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Tuesday, December 1, 1998 Published at 16:26 GMT

Q & A: Tax harmonisation

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Why would the European Union want to harmonise taxes - and how would they go about it?
Jonathan Charles, the BBC's Europe Business correspondent, has the answers.

Why would anybody want to harmonise taxes?

There is a feeling amongst many European Union governments that the start of the European single currency in January will require a greater co-ordination of economic policy. They believe that if Europe is to be run as a single economy, then governments have to agree certain minimum levels of tax to ensure a level playing field, and similar economic conditions, in all EU countries.

Some governments are worried that if the new taxation laws are not implemented companies will transfer their business to the EU countries where taxes are lowest, leaving high unemployment in countries like Germany, where it is not unusual to pay 50% of your income in tax.

How likely is the EU to go ahead with this plan?

All EU governments - including Britain - have agreed a code of conduct on taxation. They have pledged to iron out harmful competition on tax between countries.

Its use of this code allows the European commission to put forward the plan to harmonise taxes. Commissoners also say that they have a duty to iron out inconsistencies as part of their drive to implement the single market

Which taxes could be harmonised?

At the moment there is a proposal for a minimum level of tax on savings and investments. The commission is also proposing a minimum energy tax, and a minimum tax on artists and other royalties.

Why are countries like France and Germany pressing so strongly for the same levels of taxation?

France and Germany are worried that if they have different levels of taxation then jobs will move to countries where the best deal is offered. As neighbouring countries they believe it makes sense to co-operate.

Taxes can go up as well as down. How are they likely to be harmonised?

There are differing views. Some critics say it will inevitably lead to counties with lower taxes having to raise levels to those in force in countries with a higher tax rate. Others, however, say that competition for jobs and the need to make the economy more competitive will lead to rates being harmonised at lower levels.

At the moment the EU is proposing minimum tax levels, but no maximum tax rates.

How easy will it be for a country to opt out of harmonisation?

For tax harmonisation to come into force, all countries will have to vote in favour. So if for example Britain or Luxembourg do not want to have a EU-wide minimum tax on savings and investment, they can stop the tax from going ahead by vetoing the proposal. But once a harmonisation plan is agreed by all 15 member state, there is no chance to opt out anymore.

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