A3-0207/94

Resolution on the Commission communication to the Council and to Parliament subsequent to the conclusions of the Ruding Committee indicating guidelines on company taxation linked to the further development of the internal market

The European Parliament,

-having regard to the report of the Committee of independent experts on company taxation,

-having regard to the Commission communication to the Council and to Parliament subsequent to the conclusions of the Ruding Committee indicating guidelines on company taxation linked to the further development of the internal market (SEC(92)1118),

-having regard to Rule 148 of its Rules of Procedure,

-having regard to the report of the Committee on Economic and Monetary Affairs and Industrial Policy (A3-0207/94),

A.whereas the European Union needs an efficient single market where investment decisions are not affected by distortions in national taxation systems,

B.whereas the European Parliament has long supported Community policies aimed at creating such a single market,

C.whereas improvements in the tax fields have proved to be disappointing in particular because of the unanimity rule applying in the Council,

D.whereas several Commission proposals have been blocked in the Council for many years although the European Parliament has given its opinion on them,

E.whereas progress on the elimination of double taxation of cross-border income flows have been made since 1990 concerning mergers and parent-subsidiary companies, but still have to be made on interest and royalty payments, on offsetting by parents of losses incurred by branches or subsidiaries located in different Member States, as well as on a common withholding tax on dividends paid to shareholders,

1.Welcomes the Report of the Ruding Committee as a major contribution to the debate on the role of company taxation and its impact on cross-frontier financial and investment flows;

2.Endorses the pragmatic approach recommended by the Commission, having regard to the principle of subsidiarity and the extent of Member State sovereignty in matters of taxation, as provided for in the Treaties;

3.Stresses that any proposal by the Commission for Union action on company tax reform should only follow comprehensive consultation with Member States with a view to determining which matters are appropriate to resolution at the Union level;

4.Believes that any changes recommended should have regard to the general fiscal environment linked to the establishment of EMU, to the budget constraints faced by Member States, to the implications for other forms of taxation of any changes in company tax base or rates and to the wider role of company taxation as an instrument of economic policy;

5.Suggests that account be taken of the effect of company taxation on trade and investment flows not only between Member States but also between the European Union and Third countries;

6.Insists that the European Parliament should be appraised on a regular basis of the substance of consultations between Commission and Council and should be consulted as appropriate on specific proposals;

ELIMINATION OF THE DOUBLE TAXATION OF CROSS-BORDER INCOME FLOWS

Withholding tax

7.Accepts the desirability of eliminating the double taxation of cross border income flows in line with the Commission's approach of 1990 on a common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares and on the further proposal on the taxation of parent-subsidiary companies and of the extension of the scope of both of these Directives as approved by the Economic and Monetary Committee at its meeting of 16-17 February 1994;

8.Questions the proposal by the Ruding Committee for a uniform rate of withholding tax of 30% on dividend distribution by EC resident companies in respect of dividends other than those referred to in the parent subsidiary Directive and paid to shareholders not identified as EC residents on the grounds that it could discourage such investors from committing funds to the EU and lead to EU residents investing outside the Union. It could also be the case that such a tax would offend the principle of neutrality as between equity investment and financing through loans;

Transfer Pricing

9.Approves the guidelines suggested by the Ruding Committee that all Member States ratify the Arbitration Convention and in particular calls on the three Member States which have not yet done so to ratify as a matter of priority. With the consequent result that, in principle, prices be determined under conditions of open competition ("dealing at arm's length") as the basis for transfer prices; calls upon the Commission to examine at European and global level if a co-ordinated shift towards Unitary Taxation is a more effective means of dealing with the problems of tax avoidance by transnational corporations and fiscal competition between tax authorities;

10.Moreover believes it would be desirable to deal with problems of thin capitalization, the allocation of headquarters costs and wider issues raised by the invoicing of centrally provided groups services (e.g.R&D) under the heading of transfer pricing and approves the suggestion of the development of the practice of "rulings", which enables a company to obtain from the tax authority an advance decision concerning the tax implications of the economic/or choice it intends to make;

11.Pending the introduction of a comprehensive system of 'rulings' calls for reinforced exchange of information among revenue authorities to facilitate companies concerned about the tax implications of cross border income flows;

