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QMV debate for tax policy

European Commission launches debate on a gradual transition to qualified majority voting for decision-making in EU tax policy

carolineheath 16 January 2019 No comments

The European Commission has started a debate on reforming decision-making for areas of EU  taxation policy, which currently requires unanimity among Member States. This unanimity often cannot be achieved on crucial tax initiatives and can lead to costly delays and sub-optimal policies.

The European Commission’s Communication suggests a roadmap for a progressive and targeted transition to qualified majority voting (QMV) under the ordinary legislative procedure in certain areas of shared EU taxation policy. QMV is already in place in most other EU policy areas.

Commission President Jean-Claude Juncker, who had called for a move to qualified majority voting in taxation in his recent State of the Union addresses, said:

“Our increasingly globalised economies need modern and ambitious tax systems. I remain strongly in favour of moving to qualified majority voting and a stronger voice for the European Parliament on the common future of taxation in our Union.”

Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici said:

“The EU has had a role in taxation policy since the origins of the Community six decades ago. Yet if unanimity in this area made sense in the 1950s, with six Member States, it no longer makes sense today. The unanimity rule in taxation increasingly appears as politically anachronistic, legally problematic and economically counterproductive. I am fully aware of how sensitive an issue this is, but that cannot mean that the discussion is off limits. So let’s begin this debate today.”

What are the problems with the current decision-making process on taxation policy?

The need for unanimous agreement makes progress difficult, and limits the potential of EU taxation policy to support a well-functioning EU internal market.

The need for unanimous approval makes it very difficult to reach any compromise at all, because the veto of just one Member State alone is enough to prevent agreement.

This can lead to it taking years for taxation proposals to be agreed by Member States, or proposals simply being blocked in the Council without any discussion taking place:

  • Even when agreement is reached with unanimity, it tends to be at the lowest common denominator level, limiting the positive impact for businesses and consumers, or making the implementation more cumbersome than necessary;
  • Some Member States use unanimity as a bargaining chip against other demands they may have on completely separate issues;
  • Decisions taken by unanimity can only be reversed or changed by unanimity. This often makes Member States overly cautious, dampening ambitions and weakening the final outcome.

The unanimity rule has meant that some key proposals for growth, competitiveness and tax fairness in the Single Market have been blocked for years. At the same time, the democratically elected European Parliament has only a consultative role in the current decision-making process.

The QMV approach would usher in a new dynamic and reform decision-making in this area at a time when the future of taxation has become a burning issue for the international community.

How does Qualified Majority voting work?

qualified majority is reached if two conditions are met:

  • 55% of Member States vote in favour
  • the proposal is supported by Member States representing at least 65% of the EU population

Given that both conditions are necessary, this procedure is also known as the ‘double majority’ rule.

A decision can still be stopped by a ‘blocking minority’, but this blocking minority must be formed by at least four Member States representing more than 35% of the EU population.

What is the Commission proposing?

The Commission is asking EU leaders, the European Parliament and other stakeholders to assess the possibility of a gradual, four-step progression towards decision-making based on QMV as set out below (see factsheet for full details):

  • In Step 1 Member States would agree to move to QMV decision-making when it comes to measures that improve cooperation and mutual assistance between Member States in fighting tax fraud, tax evasion, as well as for administrative initiatives for EU businesses, e.g. harmonised reporting obligations. These measures are usually welcomed by all Member States but are prone to being blocked for reasons unrelated to the issues at hand;
  • Step 2 would introduce QMV as a useful tool to progress measures in which taxation supports other policy goals, e.g. fighting climate change, protecting the environment or improving public health;
  • The use of QMV under Step 3 would help to modernise already harmonised EU rules such as VAT and excise duty rules. Faster decision-making in these areas would allow Member States to keep up with the latest technological developments and market changes to the advantage of EU countries and businesses alike;
  • Step 4 would allow a shift to QMV for major tax projects, such as the Common Consolidated Corporate Tax Base (CCCTB) and a new system for the taxation of the digital economy, that are urgently needed to ensure fair and competitive taxation in the EU. In particular, the CCCTB is still progressing very slowly as a result of unanimity.

The Communication suggests that Member States quickly make a decision to develop Steps 1 and 2, and consider developing Steps 3 and 4 by the end of 2025.

Next steps

The Commission calls on EU Member States, the European Parliament and all stakeholders to engage constructively in a debate on QMV in EU tax policy, and to define a timely and pragmatic approach for its implementation.

For more Information see:

Communication: Towards a more efficient and democratic decision making in EU tax policy

Q & A: A gradual renewed approach to decision-making in EU tax policy – Questions and Answers

Factsheet