A 000509 11.01.2017 From: ESCOM <[email protected]> Sent: 10 January 2017 18:38 To: Documents Reception sector Subject: Political dialogue from UK House of Commons on COM(2016) 685 and COM(2016) 683 Attachments: Draft Reasoned Opinion.docx; 1. ESC 23rd Report.pdf; 100117 EC.pdf Categories: Eleni Dear Mr President, Please find attached, by way of political dialogue, a resolution of the UK House of Commons of 9 January 2017, and a draft Reasoned Opinion and related Report from the European Scrutiny Committee of the UK House of Commons, relating to: EUROPEAN UNION DOCUMENT NO. 13730/16 AND ADDENDA 1,2 AND 3, A PROPOSAL FOR A COUNCIL DIRECTIVE ON A COMMON CORPORATE TAX BASE (COM(2016) 685); AND EUROPEAN UNION DOCUMENT NO. 13731/16 AND ADDENDA 1,2 AND 3, A PROPOSAL FOR A COUNCIL DIRECTIVE ON A COMMON CONSOLIDATED CORPORATE TAX BASE (COM(2016) 683) Kind Regards Mike Winter JP JCSI| European Scrutiny Committee T: 0207 219 6921 | E: [email protected] UK Parliament Disclaimer: This e-mail is confidential to the intended recipient. If you have received it in error, please notify the sender and delete it from your system. Any unauthorised use, disclosure, or copying is not permitted. 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Resolution of the UK House of Commons – 9 January 2017 Taxation: a Common Consolidated Corporate Tax Base That this House takes note of European Union Document No. 13730/16 and Addenda 1 to 3, a Proposal for a Council Directive on a Common Corporate Tax Base; further takes note of European Union Document No. 13731/16 and Addenda 1 to 3, a Proposal for a Council Directive on a Common Consolidated Corporate Tax Base; considers that the proposals do not comply with the principle of subsidiarity for the reasons set out in the Twenty-third Report of the European Scrutiny Committee (HC 71-xxi); regrets that because of the inflexibility of the deadline for providing a Reasoned Opinion over the Christmas period it has not proved possible in the time available for the House to serve a Reasoned Opinion in accordance with Article 6 of Protocol No. 2 annexed to the EU Treaties on the application of the principles of subsidiarity and proportionality; and instructs the Clerk of the House to forward this motion and the Reasoned Opinion recommended by the European Scrutiny Committee to the European Commission by way of political dialogue. Annex: DRAFT Reasoned Opinion of the House of Commons Submitted to the Presidents of the European Parliament, the Council and the Commission pursuant to Article 6 of protocol (No. 2) on the Application of the Principles of Subsidiarity and Proportionality. Draft Directive on a Common Corporate Tax Base Draft Directive on a Common Consolidated Corporate Tax Base The proposals have been presented by the Commission as a package accompanied by a single Impact Assessment. This reasoned opinion covers both and, to the extent that they are separable, each. The proposals substantially follow a former single proposal for a Directive on the Common Consolidated Corporate Tax Base (subsequently withdrawn by the Commission) which attracted reasoned opinions from: the Bulgarian National Assembly, the Dáil Éireann, the House of Representatives of the Netherlands, the Polish Sejm, the Romanian Chamber of Deputies, the National Council of the Slovak Republic, the Swedish Parliament, and the House of Commons. The subsidiarity objections of the House of Commons to the previous proposal were: that the Commission had assumed, without clear evidence, that the objectives could not be achieved by informal co-ordination by Member States; and also assumed, without clear evidence, that the 1 burdens identified by the Commission amounted to an impediment to the functioning of the internal market: and that the negative impact on investment, employment and GDP at the EU level outweighed savings in compliance costs and benefits for Member States which were in any event questionable. The main stated objectives of these proposals are: . To remove obstacles for companies seeking to do business across frontiers within the Union; . To ensure that companies pay their fair share of tax in the jurisdiction(s) where their profits are generated; . To counter tax avoidance; . To neutralise the current imbalance against equity financing; and . To encourage research and innovation. The proposals seek to do this by providing (a) a common corporate tax base which is compulsory for large cross border groups (and optional for smaller groups), which incorporates specific tax avoidance measures and specific allowances for research and development and innovation; and (b) by requiring the group accounts to be submitted to the tax authorities of a single Member State which then apportions the tax base amongst other Member States according to a fixed formula intended to reflect economic reality. Direct taxation is a matter for which individual Member States have a