Small EU countries and islands used tax competition tools to compensate for major competitive disadvantages due to their limited endowments and distance from major markets, former Prime Minister Alfred Sant said.
Along with Malta, Ireland and Cyprus have also expressed great concerns regarding the EU’s tax harmonisation proposal and underlined the harmful consequences for their tax revenues and employment on their territories.
The Maltese MEP was speaking at ECON during an exchange of views with national Parliaments on the Common Consolidated Corporate Tax Base.
“To combat tax abuse, the scope for using the tools available at a national level is far from being exhausted. To turn as of now to new European tools is counterproductive and not in the interest of member states, or at least some of them, especially when the real intention is to introduce tax harmonisation. The objective at a European level should be that of enforcing transparency across the board, both at EU level and that of the OECD,” Dr Sant said.
He said it was “a great pity” that the effort that must be carried out to curtail tax evasion and aggressive tax planning had been deviated from what should be its proper goal: that of combatting tax abuses primarily on a national basis. Instead, the real target had become that of curtailing tax competition with a view to moving towards tax harmonisation on a European basis.
“In my view, we’re putting the cart before the horse. Tax competition is a legitimate tool of policy. It is certainly needed by small countries, islands and other economic systems which are placed at major competitive disadvantages due to their limited endowments and distance from major markets.”
Dr Sant said that working towards tax harmonisation, first by establishing a common corporate tax base and then by driving forward towards a minimum effective tax rate across Europe was unjustifiable on political and economic grounds.
“Even the US – a fully fledged federal state – has nothing like this.”
He said that with the constraints of the fiscal compact and other conditions that reflect EMU in Europe, member states were already subject to more constraints in their budgetary management than were the states of the US.
“In deploying the state powers that the exercise of their sovereignty allows, member states of the EU can do much more to curb tax abuse.”
The key principle for all should be transparency, Dr Sant said.