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EU commits to broaden scope of code of conduct on tax to third countries

Monday 29 March 2010 - by Mark Twigg

A senior EU official has signalled the Commission’s intention to press on with steps to implement the European code of conduct on corporation tax in respect of third countries.

Speaking at the annual European Tax Policy Forum conference in London last month, Taxud Director General Walter Deffaa, was setting out the Commission’s work programme for 2010 when he signalled that the code of conduct would focus more on the international dimension.

The code, which was established in 1998, attempts to deal with what the Commission deems to be ‘unfair’ tax practices by EU member states. However, the code also obliges member states to enforce the code in jurisdictions beyond the European Union.

In October 2009, this led the UK Government to put pressure on its Crown Dependencies in the Channel Islands and the Isle of Man to scrap the current practice of offering preferential zero corporation tax rates in an attempt to attract overseas corporates.

The so-called ‘Zero-Ten’ regimes have been in the Commission’s sights for some time. However, plans to scrap the Zero-Ten regime have led to accusations from some small international financial centres that the EU is seeking to undermine the fiscal sovereignty of third countries.



Deffaa rejected these criticisms arguing that unlimited tax competition also undermines the sovereignty of nation states, and that the EU would be seeking greater international harmonisation on tax matters.

He would not give details on how the Commission intended to achieve compliance.

While ruling out the need to harmonise tax rates, he argued that minimum tax rates could be justified. He signalled that the EU was still at an early stage in identifying which tax practices needed to be addressed in third countries.

However, he also made clear that the Commission remains optimistic that it can make further progress in this area over the coming 12 months. The Commission is also due to publish a communication on the role of tax policies on developing countries.


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