MEPs approve draft report on corporate tax avoidance
This week, MEPs discussed a draft report on tax rulings, with a view to a vote in the next plenary session in Strasbourg. The report proposes a comprehensive overhaul of corporate tax practices as part of the EU’s battle to tackle tax avoidance.
Parliament’s special committee on tax rulings (TAXE) was set up in March in response to the ‘LuxLeaks’ scandal which revealed that Luxembourg had approved of schemes to help multinational companies including Fiat, Amazon and Ikea avoid paying tax.
The ‘LuxLeaks’ scandal is one example of how prevalent aggressive tax planning practices are, with many companies able to reduce their corporation tax payments to almost zero. The European Commission estimates that tax evasion costs the EU about €1.11 trillion a year.
The avoidance measures, known as base erosion and profit shifting (BEPS), are increasingly commonplace as it becomes easier for companies to shift profits across borders to low or no-tax jurisdictions.
The schemes usually fall within the letter of the law, with companies exploiting loopholes in tax systems and inconsistencies between national rules to minimise liabilities. This is particularly relevant in the case of the EU, as there are numerous discrepancies between national tax schemes, all of which operate in a single market.
At present, Ireland is fighting a case in the European Court of Justice, accused of allowing Apple to pay a 2 per cent rate of tax in return for providing jobs in the country. If found guilty, potential fines could top €1bn.
A crackdown on tax avoidance is a central pillar of the European Commission’s commitment to ensuring a fairer single market, with Margrethe Vestager, the EU Competition Commissioner, making tax justice one of her top priorities.
This is clearly supported by Parliament, with the draft report identifying the need to update models of corporate taxation across Europe. Systems designed before globalisation and the digitalisation of the economy are now outdated.
The report goes on to call for an increasing convergence of national tax systems in the EU, in line with a deepening of the EU integration process and a closer single market.
MEPs have been vocal in their support for reform. Elisa Ferreira, coordinator of the S&D Group for economic and monetary affairs and co-rapporteur of the TAXE committee, tweeted, “serious distortions of competition in EU single market are evident, making citizens question the fairness and legitimacy of our tax systems.”
Anneliese Dodds, Labour MEP for the South East of England went further, saying, “the TAXE Committee report reveals just how widespread aggressive tax planning practices are. All over Europe, it would seem, some multinational companies have been able to reduce their corporation tax payments to almost zero. How are those small, local businesses that pay their taxes supposed to compete? It goes completely against the principles of the European Single Market.”
“I was delighted to see that the TAXE Committee report examines all of these practices in detail and suggests a range of different ways that we can stamp them out, from making companies report exactly where they make their profits and pay their taxes, to drawing up a list of tax havens and then imposing penalties on those companies that insist on using them. It is only through this kind of bold, coordinated action that we will stamp out tax fiddling once and for all.”
