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European Union

Commission view on changeover to the euro; Commission acts on harmful tax competition; Consultation on the freedom to provide insurance services

Commission view on changeover to the euro

The Commission has detailed the consequences of the introduction of the euro for EU policies, institutions and legislation. The communication's main contention is that a single currency will greatly simplify the EU's finances and it aims to provide an overview of the action still required to complete the preparations for the transition to the euro. While at EU level most aspects of the transition will be completed by the beginning of the third phase of economic and monetary union on January 1 1999, member states will be able to introduce most of the required changes in the following three years before 2002, when the introduction of notes and coins is expected. The Commission's communication is intended as an aid to national authorities in finalizing their preparations.

Emu will have important consequences for EU legislation, as about 6000 existing legal texts contain references either to the Ecu or the currencies of member states. In most cases, the conversion from Ecu to euro and from national currencies to euros will occur automatically. Any problems which might have arisen in this respect were dealt with by regulations on the legal status of the euro as confirmed at the Amsterdam European Council in June.

In particular, the Commission's communication contains a detailed examination of the cases in which legal texts feature specific rules for currency conversion, and it identifies the guiding principles for the application and interpretation of these texts following the transition to the single European currency.

Commission acts on harmful tax competition

On November 5 1997, the Commission adopted a proposal for a package of measures designed to curb unfair tax competition in the EU.

The proposal comprises three elements:

  • a code of good tax conduct (in relation to company taxation);
  • measures relating to taxation of income on savings;
  • provisions relating to the withholding of tax at source in relation to cross-border payments between firms.

In relation to the code of conduct, the Commission is asking the member states to commit themselves politically to respecting the principles of fair competition and to refrain from adopting or retaining tax measures causing harmful competition. The code, which is non-binding, would be accompanied by a mechanism for monitoring its implementation. Tax measures being considered by a member state and falling within the scope of the code would be subjected to the approval of a Committee, which would decide whether or not such measures should be published. It is envisaged that the code would be reviewed at the end of the first two years of its application.

The second area for which the Commission brought proposals relates to taxation of income on savings. While recognizing that significant divergences exist between the member states in relation to taxation of income on savings, the Commission is asking member states to respect the following five basic principles, which should form the basis of the proposed Directive:

  • a common strategy is necessary to prevent unfair distortions such as tax evasion, erosion of tax bases and loss of tax revenue;
  • the Directive should be limited in its scope to non-residents;
  • the Directive should be based on the 'co-existence model', whereby each member state would either apply a minimum rate of withholding tax or provide information on savings income to the other member states;
  • any withholding of tax would be levied by the establishment paying the interest; and
  • the provisions of the Directive should take into account the need to preserve the competitiveness of European financial markets in a global context.

As a third element in its package, the Commission is proposing measures to eliminate withholding of tax on cross-border interest and royalty payments between companies. The Commission emphasizes that withholding tax at source constitutes an obstacle for business and traders engaging in international transactions, and it has therefore asked member states to commit themselves to the rapid adoption of a draft directive, to be presented by February 1998.

Consultation on the freedom to provide insurance services

On October 15 1997, the Commission adopted a draft communication on the interpretation of the concepts of 'freedom to provide services' and the 'general good', as applied to the insurance sector. Commission investigations revealed that these concepts are interpreted differently from one member state to another, a situation which the Commission considers detrimental to the proper functioning of the internal market in insurance.

The Commission clarifies the differences between the 'freedom to provide services' and the freedom of establishment. By way of example, the Commission explains that if an insurance company instructs an independent intermediary established in the host member state to act on its behalf, three conditions must be satisfied if the insurance company is to come within the scope of the rules on establishment: the intermediary must be answerable to and supervised by the insurance company it represents; it must be able to act in such a way as to bind the insurance company; and the relationship between the intermediary and the insurance company must be a lasting one.

The concept of the 'general good' is analyzed in the light of its interpretation by the ECJ. In particular, the Commission provides general guidance as to how and when a member state may have recourse to the concept to ensure insurance companies carrying on business in its territory through a branch or under the freedom to provide services comply with its rules. The insurance company may be able to question the application of the national provisions restricting its freedom of action if those provisions are not justified in the name of the 'general good'. This would be the case if the measures come within a field previously harmonized at EU level or if they are discriminatory or not objectively necessary or disproportionate to the objective pursued.

The Commission says a national rule must also be justified by an essential reason relating to the 'general good', such as consumer protection, fraud prevention, the cohesion of the tax system or the protection of workers. In any event, any rule of national law, whatever field it falls within, must be compatible with EU law.

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