On the face of it, this could look like a road less travelled, for legal historians mainly, but the Irish referendum debate has unearthed confusions all of its own.
What did the European Convention propose with regard to harmonising taxes, and what happened to these proposals during the intergovernmental conference (IGC 2004), which led to the Treaty establishing a Constitution for Europe?
This third question and post may shed some additional light on the tensions and the exertions in the field of European taxation.
The European Convention, the closest thing to a constituent assembly EU citizens have had, located the provisions on tax legislation 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 (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.
Two contributions illustrate the forces at work at the European Convention, which changed in tenor from a constituent assembly of parliamentarians and government representatives into a preliminary intergovernmental conference during the later stages.
The French-German contribution on Economic Governance (CONV 470/02) included a section ‘3) Finalising the internal market by achieving genuine convergence of taxation’. France and Germany did not propose the wholesale scrapping of veto powers, but they presented a selective, although fairly long, list of problem areas (page 4).
They reiterated their common position on a broader use of a qualified majority vote for the tax issues directly related to the internal market, such as for the elimination of direct obstacles to the free movement of goods, persons, services or capital and, in particular, the prevention of situations involving discrimination, double taxation or double remission, for certain provisions for the harmonisation of turnover taxes and excise duties and cooperation between tax authorities, for combating fraud and tax evasion and for elimination of harmful tax competition.
Joschka Fischer and Dominique de Villepin added that it seems necessary to finalize the internal market, i.e. to limit existing divergences between taxation in the member states and to eliminate harmful tax regimes. In addition, the concluded, the most pragmatic and the most efficient medium-term approach to the creation of a single Europe is to fix a policy convergence objective focusing efforts on a number of key tax issues.
Through Peter Hain, Lena Hjelm-Wallen and fourteen others, the opposing view was tabled. The contribution (CONV 782/03) recognised that there could be a case for appropriate and effective European Union action in the area of administrative cooperation and in the area of tax fraud. However, measures in these areas must be decided by unanimity (page 1).
The opposing group (of member states) was ready to accept the first paragraph of the then Article III.59 of the Praesidium’s proposal, but suggested the deletion of paragraph 2 and of Article III.60.
The compromise or consensus view of the European Convention (above), in essence, added the words ‘and to avoid distortion of competition’ to the grounds for legislation in Article 93 TEC, in what became Article III-62(1) of the draft Constitution concerning indirect taxation.
The new Article III-62(2) incorporated something of the French and German proposal in a novel two stage procedure. First, the Council would rule by unanimity that a legislative proposal related to administrative cooperation or to combating tax fraud and tax evasion. After that, the Council could act, notwithstanding paragraph 1, by a qualified majority when adopting the European law or framework law adopting these measures.
Certain aspects of company taxation were addressed in the following Article. The new Article III-63 proposed a similar procedure for measures on company taxation relating to administrative cooperation or combating tax fraud and tax evasion. The first finding had to be unanimous, but then the measures could be decided by qualified majority, provided that they are necessary for the functioning of the internal market and to avoid distortion of competition.
Étienne de Poncins commented on the forces for QMV and the meagre results of the European Convention in ‘Vers une Constitution européenne’ (Éditions 10/18, 2003 ; pages 286–287):
« Commentaire : l’article 62 a été longuement débattu par la Convention. Une large majorité a plaidé pour l’application de la majorité à l’ensemble de l’article III-62. La Commission a notamment fait valoir que l’absence de règles minimales conduisait à une concurrence déloyale entre États membres en matière fiscale. De nombreux Conventionnels ont rappelé que l’unanimité conduisait à des accords minimaux à l’issue de débats et de procédures particulièrement longs se poursuivant sur de nombreuses années comme pour les directives TVA.
Aucune avancé n’a cependant été possible, les Britanniques, les Suédois et les Irlandais notamment ayant fait du statu quo un point majeur de leur position. Les tentatives et propositions de compromis pour élargir le champ d’application de la majorité qualifiée ont toutes été repoussées. À noter enfin au paragraphe 2 les mots « évasion fiscale illégale » et la procédure suivie, l’appréciation que la matière couverte entre dans le champ visé au paragraphe 2 se faisant à l’unanimité. »
Here are a few views on the results of the European Convention, ahead of the intergovernmental confrence (IGC 2003/2004), which led to the Constitutional Treaty.
