Monday, June 27, 2005

Could you please stop hurting my Budget?

According to recent news, the UK will campaign during its EU Presidency (July – Dec 2005) for a reduction in the powers of the European Court of Justice (ECJ) in tax matters. The move, announced by UK officials on 20 June 2005, comes as a reaction to a recent series of cases in which the ECJ has acted to increase the circumstances in which companies may claim tax rebates. The cases have led to fears of a flood of rebate claims from big corporations that could amount to huge losses in revenue for governments across the EU.

In April, in the Marks & Spencer case, the court's advocate-general gave a preliminary view that refunds could be claimed in relation to offshore subsidiaries. In May 2005, in an Austrian case, Kretztechnik, the court ruled that companies could recover VAT on fees charged by advisors on share issues. Remember that at the June 2005 EcoFin Council, a proposal was made by the German finance minister Hans Eichel that a special committee be set up to look into the issue.

This shows that Member states are starting to be quite worried with the consequences of the ECJ judgments on their budgets. Worried enough, that they start lobbying for a more “member state friendly” ECJ.!

But, I am quite suspicious of this type of approaches. The role of the ECJ in removing discriminatory tax provisions and barriers to the exercise of fundamental freedoms is well known to all of you. The integration process is an ongoing process and the the institutions and processes need to develop over time. Europe will not and cannot develop overnight (in fact, the French and Dutch No to the EU Constitution demonstrate this).

The ECJ is arguably the most important factor in European Taxation nowadays. Failure to understand its role and its far-reaching judgments has already cost dearly to some Member States budgets. But what I do not understand is that instead of reviewing their domestic laws in order to achieve a good level of EU compliance, member states appear to want to go the other way and lobby for a more relaxed ECJ, a Court that would instead of doing its job of protecting the taxpayer would protect EU budgets! No way JOSE! I prefer the Robin Hood version of the ECJ!


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