Economic Growth and Taxation Towards a post-2010 Lisbon strategy in the EU Matthias Mors European Commission, Directorate-General for Economic and Financial Affairs International Tax Conference on European Tax Systems Coordinated for Growth Confederation of Swedish Enterprise Stockholm, 15-16 June 2009

Improving the quality of public finances Agreed need to improve the quality of public finances (QPF) in the EU as part of the Lisbon strategy WG with Member State experts reporting to Ministers (May 2009 Council conclusions) Regular national reporting on tax reforms Efficiency and effectiveness of revenue systems one element of a multi-dimensional approach to improving QPF On revenue side, focus on composition and efficiency of revenue collection

High tax burden on labour in the EU

Efficiency of tax administration differs widely

Composition and efficiency of revenue systems Empirically, high-growth countries were in the past characterised by a lower tax wedge and lower overall tax burdens than low-growth countries Indirect taxes seem less distortive and detrimental to growth (but concern about equity aspects) Efficient tax administration can be supportive Reducing the overall tax burden will be difficult over the medium term due to the fiscal costs of the crisis and the impact of population ageing on public expenditures Therefore important to look at efficiency of taxes and spending

Shifting the tax burden to promote growth? Shifting the tax burden from labour to consumption can increase employment and growth Larger employment effects when tax cuts are targeted A trend towards higher effective taxation of consumption can be observed in the EU since 2001 No coordinated policy initiative in the EU Quantitative positive effects on growth likely to be modest (even if shift is coordinated) Tax shifting is no alternative to structural reforms which thus need to be pursued vigorously

Improving the business environment and the functioning of the Internal Market Reducing administrative burdens on business -> e.g. VAT and electronic invoicing Better coordination of national tax systems in order to reduce tax obstacles (e.g. double taxation) and ensure compliance with EC Treaty -> Council conclusions on exit taxes -> Ongoing work on charitable giving and anti-abuse measures -> Commission initiatives on inheritance taxes and withholding taxes on cross- border income in preparation

Improving the business environment and the functioning of the Internal Market (2) In the longer term introduction of a Common Consolidated Corporate Tax Base (CCCTB) -> CCCTB would enable companies to follow a single set of rules for calculating their tax bases in different Member States of the EU -> CCCTB would eliminate transfer pricing within consolidated groups, allow cross- border loss relief, avoid double taxation, simplify restructuring and reduce compliance costs -> Ongoing technical work on a Commission proposal

Examining the lessons from the financial and economic crisis Excessive leverage of banks has been a key factor in the current financial crisis Undercapitalisation makes companies more vulnerable in the current recession National tax systems in the EU systematically favour debt over equity financing Move to either an allowance for corporate equity (ACE), a comprehensive business income tax (CBIT), or a combination of both could under certain circumstances be welfare improving