Economy

Report suggests suspending tax veto to tackle EU market ‘distortion’

EU report proposing measure to tackle ‘aggressive tax planning’ or tax avoidance

Former Italian prime minister Enrico Letta also recommended a plan to connect more European capitals together by high-speed train. Photograph: Behrouz Mehri/AFP via Getty Images

Jack Power
Wed Apr 17 2024 - 14:56

The European Union could move to take decisions based on a majority of members on some tax matters in response to “severe distortions” in the bloc’s single market, overriding individual countries’ traditional veto power, a new report has suggested.

The report, written by former Italian prime minister Enrico Letta, said there needed to be a “level playing field” between EU countries when it came to “aggressive tax planning” and tax avoidance. Mr Letta was commissioned by EU leaders to draw up a report on the future of the union’s single market back in the second half of 2023.

The report, published on Wednesday, noted there was still “a degree of dispersion” between member states on corporation tax. Ireland has previously been criticised for its 12.5 per cent rate, now raised to the 15 per cent global minimum rate.

Mr Letta wrote that in response to “severe distortions” in the single market, there were rules that could allow EU member states to take actions supported by a qualified majority, rather than the unanimity usually required for tax matters. This would let national leaders “overrule any single unwilling member state” to push through measures, he said.

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“Based on a thorough economic and legal analysis already initiated by the [European] Commission, the political viability of a targeted and timely use of this important instrument offered by the treaties is key over the next years,” he wrote.

Any move to invoke this clause in practice would likely be highly controversial and lead to a clash between Ireland and other EU countries.

Mr Letta, who was Italian prime minister between 2013 and 2014, also recommended a plan to connect more European capitals together by high-speed train. Current high-speed rail networks exist only within certain countries, and should be linked up across the EU, he said. “It’s of course going to be hard to connect Valletta with Dublin,” he joked.

His report comes as EU leaders are meeting for a summit in Brussels, where on Thursday they are expected to discuss plans for how to make the EU more competitive economically. The discussion will likely include debate around creating a single market for capital, long-mooted proposals to make it easier for money to move within the union. The reforms, which proponents have said will make it easier for businesses to raise money within the EU, have stalled for years.

Speaking to reporters, Charles Michel, president of the European Council, said it was crucial countries came together to push through long-debated reforms to make the EU more competitive.

Mr Michel said the current debate would be a “moment of truth” for whether the EU would be able to kick on and agree to deeper financial ties. “We can’t avoid that debate, we are going to look each other in the eye and see what we can do to move forward,” he said. There would be “difficulties” getting agreement between countries on the issue of corporate tax, as well as potentially overhauling national insolvency regimes, he said.

Mr Letta said changes were needed to bring the financial markets in the 27 countries closer together. “We are being left behind compared to the US, but also compared to the other economies across the globe,” he said.

Jack Power

Jack Power

Jack Power is acting Europe Correspondent of The Irish Times

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