Bilateral Agreements

12.Supports the call for the completion by Member States of the network of bi-lateral tax treaties within the Union and subject to full consultation with Member States'action by the Commission to define a common attitude with regard to policy on double taxation agreements with respect to each other and to third countries;

13.Believes that such Union action should be limited strictly to areas of major Union interest and in particular arrangements covered by Union rules;

14.In addition supports a role for the Commission in ensuring that tax bi-laterals are in accordance with the principle of non-discrimination and established community tax Directives;

Loss Offsets

15.Takes note of the Ruding Committee comments on the absence of means by which Unions-based groups of enterprises can offset losses incurred in one Member State against profits arising in another;

16.As a first step urges Member States at Council to adopt the draft Directive (COM(90)0595) which proposes taking into account by enterprises of the losses of their permanent establishments and subsidiaries situated in other Member States;

17.Accepts that the draft Directive referred to above does not provide for loss offsetting between different subsidiaries of the same parent company;

18.Since such horizontal offsets are not generally available within Member States, believes that it would be premature to seek to establish full vertical and horizontal offsets at Union level;

CORPORATION TAXES

Tax rate

19.Agrees with the Commission's view that there would be problems with the Ruding Committee's proposal for a minimum rate of corporation tax of 30% which could inter alia

- render Member States more vulnerable to tax competition from non-member countries,

-pose difficulties for small and medium sized firms in terms of the alleviation of the tax burden in some Member States,

-and which cannot be taken in isolation from the relationship between tax rates and tax base structure and definitions;

Tax base

20.Endorses the Commission's view that the extent of tax base harmonisation contemplated by the Ruding Committee offends the principle of minimum harmonisation endorsed by the Committee itself;

21.Notes the Ruding Committee's analysis that differences in tax base rules generally have relatively little impact on divergences in the cost of capital between the different Member States;

22.Observes that many of the harmonisation proposals would have the effect of reducing the corporation tax base with potential implications for either increases in rates or shifting the burden to other parts of the tax base;

23.Agrees in particular with the Commission's commitment to consider Union measures with regard to the definition of taxable profits, the carry-over of foreign losses, the deductibility of pension contributions paid by or for ex-patriate workers and the deductibility of insurance premiums, the latter aspects of which would be consistent with facilitating the free movement of workers;

Small and medium sized enterprises

24.Welcomes the Commission's support for extending the option of being taxed as companies to unincorporated enterprises and urges that proposals be brought forward in this regard;

Neutrality of treatment as between foreign-source and domestic-source dividends

25.Welcomes the Commission's intention to initiate discussions with Member States on means of putting the Ruding Committee's recommendations into effect but notes that the abandonment of the reciprocity rule would lead to the country of residence of shareholders benefiting from extra-territorial dividends having to bear unilaterally the cost of reimbursing of imputing corporation tax paid in the source country of the dividend;

TAX INCENTIVES

26.Endorses the Ruding Committee's argument that given the increasing mobility of both capital and financial services there is a danger that unfair competitive conditions will arise as a result of tax incentives, that such incentives should be unrelated to the tax base and should be transparent and that state aids within the meaning of Article 92 be subject to stricter application than heretofore;

27.Accepts that there should be greater transparency in respect of such aids and urges the Commission to apply stricter criteria on state aids and to seek a better balance between Union regional, environmental and industrial Policy;

28.Acknowledges, however, that favourable tax treatment under certain circumstances has a legitimate role to play in particular as one element in a cohesive regional development policy;

CONCLUSION

29.Recognises that taxation most definitely poses problems for the full achievement of the single market and economic and monetary union;

30.Notes that the unanimity rule in Council acts as a major constraint on the development of union legislation;

31.Believes that there should be a strong respect for the principle of subsidiarity;

32.Suggests that union action on business taxation should be limited to the minimum necessary to ensure that the internal market and the ultimate objective of full economic and monetary union function smoothly. In particular stresses the need to eliminate double taxation of cross-border income flows as a key priority;

33.Instructs its President to forward this resolution to the Council, the Commission and the governments of the Member States.