EU Commission Plans Move to Lessen Governments’ Veto Powers on Tax

A document revealed that the European Commission would suggest measures that could reduce the veto powers of EU small states – a move that is meant to conquer resistance to tax reforms as the bloc attempts to increase levies on digital multinationals.

Rules of the European Union demand the support of all twenty-eight EU states to continue with taxation overhauls, a requirement that has long permitted low-tax states such as Ireland, Malta, or Luxembourg to disrupt reforms.

To conquer this hurdle, the Commission said that it would present a document by 2018 describing how to use a clause in the 2009 Lisbon Treaty of the European Union that allows decision-making by “qualified majority” in specific sectors where unanimity is normally the rule.

In its work programme for next year, the EU executive said that the so-called “passerelle” clause that is enshrined in Article 48 of the treaty, could be used for “internal market matters.”

In September, Jean-Claude Juncker, the President of the Commission, said that this clause should be used in decisions on “fair taxes of the digital industry.”

The European Union is thinking about measures to increase taxes on Facebook, Google, Amazon and other tech giants that are cited for paying too little in Europe by re-routing their company’s profits to the low-tax states of the bloc.

In its 2018 work programme, the commission stated that by March, it would make legislative proposals regarding a fair taxation of the digital economy. The move follows the endorsement of the EU government leaders last week of a proposal regarding the said issue.

Although the move is likely to gall smaller, low-tax states, the move still leaves them a way out as the use of the “passerelle” clause would need to be unanimously decided at EU summits and could be prevented by the parliament of one member state.

Only if agreed by all 28 European Union leaders, who normally hold general debates and are more inclined to establish political deals, the said clause could then be applied to decisions by a qualified majority at councils of European Union ministers who discuss more technical issues.

A former prime minister of Luxembourg, Juncker has so far avoided suggesting the use of another clause that is based on article 116 of the treaty, which would remove countries of their veto powers straight away.

This clause could be used to solve distortions of the internal market such as those allegedly caused by internet firms that unfairly compete with brick-and-mortar rivals by paying lower taxes.

In September, Valdis Dombrovskis, the vice president of the commission, informed reporters that there was a debate on the removal of veto powers for certain tax decisions.