EU tax developments, ECJ cases highlight European Chapter meeting.

PositionEuropean Court of Justice

On February 15 and 16, TEI's European Chapter met in London to provide participating tax executives with an update on the tax developments in the European Union, including emerging European Court of Justice (ECJ) case law, and to provide a framework for assessing the potential effect of the developments on their companies. The host of the two-day meeting was the Richemont Luxury Group, and the sponsor was PricewaterhouseCoopers LLP.

The first day of the meeting featured a presentation on compensation trends in the EU and a provocative and candid members-only roundtable. PricewaterhouseCoopers then hosted a fabulous dinner at the historic Langham Hotel (the location of the meeting as well). On the second day, the program was moderated by Susan Symons of PwC, who set the stage for the discussion and then introduced Rosemary Radcliffe, PwC's former chief economist and now a leading economist and business adviser, who discussed the economic factors influencing member states' stance on tax policy. She observed that corporate taxes make up a relatively small proportion of tax revenue but raise some special issues. Tax revenues have fallen significantly in Europe as a result of the general economic performance of the member states. The current trend is toward lower corporate tax rates with fewer tax reliefs and allowances in order to protect tax revenues and harmonize tax bases.

In the short term, she explained, governments will not want to prejudice economic recovery with either tax increases or spending cuts. In the longer-term, fiscal consolidation is needed through lower spending, structural reforms to state pensions and other age-related spending, and greater public sector efficiency. But governments will also be seeking to improve tax yields: "tax by stealth," that is to say, widening the tax base (where possible) to protect revenues and boosting competitiveness with lower marginal tax rates. Taking the United Kingdom as an example of how ECJ decisions might affect the public finances, Ms. Radcliffe said that she believed that the 20 bn GB pound in costs for the U.K. Treasury as estimated by Accountancy Age was too high and that a figure below 10 bn GB pound might be more plausible, which is only 2 percent of estimated government revenue and less than 30 percent of estimated public sector net borrowing in 2004-2005.

Next up was Juergen Luedicke, who presented an overview of the leading ECJ direct tax cases. He highlighted a number of...

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