artikla), joka koskee neuvoston toimivaltaa antaa säännöksiä välillistä verotusta koskevan lainsäädännön yhdenmukaistamiseksi, vastaa SEY 93 artiklaa ja perustuslakisopimuksen III-171 artiklaa. Ainoina muutoksina nykyiseen verrattuna on SEY 14 artiklan mukaisen määräajan poistaminen ja se, että lauseeseen, jonka mukaan säännöksiä annetaan tarvittaessa sisämarkkinoiden toimivuuden takaamiseksi, lisätään lisäedellytykseksi myös kilpailun vääristymisen välttäminen.”

The Finnish ratification bill is available at:

http://www.finlex.fi/fi/esitykset/he/2008/20080023.pdf


The Swedish language version of the ratification bill ‘Regeringens proposition till Riksdagen med förslag om godkännande av Lissabonfördraget om ändring av fördraget om Europeiska unionen och fördraget om upprättandet av Europeiska gemenskapen och till lag om sättande i kraft av de bestämmelser i fördraget som hör till området för lagstiftningen’ (RP 23/2008 rd), makes the same remarks under ’Bestämmelser om skatter och avgifter’ on Article 93 TFEU (ToL), the future Article 113 TFEU, on page 211:

”Artikel 93 (blivande artikel 113), som gäller rådets befogenheter att anta bestämmelser om harmonisering av lagstiftningen om indirekta skatter, motsvarar artikel 93 i EGfördraget och artikel III-171 i det konstitutionella fördraget. Den enda ändringen jämfört med nuläget är att tidsfristen enligt artikel 14 i EG-fördraget stryks och att till satsen, enligt vilken bestämmelser vid behov kan antas för att säkerställa att den inre marknaden fungerar, fogas som tilläggsvillkor även för att undvika snedvridning av konkurrensen.”

The ratification bill in Swedish can be accessed at:

http://www.finlex.fi/sv/esitykset/he/2008/20080023.pdf

My comment: At this stage, take notice of two things. First, Article 113 TFEU has been charaterised as a provision on different forms of indirect (not direct) taxation. The added words ‘and to avoid distortion of competition’ have been described as a clarification or as an added requirement.

But I have understood that Article 113 TFEU has been a fountain for much debate (more or less factual). In a wider context, the proposals of the European Convention and their fate during the IGC 2004 are intriguing. Both seem to call for a second posting on the subject of EU tax harmonisation.


Ralf Grahn