Rick Minor has been a European policy player for more than two decades. He has frequently published articles containing his unique insights on tax policy in the European Union. His insight derives from his diversity of tax experience. He worked at both German and US law firms in Europe, served as a public company tax executive and board member, as fiscal advisor to the Luxembourg Finance Ministry under Prime Minister Jean Claude Juncker (now President of the European Commission) and to date as a member of two distinguished policy institutions, the OECD and the Atlantik Bruecke.
In this reprint of his 2014 article, Rick leveraged his past working relationship to Jean Claude Juncker to accurately predict the unprecedented tax policy success of the Juncker Commission.
Jean-Claude Juncker, president-elect of the European Commission, on September 10 announced the 27-member Cabinet for his five-year term that begins in November. Pierre Moscovici, France’s former finance minister (2012 – 2014) under current French President Francois Hollande, has been named commissioner for economic and financial affairs, taxation and customs. It will be interesting to see how Juncker and Moscovici influence EU tax policy, particularly in the digital economy.
Juncker has organized his Cabinet differently than his predecessors, dividing it into two levels consisting of seven vice presidents and 20 commissioners, respectively. The new structure is intended to facilitate greater cooperation and execution of policy across commission disciplines, including tax policy.
The vice presidents have been delegated issue-specific authority to work with the EU commissioners on multidisciplinary portfolios of commission competency. Mission letters addressed to each Cabinet member set the priorities and, in effect, the reporting lines for that Cabinet member’s competencies.
With the September 10 announcements, Juncker is off to an impressive start in setting well-defined priorities for his Cabinet. In some cases, there are already timelines for the delivery of policy plans. The mission statements reflect confidence in Juncker’s choice of priorities and the selection of his team, and a no-nonsense urgency for that team to work together in collaborative ways -- not so common for past Cabinets -- to deliver tangible results.
Juncker’s July 15 Political Guidelines
On July 15, before his candidacy was approved by the European Parliament, Juncker published a paper on the priorities of his presidency. The political guidelines are organized into 10 areas of priority, each of which is broken down into even more specific policy initiatives. The reference to tax policy in the political guidelines was more general and can be restated here in relevant part (page 6):
We need more fairness in our internal market. While recognizing the competence of Member States for their taxation systems, we should step up our efforts to combat tax evasion and tax fraud, so that all contribute their fair share. I will notably press ahead with administrative cooperation between tax authorities and work for the adoption at EU level of a Common Consolidated Corporate Tax Base [CCCTB] and a Financial Transaction Tax.
As many know, both the CCCTB project and the financial transaction tax are controversial initiatives in the European Union and do not have the unanimous support of the member states.
If memory serves, as Luxembourg’s finance minister, Juncker supported the CCCTB initiative while his successor as finance minister publicly opposed the financial transaction tax. There is not necessarily a contradiction in Juncker’s position on either issue now. Rather, any policy change is likely an appreciation of Juncker’s greater European agenda as commission president. Because he is knowledgeable on both subjects, a more detailed, personal statement reconciling any changes in his position would be of value for the public, if not an inspiration to other members of his Cabinet who find themselves supporting EU policy over conflicting national policy positions.
Moscovici -- Past as Prologue?
Commissioner for economic and financial affairs, taxation and customs is typically one of the most important positions in a commission president’s Cabinet.
Moscovici was France’s finance minister during an increased focus on the European tax structures of U.S. digital multinationals, which has led to the work under action 1 (Taxation of the Digital Economy) of the OECD’s base erosion and profit-shifting project. The much heralded and criticized Colin-Collin report on the need to revise the international tax rules for digital business models was published during Moscovici’s ministerial term, supposedly with the tacit support of the French government. (Prior coverage of the report) The report’s proposals are not business-friendly and leave many implementation issues unresolved, but they at least add value to the greater debate on tax policy. The proposals, however, have not been embraced by other large economies such as the U.S., the U.K., and Germany, and thus remain largely “French-centric.”
