EU elections: what does it mean for the EU agenda on taxation?

On 23 – 26 May 2019, the European Parliament elections took place across the 28 EU Member States, which paves the way for the start of a new five-year term. The President of the new European Commission should be nominated by the EU28 leaders on 20-21 June and endorsed by MEPs on 16 July. At their summit on 20-21 June, the EU28 leaders will also adopt the political priorities for the new term.

Commenting on the results of the EU elections, Freshfields tax Partner David Haworth said that “Ultimately, taxation is expected to remain a top priority going forward. It was a key theme during the election campaign, whether focusing on corporate tax or indeed on the need to drive progress on climate change. Across the board, taxation is seen as an essential tool in Europe for tackling a whole host of issues and this looks set to continue into the next term.”

Taxation was a priority in the manifestos of the main political parties for the EU elections campaign

Indeed, looking at the manifestos of the main EU political parties, it is clear that taxation, and especially the so-called “fight against tax avoidance and evasion”, will remain a key priority in the next mandate. If we look at the two traditional parties, the centre-right European People’s Party (EPP) and the centre-left group of Socialists and Democrats (S&D), taxation was an important part of their manifesto. Even if these two parties combined have lost their absolute majority for the first time ever, they are the mainstream political forces that will remain important in the next mandate and will likely be part of any future coalition. The EPP campaigned for the introduction of a “Digital Fair Tax” and promised to work “for an OECD-level solution for fighting tax evasion and eliminating tax havens”. The S&D called for a “common European approach to ensure a proper level of effective taxation and stop downward corporate tax competition”. The Socialists also campaigned for a new tax on CO2 emissions.

Focusing now on the two groups broadly recognised as the main winners of the European Parliament elections, the Liberals (formerly ALDE now Renew Europe – RE) and the Greens, recognised as the “kingmakers” who will have the power to secure majorities in one direction or another, and whose unprecedented good results also mean that taxation will remain a priority. The Greens, who arrived fourth in this election (their best result ever) are one of the fiercest proponents of bringing more “transparency” and “fairness” into the tax system. Unsurprisingly, they campaigned for using taxation as a tool to facilitate climate transition through “fair taxation of air travel” and taxation (or a ban) of non-recyclable plastics. They also proposed to “develop tax regimes that do not benefit large multinationals and wealthy individuals”, to “continue to crack down on tax havens, tax evasion, tax avoidance and money laundering”, to “introduce an EU digital tax” and to act “against unfair tax competition between Member States.” The success of the Green parties in the European elections also demonstrates that the environmental and sustainable agenda has become a topical issue, especially amongst  young voters, and it will therefore be hard for other parties to push back  strongly on a number of their demands.

A focus on the Liberals’ group

As for the Liberals, their manifesto was almost silent on tax issues. They only mentioned the need “to see an end of the obsolete fuel tax exemptions for international aviation by updating the Chicago Convention”. This can be explained by the fact that the Liberal group is traditionally in favour of fair competition, including on taxation and that it may have been hard to find language agreeable by all party members on this issue.

However, in the previous European Parliament mandate, Liberal MEPs were fully in line with the objectives of bringing more transparency and fairness into taxation and always keen to stress that multinationals should not be able to avoid paying taxes when SMEs are left bearing a lot of the tax burden. For instance, the Czech Liberal MEP Petr Ježek (not re-elected) was the Chairman of the Special Committee investigating tax avoidance and money laundering practices (the so-called TAXE3 Committee).

Furthermore, the Liberal candidate and current Competition Commissioner Margrethe Vestager, who championed “fair taxation” by opening a series of fiscal State aid cases, may have very good chances of being appointed Commission President. Indeed, her firm position when it comes to regulating multinationals and digital companies, especially in relation to their tax affairs, has made her popular beyond her own political family. Vestager would certainly be a strong tax avoidance fighter as Commission President.

When looking at national Liberal parties’ manifestos for the EU elections, such as the one of French President Macron’s party ‘En Marche’ (which is sending the biggest contingent of Liberal MEPs (21) to Brussels), it also confirms that taxation is a very important topic for this group. For instance, En Marche’s candidates campaigned in France for an EU digital tax, combatting tax evasion by strengthening sanctions against tax havens, adopting public Country By Country Reporting, establishing a global minimum tax (a proposal originally emanating from Germany and currently discussed at OECD level) and harmonising corporate tax in Europe where rates vary greatly from one Member State to another in order to “stop unfair competition in Europe”.

These four mainstream political groups – EPP, S&D, ALDE, Greens – are expected to form some sort of ‘governing coalition’ in Europe in the next mandate. The current agenda on taxation is therefore expected to be continued and possibly reinforced with the creation of green or sustainable tax measures.

Which impact in terms of policy files?

When it comes to the specific files, it is clear looking back at the 2014-2019 mandate that the drive for more transparency in order to combat tax fraud and tax evasion will remain a key point on the EU agenda. We expect that a number of pending files will likely be closed before new corporate tax initiatives are put on the table. These include Common Consolidated Corporate Tax Base (CCCTB), public Country By Country Reporting (CBCR) and possibly an EU digital tax if no progress is made in the OECD. The Financial Transaction Tax (FTT) also seems back on the agenda and an agreement could be in sight. Similarly, several parts of the VAT reform package remain to be agreed, such as work streams on a definitive regime and rates. Finally, the greening of the European Parliament, which illustrates a growing trend in Europe, is expected to be reflected in the more systematic use of taxation as a tool to achieve sustainability objectives. Such initiatives could include EU-wide proposals for an aviation tax, carbon tax or a review of the Energy Taxation Directive which defines levels of taxation applied to motor fuels, heating fuels and electricity.

 Learn more at www.freshfields.com/tax and https://play.buto.tv/6yWrC