particularly strong interest as it not only governs the revenue available to each Member State but is also inextricably linked to their social and other policy choices. This is reflected in the fact that powers in this area can only be exercised by the EU if Member States unanimously agree. With this consideration in mind the House of Commons does not consider that these proposals adequately satisfy the principle of subsidiarity for the following reasons: . The Commission has not adequately provided evidence of the change in circumstances since its previous proposal which had acknowledged adverse effects on investment, employment and GDP; . The tax base is an essential element of Member States’ tax sovereignty, effecting not only the tax revenue but social and other policy choices. The common corporate tax base removes many of these choices, for example imposing an EU level choice of exemptions for R&D and innovation and leaving Member States the limited options not to tax gifts, charitable donations and pension provisions. Leaving Member States freedom to choose the tax rate without leaving them freedom in respect of the tax base interferes too much with their legitimate freedom in respect of corporation tax; . The fairness of its tax system, including the balance between equity and debt, is a matter for which Member States are pre-eminently responsible and accountable to their own people, and which needs to be looked at in the round in the context of each 2 Member States’ tax system taken as a whole, without the EU imposing its solution in respect of one tax; . Regulating corporation tax at an EU level means that any changes have to be unanimously agreed at the EU level. This is too cumbersome to react to changes in circumstances, for example, to address a perceived unfairness which in may not be of the same scale or effect in all Member States. That greater flexibility, which can be exercised at Member State level, is needed is demonstrated by the fact that a safeguard mechanism is necessary to allow deviation from the apportionment formula in the Common Consolidated Tax Base. However this degree of flexibility is too limited. Member States need the flexibility to act across the whole area covered by these proposals; . The Common Consolidated Corporate Tax Base is mostly limited in its effects to the EU, whereas the tax avoidance problems that these proposals are seeking to address are global or at least extend beyond the EU. Member States remain in a better position to address these problems, including on the global scale, through their effective co-ordination within the OECD Base Erosion and Profit Shifting initiative; and . The advantage of the proposals to corporates is focussed on a reduction of compliance costs rather than an increase in the opportunity to trade. The reduction in compliance costs is balanced by increased administrative costs for Member States and in any event does not outweigh the disadvantages outlined above. 3 House of Commons European Scrutiny Committee Taxation: a common consolidated corporate tax base Twenty-third Report of Session 2016–17 Documents considered by the Committee on 7 December 2016, including the following recommendations for debate: Taxation: a common consolidated corporate tax base Report, together with formal minutes Ordered by the House of Commons to be printed 7 December 2016 HC 71-xxi Published 9 December 2016 by authority of the House of Commons Notes Numbering of documents Three separate numbering systems are used in this Report for European Union documents: Numbers in brackets are the Committee’s own reference numbers. Numbers in the form “5467/05” are Council of Ministers reference numbers. This system is also used by UK Government Departments, by the House of Commons Vote Office and for proceedings in the House. Numbers preceded by the letters COM or SEC or JOIN are Commission reference numbers. Where only a Committee number is given, this usually indicates that no official text is available and the Government has submitted an “unnumbered Explanatory Memorandum” discussing what is likely to be included in the document or covering an unofficial text. Abbreviations used in the headnotes and footnotes AFSJ Area of Freedom Security and Justice CFSP Common Foreign and Security Policy CSDP Common Security and Defence Policy ECA European Court of Auditors ECB European Central Bank EEAS European External Action Service EM Explanatory Memorandum (submitted by the Government to the Committee)* EP European Parliament EU European Union JHA Justice and Home Affairs OJ Official Journal of the European Communities QMV Qualified majority voting SEM Supplementary Explanatory Memorandum TEU Treaty on European Union TFEU Treaty on the Functioning of the European Union Euros Where figures in euros have been converted to pounds sterling, this is normally at the market rate for the last working day of the previous month.