Prime Minister Tony Blair set out the UK position on the draft Constitution in the foreword to ‘A Constitutional Treaty for the EU – The British Approach to the European Union Intergovernmental Confrence 2003’ (Command Paper 5934, September), after welcoming the result (page 3):
“But the text is not perfect. Like many other Member States, there are some points in the Convention text which we will want to examine in more detail. And we could only accept a final text that made it clear that issues like tax, defence and foreign policy remain the province of the nation State.”
Point 66 on page 32 presented the view of the United Kingdom government on unanimity:
“66. But we will insist that unanimity remain for Treaty change; and in other areas of vital national interest such as tax, social security, defence, key areas of criminal procedural law and the system of own resources (the EU’s revenue-raising mechanism). Unanimity must remain the general rule for CFSP, as proposed in the final Convention text.”
The government of Sweden stated that the Convention’s proposal is a good basis for the intergovernmental conference. In ‘Regeringens skrivelse 2003/04:13 Europeiska konventet om EU:s framtid’ (2 October 2003) the Swedish government added as an important point of departure that future decisions concerning taxes, defence policy and large areas of foreign policy are to be taken unanimously (page 7):
”En viktig utgångspunkt är att enhällighet i beslutsfattandet i rådet även i framtiden bör gälla beslut som rör skatter, försvarspolitik och stora delar av utrikespolitiken.”
The government later repeated the standpoint on levels of taxation, although it noted that the national tax authority (Riksskatteverket) favoured some flexibility concerning unanimity.
In ‘Valtioneuvoston selonteko eduskunnalle konventin tuloksista ja valmistautumisesta hallitusten väliseen konferenssiin’ (VNS 2/2003 vp), the Finnish government stated that the national participants in the Convention had proposed a move to qualified majority voting on issues regarding environment and energy taxes. The government noted that a substantial number of the delegates would have been ready to progress towards QMV in a limited way, but some member states had been totally opposed. The government found the end result acceptable (page 67):
” Sisämarkkinaluvussa on myös veroja ja maksuja koskeva jakso. Verotuksen osalta keskeisin kysymys konventissa oli siirtyminen määräenemmistöpäätöksentekoon. Suuri osa konventin jäsenistä olisi ollut valmis etenemään tässä rajatusti, esimerkiksi ympäristöverotuksen alalla, mutta muutamille jäsenvaltioille yksimielisyyden säilyttäminen verotuksessa oli täysin ehdoton vaatimus. Määräenemmistöpäätöksentekoa voidaan soveltaa ainoastaan hyväksyttäessä eurooppalakeja tai -puitelakeja jotka koskevat veronkiertoa ja veropetoksia koskevia hallinnollisia to imia. Suomen edustajat konventissa esittivät, että ympäristö- ja energiaverotuksen alalla tulisi siirtyä määräenemmistöpäätöksentekoon ministerineuvostossa.
Valtioneuvosto voi hyväksyä ehdotetut muutokset”.
The intergovernmental conference 2003 failed, so it is more natural to speak about the IGC 2004. The Treaty establishing a Constitution for Europe was negotiated under Irish stewardship.
In essence, the Constitutional Treaty retained Article III-62(1) of the draft Constitution, but the second paragraph was deleted. Article III-171 closed the needle’s eye to QWV regarding TVA and other indirect taxes.
The IGC 2004 deleted Article III-63 on limited recourse to QWV regarding certain aspects of company tax, where the Council of Ministers, acting unanimously on a proposal from the Commission, could have found that measures on company taxation related to administrative cooperation or combating tax fraud and tax evasion, and it then could have adopted, by a qualified majority, a European law or framework law laying down these measures, provided that they were necessary for the functioning of the internal market and to avoid distortion of competition.
This left Article III-173 to cater to the needs of approximation (harmonisation) of fiscal provisions and rules relating to the free movement of persons or to those relating to the rights and interests of employed persons. These measures, including direct taxation such as company taxes, were subject to unanimous decisions by the Council.
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.
Article III-173 Constitution
Without prejudice to Article III-172, a European framework law of the Council shall establish measures for the approximation of such laws, regulations or administrative provisions of the Member States as directly affect the establishment or functioning of the internal market. The Council shall act unanimously after consulting the European Parliament and the Economic and Social Committee.
Almost a clean sweep for the no or unanimity camp, one could say. The preservation of the words ‘and to avoid distortion of competition’, in what was to become Article 113 TFEU (ex Article 93 TEC) on indirect taxes, may look like a poor consolation prize for the supporters of change.
Perhaps this background picture goes some way towards putting the Coughlan furore into perspective.
Next time, I am going to take ‘legally accurate’ with fourscore and seven pinches of salt, if I come across opinions from that quarter.