As EU tax commissioner, Moscovici will have to take a broader view when carrying out Juncker’s tax policy priorities. This likely will be an ongoing substantive discussion (that began in the pre-appointment process) between the Juncker and Moscovici teams. Hopefully, Moscovici will be able to embrace changes in his previous policy positions as French finance minister. With the publication of several OECD BEPS recommendations imminent, the wait for the EU tax policy reaction presumably will not be too long.
Mission Letter to Moscovici -- Tax Policy Focus
Juncker’s tax policy priorities, with the exception of the two unambiguous positions in the July 15 political guidelines, currently can be only vaguely defined. This is a strategic decision because it is not yet the right time to take more specific positions with the OECD BEPS proposals that are still outstanding.
In Juncker’s mission letter to Moscovici the president-elect acknowledges member states’ sovereignty in deciding corporate tax policy and legislation. This is in contrast to VAT rules, for which the commission is specifically granted authority to create a harmonized system under the founding and successor treaties of the European Union. Juncker will know this VAT/corporate tax distinction as well as anyone in the commission from his lengthy, overlapping terms as prime minister and finance minister of Luxembourg.
Juncker’s tax priorities for Moscovici are paraphrased here, in substance, from page 5 of the mission letter:
Paying specific attention to the stability of the euro and the convergence of the economic and fiscal policies within the euro area. Convergence of fiscal policy in the EU usually means a combination of multilateral and concerted unilateral actions by the member states, driving policy to a common goal in the absence of specific legal instruments or treaty authority to bind member states. Juncker no doubt sees a role for the commission in driving that convergence though the formulation of the kind of specific policy initiatives that could be achieved through coordinated action by fiscal decision-makers at the national level. Here, the anticipated output from the OECD BEPS project can make a significant contribution to articulating EU tax policy that can be realistically implemented.
Improving the functioning of the internal market in indirect taxation and developing a definitive VAT system at the EU level. There are well-known aspects of the current EU VAT system in need of obvious reform, some of which have been addressed in OECD discussion drafts and in the EU expert group’s report published in May. Many VAT experts on the commission and in the private sector maintain that VAT rate reform should be a priority. Individual member states still have a significant amount of autonomy in setting standard and reduced VAT rates. The proliferation of so many different rates is a major obstacle to the efficient functioning of a place of consumption VAT regime, which the commission has pursued vigorously for the past decade, as evidenced by the 2015 VAT rules for all suppliers -- wherever located -- of digital goods and services to EU consumers. Moscovici can make significant progress in the VAT area if he combines will with conviction. Real rate reform is a business-friendly initiative consistent with Juncker’s stated goal of greater economic and fiscal union.
Seeking to finalize negotiations on the financial transactions tax and the CCCTB.
Continuing the fight against tax evasion and aggressive tax planning and tackling BEPS, including in the digital economy. Worth noting here is the specific reference to the digital economy. Hopefully, the Juncker commission will dedicate full-time resources with member-state-specific fiscal knowledge to continue the work of the EU expert group. The European Commission can contribute a corporate tax policy roadmap that is sustainable for the ever-evolving digital economy and that sets the bar for other BEPS-driven tax reform that member states may be reluctant to pursue individually. Again, the output of the OECD on the relevant action plans will be a valuable foundation for any such initiative.
Several BEPS action plan proposals, including the one on the digital economy, will be published soon. The EU is expected to take a position on specific corporate tax and VAT proposals in the BEPS actions, but it is too early to speculate on the form and content of that position.
Only a leader with Juncker’s European credentials could act this quickly and decisively in setting up his team and a new decision-making structure in the Cabinet. There is no doubt that much of his own thinking is reflected in the choice of priorities. Juncker has been a player at the EU level for almost three decades. He will know how to get things done in the commission, leveraging formal and informal decision-making processes to move his agenda forward. Although it does not formally take office until November, the Juncker commission is off to a quick start in terms of setting priorities. Juncker and Moscovici together will have meaningful influence over the direction of EU fiscal policy over the next years. From opposite ends of the European mainstream political spectrum, they add an interesting dynamic to the evolution of EU tax policy expected in the next couple of years.