Strasbourg comment: Common system of taxation

EU has responsibility to close tax loopholes and ensure multinational companies pay their fair share, writes Mojca Kleva Kekuš.

By Mojca Kleva Kekuš

17 Apr 2014

The European parliament has in this ending mandate managed to take a substantial step forward when it comes to taxation policy within the EU. We are well aware that this is the area, where our institution lacks concrete competence, and yet the parliament has managed to put the issue of tax fraud, tax avoidance, of tax havens and aggressive tax planning of multinationals back to the forefront of the political agenda.

Also, due to the pressure of the parliament, the European commission moved on, changing a number of necessary legislative acts that were leaving loopholes open for abuse, including the change in parent subsidiary directive (PSD).

"It is for reasons of fairness and transparency as well as competition and economic efficiency that the EU must do its upmost to ensure its tax gap is closed promptly"

In this ongoing effort of the EU to close the existing tax loopholes generated by exploiting the differences in the national tax systems of the member states, double non-taxation, as well as extreme forms of under-taxation, deprive member states of significant revenues and foster unfair competition between businesses operating in the single market. It is for reasons of fairness and transparency as well as competition and economic efficiency that the EU must do its upmost to ensure its tax gap is closed promptly.

It is not only a moral imperative to ensure fairness in taxation among all income classes; I am convinced that it also makes the most sense in economic terms to ensure that imposed taxes are collected and used to their full capacity. Additional revenues for the member states - without any new taxes - would allow for new investment in job creation, growth programmes and infrastructure. At a time when Europe is still dealing with the consequences of the crisis, we cannot afford not to act.

Parliament has been very vocal in the debate on tax fairness and in our May resolution we specifically called on the commission to address the problem of hybrid mismatches between the different tax systems used in member states, as well as to present a proposal for the revision of the PSD with a view to revise the anti-abuse clause and to eliminate double non-taxation in the EU as facilitated by hybrid arrangements. Therefore, we welcomed the proposed changes introduced by the commission on the issue of hybrid mismatches.

Similarly, we were happy to see the introduction of the obligatory general anti-abuse rule (GAAR) to be added to PSD. The inclusion of such a comprehensive and compulsory GAAR will remove any legal uncertainties and improve the efficiency of measures taken to counter international tax avoidance and aggressive tax planning while enhancing coordinated actions by member states. Parliament has namely long been advocating putting a stop to 'directive-shopping', where companies seek to invest through intermediaries in member states where the anti-abuse provisions are less stringent or where there is no rule.

With corporate base erosion being high on the international political agenda, it is of utmost importance that the EU takes the lead in ensuring that multinational corporate businesses start proportionally contributing to tax systems. It must also put a stop to complicated, unfair and unprincipled aggressive tax avoidance schemes of multinationals that serve no other purpose but to avoid paying a fair share of taxes in times when taxpayers throughout Europe have been pressed to contribute their share. I can only hope that in the upcoming mandate, parliament will, together with other institutions, open up and work conclusively on the issue of tax harmonisation within EU.

Putting a stop to tax dumping and introducing a level of tax harmonisation is a challenging step but, for the sake of every citizen in the European single market, it has to happen in the near future.