LuxLeaks: member states must stop hiding behind unanimity rules

MEPs have long been pressuring EU policymakers to combat aggressive tax planning, and things are finally starting to change, writes Elisa Ferreira.

By Elisa Ferreira

07 Oct 2015

At last, something is beginning to move in the fight against aggressive tax planning. Following several years of pressure from Parliament's S&D group, the fight against aggressive tax planning by multinational companies (MNCs) in the EU is finally gaining momentum. 

This is thanks to Parliament's special TAXE committee, whose draft report, which I co-authored, is due to be voted on later this month.

The committee was set up in response to the 'LuxLeaks' scandal, which revealed the extent of the special and secret arrangements between several EU governments and MNCs.


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The arrangements allowed businesses to pay little to no tax on their European profits. Thanks to these 'advance tax rulings', companies took advantage of the mismatches and gaps between member states' tax rules, namely through the varying tax treatment of the same assets across countries.

Most mismatches are artificially created by competing governments, in order to attract MNCs through the most appealing instruments. 

Often, this results in a massive shift of taxable profits to subsidiaries located in low tax or 'no tax' jurisdictions, from where they leave Europe in favour of one of the world's many tax havens.

My TAXE committee colleagues and I had our suspicions confirmed that, in Europe, tax competition is as common between governments as it is between companies. Several member states have offered creative tax advantages to attract MNCs' taxable income, at the expense of their neighbours.

As a result, MNCs can pay extremely low corporate taxation rates - sometimes close to zero - in the countries in which they operate, while SMEs bear the lion's share of the tax burden. This is totally unacceptable. 

Member states are under pressure by EU budgetary control rules to rebalance their budgets through massive cuts in public expenditure, while having their tax base permanently eroded by their EU partners.

How can such aggressive competition be acceptable between countries that share a single market and a single currency, and are bound by the principle of loyal cooperation, all the more so in times of severe economic crisis?

The TAXE draft report stresses the need to ensure that all financial flows out of the EU are taxed at least once, potentially through a withholding tax. It also suggests introducing a common European definition of tax havens, with 'appropriate sanctions' for countries that work with them. 

It also says we need a full and compulsory common consolidated corporate tax base (CCTB) with full disclosure and transparency of all tax rulings. 

Additionally, all MNCs should have to report profits in all the countries in which they trade; these reports should be publically available, for example through country by country reporting. Whistle-blowers must be protected.

Parliament's TAXE committee is determined to keep the pressure on EU governments to face the problem head-on. They must stop hiding behind the Council's unanimity rule on tax matters, and accept the urgent need for change. 

The pressure is starting work: for the first time ever, five finance Ministers - from Luxembourg, Germany, France, Italy and Spain - have addressed a parliamentary committee - TAXE - on the same day, to outline their positions on these issues. We will continue to press for a change.

 

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