EU impact on UK taxatio

The Treasury has published a report looking at the impact of EU membership on the UK’s approach to taxation which identifies unanimity voting as essential in safeguarding the UK’s interests according to Harris & Co chartered accountants Northampton who are specialist small business accountants.

The report is the first in a series of six which will make up the government’s Balance of Competencies review announced by the Foreign Secretary, William Hague, in July 2012. This is an audit of what the EU does and how it affects the UK which is looking in depth at how the EU’s competences (the power to act in particular areas conferred on it by the EU Treaties) work in practice.

The Treasury’s consultation took place between November 2012 and February 2013 and looked at three broad themes, including considerations in determining the appropriate level for decisions on taxation to be made; the impact of the current balance of competence and its exercise on the national interest; and the future challenges the UK may face in relation to the balance of competence on tax, including proposals for changes to tax policy and legislation at the EU level.

In general, respondents said that they are satisfied with the current balance of competence on taxation, taking account of the protections offered by unanimity voting. While individual respondents suggested areas where existing measures could be updated to reflect modern business practice, none identified any major gaps in the existing legislation.

Respondents, who included representatives from banking, legal, charity and cultural sectors, as well as from academia, identified decisions on taxation, in particular direct taxation, as primarily for member states, especially where this concerned personal taxation.

They felt EU-level action is appropriate only where there is a clear internal market justification and the principles of subsidiarity and proportionality have satisfactorily been shown to be met.

Respondents identified unanimity voting on taxation as essential in safeguarding the UK’s interests, despite some negative consequences in terms of the content of legislation and the time frames for agreement.

Some replies specifically questioned the appropriateness and utility of EU-level action in respect of the proposed financial transactions tax. Respondents also wanted to see greater consultation by the European Commission with interested and affected parties, more detailed analysis of the effects of EU tax policy on member states and greater accountability for impact assessments.

Future challenges identified in the report were concerns about the inclusion of tax or fiscal measures in non-tax proposals which are not assessed by tax experts and undermine unanimity; the use of enhanced co-operation on tax measures which could have extra-territorial effects; and the impact of rulings by the Court of Justice of the European Union (CJEU) on domestic tax measures and member state competence.

Other government reports to follow in the Balance of Competencies review will cover the single market (an overview), health, development co-operation and humanitarian aid, foreign policy, animal health and welfare and food safety, as well as taxation.