HUNGARY’S Laszlo Kovacs has an odd-looking job as the EU’s Commissioner for Taxation and Customs Union. Tax is, in theory, the preserve of member states. Largely for historical reasons, the European Commission has some rights over VAT rules and what rates can be levied. It guards these rights so jealously and exercises them so zealously, not least through frequent resort to the European Court of Justice, that most finance ministries are more determined than ever to retain autonomy.

The EU’s stalled draft constitution contained blank sections for foreign affairs and defence. They are meant to be filled in later, on the ground that the EU was to take responsibility as and when member states agreed. But even the draft constitution had no place for tax.

Undeterred, Mr Kovacs is preparing a common set of rules for company tax, the so-called tax base. In Brussels, this week’s European Court judgment in the Marks & Spencer case is seen as another lever to justify and hasten a common company tax regime.

VAT apart, most tax cases brought before the court claim unfair discrimination in a country’s tax regime against people or companies from other EU states. At the start of the month, a federation of pension funds filed just such a suit against most EU governments. By allowing domestic pension funds to reclaim withholding tax on interest or dividends, it claims, governments discriminate against funds from the rest of the EU.

To assert EU authority in the M&S case, the lawyers had to use more casuistical theology. The court ruled that by denying M&S the right to reclaim tax losses at defunct continental businesses against UK tax, the UK was giving a disincentive for UK firms to open subsidiaries elsewhere in the EU, thereby infringing the free movement of capital.

This argument is the legal equivalent of creative accounting and will create more distortions than it purports to remove. But the court has made its point. By arguing narrowly, it also heeded pleas from countries that supported the UK’s case, including Germany, not to knock more big holes in governments’ tax receipts.

Member states are on notice that any argument, however contrived, will be used to assert EU leverage over company tax via the court. As a result, any company that appeals to the court to give precedence to EU rules over national tax laws has a good chance of success. So companies with a bone to pick with local tax authorities queue up to give it a go. Too bad if the result is perverse, such as pension funds losing all tax breaks.

Many multinationals want to have a common set of EU tax rules, if only to simplify their tax planning in a 25-country market. Unice, a pan-EU big business group, has asked for a uniform regime. It would be like a dream of paradise for tax lawyers and accountants. They know that they could pick loopholes through the rules in the safe knowledge that the code would be so inflexible that those loopholes could not be closed for years, even if member states and the Commission did all eventually agree. In the UK, measures to close the latest loopholes fill most of every annual Finance Act.

The driving force behind Mr Kovacs’s plan is not companies but France and the last German Government. They called for harmonisation of tax rates to put a stop to tax competition from new members states from East and Central Europe, several of which have brought in flat tax rates below 20 per cent. Harmonising rules and the tax base is the key because it can be done without unanimity. By using “enhanced co-operation”, the regime can be standardised in most of the EU, bypassing recalcitrants such as the Irish Republic, the Czech Republic, Estonia, Slovakia and Britain.

As the former German finance minister made clear, however, promoters of a common tax base see it as “the first necessary step towards full harmonisation of tax rates”. That presents a dilemma for business akin to entry into the euro.

For individual companies, a common tax regime could save a lot of costly bother and appealing to the European Court to assert EU authority over domestic tax laws can cut bills. But for business as a whole, a uniform tax regime could not be changed readily to tackle new priorities arising from changes in the economy, trade or competitiveness. And tax rates would be harmonised up, not down.

Tax competition, the UK’s official policy, should gradually bring lower tax rates for all. That particularly applies at home, where tax rates that seemed enviably low now look uncompetitively high.

If Britain really wants to resist a common tax policy, it would need to take an alternative initiative. One might be to encourage EU tax experts to draw up unofficial model rules that evolve with time and that member states can use as a default where they have no different national priority. Otherwise, the Commission’s siege engines will roll on.

graham.searjeant@thetimes.co.uk

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