United Kingdom: balance of competencies review – report published

July 30, 2013

On 22 July 2013, the Government published a report entitled Review of the Balance of Competences between the United Kingdom and the European Union – Taxation.

The report examines the balance of competences between the European Union and the United Kingdom in the area of taxation, and aims to provide an analysis of what the United Kingdom’s membership of the European Union means for the former’s national interest.

In preparing the report, the Government took evidence from experts, non-governmental organizations, the business community, Members of Parliament and other interested parties. In particular, the report focused on the following topics:

  • The appropriate level for tax policy. On this topic, respondents generally were of the view that it was for the Member States (and not the EU) to make decisions on taxation, in particular, direct taxation, and, even more particularly, personal taxation. In terms of decision-making, the EU could focus on tax policy measures to address obstacles to cross-border business, or administrative cooperation between Member States, where these measures could not be addressed by domestic action
  • The impact of the current balance of competence. Respondents generally acknowledged the underlying tension between creating a level playing field  within the internal market, and the ability of Member States to respond to specific national circumstances through design of their own tax systems. In this regard, respondents were appreciative of the harmonized indirect tax measures across the EU, and the EU Directives on direct tax matters. On the issue of unanimity voting on taxation matters, respondents acknowledged its role in ensuring the safeguarding of national tax sovereignty, but also highlighted some downsides arising from this method of voting. These concern the probability of the legislation in question finally being agreed, the nature of the legislation itself, and the timeframes for agreement. Even so, respondents were in generally in favor of retaining unanimity voting
  • Identifying areas where the United Kingdom would benefit from either more or less EU-level action on taxation. Respondents were generally content with the current balance of competence on taxation, especially given the protections offered by unanimity voting. A number of respondents raised doubts about the utility of EU-level action regarding the proposed financial transactions tax
  • How tax policy and legislation could be improved. Many respondents advocated that the European Commission should consult more. Respondents also stated that there should be more detailed analysis of the effects of EU tax policy on Member States, as well as greater accountability for impact assessments
  • The future challenges faced by the United Kingdom on the balance of competence on tax. Here, respondents raised concerns on the perceived risks to the United Kingdom’s tax sovereignty or national interests. Reference was made to certain aspects of EU practice that had informed such concerns. These include matters such as the use of enhanced cooperation on tax measures that could have extraterritorial effects, and the impact of rulings by the Court of Justice of the European Union on domestic tax measures and Member State competence

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