Brussels’ Corporate Tax Plan Falls Short of Reforms Needed

European Commission’s tax avoidance plan announced last week includes positives, like country-by-country reporting, but doesn’t go far enough to turn the tide against corporate tax dodging; Such reporting should be made public

The European Commission last week announced proposals for new laws to tackle tax avoidance and evasion in the EU. This new legislation will mean that member states are taking a common approach to preventing tax avoidance and tackling tax havens.
The proposals come soon after a report that I co-authored was overwhelmingly approved in the European Parliament, and a number of my recommendations have been taken on board.

Any moves to tackle these problems at the EU level should be welcomed, because this is not something that Britain can tackle alone. In today’s international world, where companies can move money across borders to wherever the tax regime best suits them, we have to work with our neighbours to make sure that companies pay their taxes in the places where they make their profits.

That sounds like a simple principle, but just last week we saw that Google had been able to move money around so effectively that they got away with paying almost no tax in Britain at all. George Osborne, the chancellor, seemed to consider it a triumph when he managed to get them to cough up a mere 3% of their profits, following a long set of negotiations. If you or I tried to get away with paying that little tax, we’d end up with a non-negotiated prison sentence.

It’s clear then that things have to change. And the announcement from the Commission shows that they understand that. They have called for, among other things, a common European list of recognised tax havens so that we can introduce Europe-wide sanctions against those who refuse to change their ways. This is something I called for in my report, and will be a good step forward.

The Commission has also decided to propose country-by-country reporting — making sure that companies disclose to the taxman exactly what they make, who they employ, what taxes they pay and where they pay them. And that has to be disclosed for every single country that they operate in, making it impossible to hide their money in a tax haven.

That is an encouraging first step, but it does not go far enough. Unfortunately, the Commission’s proposals stop short of asking companies to make that information public.
It is only by making that extra requirement, and introducing full transparency, that we can make sure that we really are getting a fair deal. The same deal that small and medium businesses in Britain dutifully pay every year.

We also should not forget that the trigger for all of this tax reform came from the ‘Lux Leaks’ scandal in late 2014. If we’re going to uncover more of these dodgy tax affairs then we need to bring in better protection for whistleblowers to encourage them to come forward.

Finally, we should keep pushing for a common consolidated corporate tax base (CCCTB) that would simplify how tax is paid across Europe. This would remove the opportunity for large companies to play different tax systems against each other to hide and shift their profit. And we mustn’t forget that what was announced by the Commission was just a set of proposals.

For them to become law, they need to be debated and agreed by EU national governments — including David Cameron’s Tories, who seem to think that getting peanuts out of Google is a cause for celebration. They will need to raise their ambitions considerably higher than that if they are to satisfy the justified public appetite for meaningful action against tax dodging.

Anneliese Dodds is a British MEP from the Labour Party. She is a member of the European Parliament’s committee on economic and monetary affairs and co-authored a recent report on tax transparency and convergence.