EU's plan to reduce states' blocking powers on tax to be subject to veto

BRUSSELS (Reuters) - The European Commission is set to fail to break the EU deadlock on tax reforms as it is planning to give states a veto right on a proposal meant to end governments’ blocking powers on the matter.

FILE PHOTO: European Union flags outside the EU Commission headquarters in Brussels, Belgium November 14, 2018. REUTERS/Francois Lenoir/File Photo

The move, scheduled to be unveiled on Tuesday, would come after EU states failed last month to agree on a common levy on digital multinationals which stand accused of paying too little tax by routing their profits to smaller, low-tax countries of the bloc, like Ireland or Luxembourg.

Decisions on tax matters at EU level require the unanimous backing of the 28 member states, which on other issues usually decide by a majority vote.

A long-neglected treaty article allows the commission to compel states to drop the unanimity rule when competition in the EU market is distorted. Invoking this rule would allow decisions on tax reforms to be made by majority.

But, after having considered triggering the article, the EU’s executive is now expected to make its plan subject to the unanimous backing of EU states, three EU officials said, meaning it is unlikely to be approved.

Smaller states have for years used the veto power to block tax overhauls at EU level over fears of losing tax revenues.

The switch to majority voting has been threatened for years by the Commission in a bid to break the stalemate.

Commission president Jean-Claude Juncker, a former prime minister of Luxembourg, flagged this plan for the first time in 2017 but no concrete proposal has been made so far. The commission’s five-year mandate ends this year.

Juncker has said that he would be in favor of moving to majority voting in sectors such as sales tax, digital taxes, financial transaction levies and the harmonization of EU countries’ tax bases, which would reduce governments’ tools for attracting firms with tax sweeteners.

Reforms under discussion would leave EU states the power of setting tax rates at a national level in most areas.

Reporting by Francesco Guarascio; Editing by Toby Chopra