MNI SOURCES: Italy Parliament Could Scuttle EU Tax Policy Push

By Silvia Marchetti and David Thomas

     ROME/BRUSSELS(MNI) - A European Union drive to make it easier to pass

regulation on tax policy and crack down on low-tax jurisdictions could be

blocked in Italy's parliament, in what could potentially be a fresh example of a

major EU initiative endangered by Italian opposition, Italian political sources

said.

     In January, the European Commission proposed moving away from the

insistence on unanimity in votes on tax policy in the European Council, which

represents member states, and allowing qualified majority voting. The change

could have permitted more progress towards harmonising rules on corporate tax,

value-added tax and excise duty, as well as on increasing tax transparency and

making it harder for countries like Luxembourg and Ireland to lure companies

with very low taxation.

     The EC proposal has now made it to the Italian parliament, which is

expected to debate it by the end of the year or in early January. But its

chances of approval are falling as opposition to the measure surfaces among the

populist 5-Stars Movement, which shares the governing coalition with the

left-leaning Democratic Party, Italian political sources said.

     "It would be pure folly to change the current voting mechanism," said an

official with ties to 5-Stars. "We've always had to passively accept decisions

against our interests coming from a majority Franco-German bloc. If we move to

qualified majority voting, we'll be even more their victims by further

sacrificing our sovereignty."

     While the Democratic Party is in favour of qualified majority voting,

opposition by 5-Stars means its chances of approval by parliament are in

jeopardy, sources said.

     The European Commission proposes a progressive introduction of qualified

majority voting, with its first being applied to EU corporation and value-added

tax policy. This is intended to simplify operations for companies doing

cost-border business, as well as to make tax avoidance more difficult and to

contribute to capital markets union by ending the favourable corporate tax

treatment of debt over equity. The Commission also wants to apply qualified

majority voting to environmental tax policy, a big priority, particularly as

energy taxes in many member states are out of line with international climate

treaties.

     --ITALY'S ESM OBJECTIONS

     The voting change was backed by Germany and France, but if Italy joins

opposition from countries such as Ireland, Luxembourg, Belgium and Estonia, its

prospects would look dim, senior EU sources said.

     "Opposition from the likes of Ireland and Luxembourg meant that progress on

the tax plan was already sluggish. If Italy is opposed too, that leaves it dead

in the water," said Francois Barry, EU tax policy expert at Cambre Consultancy

Brussels.

     The possible Italian resistance to the voting change comes as Rome also

looks set to try to water down another key European initiative, to overhaul the

European Stability Mechanism, as reported by MNI on Nov. 13.

     The Democratic Party source, and an official at former premier Matteo

Renzi's recently-founded Italia Viva party, said it was hard to know what

5-Stars would do, although the Italia Viva source also noted that the populist

party had shown more pro-European inclinations since breaking its former

coalition with the right-wing League.

     "Qualified majority voting will allow us to fight against distortionary

fiscal policies that allow VAT-linked cross-border fraud, and to push for an

EU-wide Tobin Tax," said the Italia Viva source.

     Last week, 5-Stars supporters voted against the movement's proposal to team

up with the Democrats in upcoming regional elections, a move set to fuel

intra-party antagonism and to emphasise differences on key EU issues.

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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