This is the year for Europe to put its tax house in order

We commissioners have vowed to clamp down on evasion and fraud to make sure all companies pay their fair share

2014 was the year the world discovered there is no whisky in a double Irish and no cheese in a Dutch sandwich. Discussions about fair taxation and tax avoidance featured prominently on last year’s menu. What we have seen is a welcome shift in public perception and political positions in favour of taking steps to battle tax fraud and tax evasion, to ensure that all companies pay their fair share of tax.

This shift has also enabled us to take action: 2015 will be a crucial year to use this momentum to achieve concrete results.

We have a situation today where some companies are engaging in aggressive tax planning, made possible by a lack of fiscal harmonisation in the EU and loopholes in national taxation systems. They do this with the help of consultancies – and sometimes even of national tax authorities.

If this is done to favour only selected companies, it damages our single market and hurts European citizens directly. Especially in challenging economic times, with many EU citizens having to tighten their belts, it is even more important that large companies pay their fair share of tax.

Jean-Claude Juncker made very clear in his political guidelines, presented in front of the European p arliament last July, that he is dedicated to stepping up efforts to combat tax evasion and tax fraud.

It is also only a few weeks ago that we and our fellow commissioners were on our way to take an oath of office before the European court of justice in Luxembourg. (The legend on the coach rented from the Belgian football team Club Brugge for the occasion read “No sweat, no glory”, which was fitting for the occasion.)

The European commission as a whole has already proved that it is getting down to work, having put forward in record time a €315bn investment plan that will help kickstart growth in Europe. And we, the commissioners for competition and taxation, are committed to pushing forward the battle against unfair tax competition and tax evasion, each within our own area of responsibility but working together towards one common goal.

Since June last year, the commission has been investigating so-called tax rulings in several EU countries. Our services are working on these continuing cases as a matter of urgency, and we are committed to presenting the first results of these investigations by the second quarter of this year.

For the record, tax rulings are not a distorting instrument as such. Almost all EU countries use this fiscal instrument to provide companies with legal certainty for their tax matters. However, there are allegations that the tax ruling instrument may have been misused to the benefit of big corporations.

There is a difference between a tax incentive for all and preferential treatment for some. The latter may well amount to unwarranted state aid. This is of concern both to European citizens and to the commission, which is looking carefully into the matter. The information made available by the impressive journalistic work behind Luxleaks has provided some additional insights, and will be carefully processed. But we need to have the full picture of what is going on. We need to take a structured approach.

Therefore, in addition to our own investigations, in December we asked all EU countries to detail their tax ruling practices. This will help to establish a coherent approach, and get a better picture of the extent of the respective practices and possible problems.

In the worst-case scenario, unfair tax competition could create a race to the bottom, in which countries feel compelled to give handouts to multinationals in the form of tax breaks.

The losers are the taxpayers, who foot the bill, the small businesses that cannot compete, and national governments, which lose tax revenue needed to maintain roads, power grids and schools. The winners are the big businesses that play European countries off against each other.

This is not an issue limited to a small number of EU countries – it is a European problem needing a European solution. That’s why the commission is planning to present new legislation in the area of taxation. In spring this year we will table a proposal on the automatic exchange of information on cross-border tax rulings. We believe tax authorities should know which companies enjoy favourable treatments in another country. Most EU members are already in favour. And we are convinced we can win over those that are still hesitating.

Only recently, member states gave the green light to two commission proposals to prevent companies from abusing rules on the taxation of parent companies and their subsidiaries, and on the automatic exchange of information between national tax authorities. This was a direct response to new transparency and cooperation rules agreed by the G20 finance ministers.

At last November’s G20 summit in Brisbane, it was on President Juncker’s initiative that world leaders committed to transparency on tax rulings. We will continue to drive forward this agenda internationally within the OECD, where we are working on modernising international tax rules. This will be finalised by the end of this year.

But we need to go even further. The fight against tax avoidance is not about taking on companies that create jobs and help Europe to grow. It is about providing transparent and business-friendly solutions. It is in that context that the commission is committed to reviving its proposal for a common consolidated corporate tax base. This would mean that a group active in more than one EU country would have to worry about only one common set of rules for its tax declaration; the states hosting the group’s subsidiaries would share the tax among them. While allowing for fruitful competition on tax rates, this proposal would eradicate a lot of current possibilities for aggressive tax planning.

We now have a great opportunity to make tax competition within the EU’s single market fairer and more transparent. Of course, on tax policy EU member states decide unanimously. Despite this constraint, we strongly believe we should make use of the current momentum.

These initiatives are only the start of the establishment of a fairer tax system in Europe, on the basis of which profits are taxed where value is created. At the same time, we will continue enforce our state aid rules where we believe that selective tax advantages distort fair competition. Our political pledge is simple: all companies have to contribute their fair share. In 2015 we will make good on this pledge.