The EU Standard of Tax Good Governance

By Irma Johanna Mosquera Valderrama

The study of EU Taxation has focused mainly on the analysis of the EU freedoms according to the case law from the Court of Justice of the European Union, as well as the analysis of the content of the EU Directives to prevent double taxation and to enhance administrative cooperation.

Little attention has been given to the use of the EU Standard of Tax Good Governance and the implications of fair taxation and transparency for the EU and third (non-EU) countries. In addition, little attention has been given to the role of the EU Commission, EU Parliament, EU Platform of Tax Good Governance and ECOFIN Council in the introduction of the EU’ list of non-cooperative jurisdictions, and the introduction of the standard of tax good governance as a pre-condition to get EU development aid, and to benefit from trade, economic partnership agreements.

The EU Standard of Tax Good Governance  

The EU Standard of Tax Good Governance has been introduced by the ECOFIN Council in 2008 (amended in 2018) as a pre-condition for third (non-EU) countries that receive EU development aid, conclude strategic partnership agreements, free trade and economic partnership agreements. More recently, it has been used as a standard that determines whether the third (non-EU) country should be included in a single EU common (black and grey) list of non-cooperative jurisdictions. In general, this standard consists of transparency, fair taxation, and internationally agreed standards developed by the OECD with the political mandate of the G20 to tackle base erosion and profit shifting (BEPS) by multinationals.

The EU Commission has made use of the flexibility of the wording of this standard in the negotiation of the agreements, as the text of the standard in the agreements concluded up until now varies between ‘exchange of information’, ‘harmful tax practices’, and/or ‘fair tax competition’. The type of agreement also varies between ‘strategic partnership agreements’ (Canada, Japan, OCP (Organisation of African, Caribbean and Pacific States) ‘framework agreement’ (South Korea), ‘strategic agenda for cooperation’ (China), and ‘Free Trade Agreement’ (Colombia and Peru). See Mosquera Valderrama Intertax 2019

By introducing this standard, the EU aims to contribute to good governance in the area of direct taxation (mainly companies and individuals), both within the EU and beyond. According to the EU Commission, when addressing the EU Tax Policy Strategy, this standard also helps EU Member States and third countries to balance the need to protect their revenues and their social and public spending policies with the need to open up their economies so as to promote growth and jobs.

More recently, on 16 December 2019, the EU Commission renewed the mandate (until 2024) of the Commission Expert Group “Platform for Tax Good Governance, Aggressive Tax Planning and Double Taxation” (Comm. Decision (2019/C 428/08). The Platform for Tax Good Governance was created in 2012 to assist the EU Commission on developing initiatives to promote good governance in tax matters. This Platform brings together expert representatives from business, tax professional and civil society organisations and enables a structured dialogue and exchange of expertise which can feed into a more coordinated and effective EU approach against tax evasion and avoidance.

The Commission has  also indicated in the political guidelines 2019-2024 presented in July 2019 that fair and efficient taxation (and therefore, good tax governance) will remain a high priority for the Commission. In July 2020 Communication, the EU Commission reaffirmed the need to achieve fair taxation and to achieve global recovery by strengthening the EU Standard of Tax Good Governance. For the Commission, fair taxation is central to the EU’s social and economic model and its sustainability. It is essential for sustainable revenues, a competitive business environment and overall taxpayer morale.

The introduction of EU standards in agreements concluded by the EU is not new. In the past, environmental and labour standards have also been introduced in agreements concluded by the EU. However, in taxation, the introduction of the EU Standard of Tax Good Governance and its implications for trade, investment, and development have not received attention from academia, policy makers, civil society, businesses and society in general.

In order to give knowledge, to raise awareness and to exchange best practices on the application of EU Standards including the Standard of Tax Good Governance in international agreements, Irma Mosquera Valderrama has been awarded a EU Jean Monnet Chair (EUTAXGOV) in the framework of the Erasmus+ Programme.

In a nutshell, the EUTAXGOV Chair aims to give knowledge, to raise awareness and to exchange best practices on the application of the EU Standard of Tax Good Governance. For this purpose, this chair will address in the teaching and dissemination (outreach) activities the following questions:

•             What is the content of this Standard? What does it mean tax transparency, fair tax competition, the absence of harmful tax measures and the application of internationally agreed standards?

•             How this Standard came into place: What is the role of the EU Commission, EU Parliament and EU Platform for Good Tax Governance in shaping the content of this Standard? Did non-EU countries have any role in the development of this Standard?

•             How is this Standard introduced in EU agreements concluded between the EU and third non-EU countries? Are there differences in the wording of the Standard among the EU agreements? And how has this Standard been received by non-EU countries?

•             What are the consequences of the introduction of the EU Standard of Tax Good Governance according to the EU Commission, EU Parliament, Regional Organizations (in Africa, America, Caribbean and Asia) and civil society?

•             How can this Standard contribute to achieve fair taxation, domestic resource mobilization and other objectives of the 2030 Sustainable Development Agenda?

•             How can this Standard contribute to the EU Consensus on Development and the EU Priorities (2019-2024) including Promoting Europe’s interests and values in the world and the need of promoting sustainable development?

The study of the EU Standard in this EUTAXGOV Chair contributes to strengthening the participation in democratic life of EU citizens and the understanding of the EU and their policy making activities vis-à-vis third (non-EU) countries. This Chair is also in line with the EU Commission priorities, in particular ‘A stronger Europe in the world’ including the enhancement of “responsible global leadership’ and “A economy that works for people’ including ‘achievement of fair taxation’.

By addressing fair taxation, good governance and responsible leadership, the EUTAXGOV Chair will contribute to the current discussions in policy making of fair taxation and to enhance learning and policy dialogue activities between academia, policy makers at EU and domestic (country) level, civil society, and regional organizations in Africa, Asia, Caribbean and American. We will address these objectives, in teaching (bachelor, master, online (MOOC) courses) as well as in output (book, papers) and outreach activities.