On the 16^th of February, MEPs adopted two reports on Taxation in the Strasbourg Plenary. 

These reports focus on the impact of national tax schemes on the EU economy and the reduction of the EU VAT gap. The “Effect of national tax measures on the EU economy” argues that to strengthen integration of the single market and prevent base erosion, it requires further harmonization and coordination in tax policy making. The report highlights how national tax regimes can act as barriers to SME’s attempting to operate cross-border, and that harmonization of tax bases such as  common corporate tax base, could reduce compliance costs for SMEs operating in more than one Member states. Taxing profits where economic activity takes place would offer a level playing field to member states own SME’s. Furthermore, MEPs urged for the need to use a fair and effective tax formula for allocating taxing rights between countries, considering factors such as workforces and tangible assets. The report passed by parliament discusses tax coordination mechanisms such as peer review procedures within code of conduct groups and country specific recommendations need to be improved.

MEPs stated the Commission should investigate if competition is artificially lowered by marginal effective tax rates by member states. While also calling for reducing debt equity bias which makes equity financing less interesting and the reduction of R&D tax incentives in areas that have little to do with direct R&D activity. 

This report analyses the elements that lead to a VAT gap between Member States and proposes remedies. MEPs called for the VAT One-Stop Shop scope to be expanded, and for the expansion of e-invoicing, with harmonized e-invoicing being introduced to limit fraud and potential errors with cross border transactions through increased legal compliance, transparency and interoperability.

To meet environmental objectives, and promote green consumption, this report also called for the phasing out of zero VAT rates, and any reduced rates in environmentally harmful goods and services.

Due to the growth of e-commerce, MEP’s also requested the commission to present concrete proposals to adapt rules, in particular, stressing the need for a definitive VAT system based on tax principles to destination countries.