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25/09/2016

Finance ministers show willing to work with tax rulings committee

Euro & Finance

Finance ministers show willing to work with tax rulings committee

The finance ministers argued that only tax rulings from the last five years should be declared.

[European Parliament]

The European Parliament’s TAXE committee interviewed the French, Italian, German and Spanish finance ministers on 22 September. They promised to work quickly to adopt the Tax Rulings Directive. EurActiv France reports

As part of the inquiry into tax optimisation by multinational companies in the European Union, which was exposed with the breaking of the Luxleaks scandal in November 2014, the finance ministers from four European countries were invited to a hearing at the European Parliament on Tuesday (22 September). Alain Lamassoure, a French Republican MEP and Chair of the TAXE special committee, described the event as “a first”.

Michel Sapin (France), Luis de Guindos (Spain), Pier Carlo Padoan (Italy) and Wolfgang Schäuble (Germany) answered MEPs’ questions on abusive tax practices in Europe. In doing so they hoped to demonstrate the good will of their respective governments in dealing with the challenge of tax optimisation.

>> Read: Germany under spotlight in EU-wide corporate taxation probe

The finance ministers of the eurozone’s four largest economies were joined by their Luxemburgish counterpart Pierre Gramegna.

Prioritising tax rulings

“Adopting the directive on tax rulings is one of our properties,” the Luxemburgish minister said. “Work is under way at the Commission, but the Council intends to speed things up to reach a political agreement before the informal meeting of 6 October, so the directive can be adopted before the end of 2015. This would be very fast, because the directive was only presented this spring,” he added.

Michel Sapin said, “Tax rulings were the urgent matter, and a directive is on the table. France wants to see it adopted before the end of 2015.”

German Minister of Finance Wolfgang Schäuble added that he was “convinced that tax rulings could not continue to exist as an instrument of tax competition”.

Brussels presented a package of measures in March, entitled “tax transparency“. These measures, published four months after the scandal broke, are aimed at fighting tax optimisation.

Among the Commission’s proposals was a directive on the collection and exchange of information on tax rulings between the EU’s member states.

These agreements between governments and multinationals allow companies to negotiate their tax burden in a certain country and to use tax competition between EU member states in order to bring this down as much as possible.

Under the proposed system, EU countries would systematically communicate every three months on the tax rulings they offer, in order to avoid unfair tax competition.

Disagreements over historic tax rulings

“The speed of the adoption is already a result in itself,” the committee president said, defending the Council’s ambition on the subject. But not all the MEPs were convinced by the show of good will.

In the initial European Commission proposal, only tax rulings from the last ten years would be eligible for automatic exchange between the member states. The finance ministers complained that this period was too long. “We are trying to drive the consensus towards a five year period,” said Pierre Gramegna.

Alain Lamassoure rejected this idea, saying, “We have to take into account all the currently applicable tax rulings, whether they were decided five, ten or 50 years ago.”

The Austrian MEP Barbara Kappel (Freiheitliche Partei), said, “Tax rulings from more than ten years ago should be examined, and not just the transnational ones.”

The question of anonymity, defended by some member states but judged unacceptable by certain MEPs, was another point of friction.

“Does Germany only want anonymous tax rulings? Is there an agreement on what tax rulings actually are?” the German MEP Michael Theurer asked. His finance minister did not reply.

The suggestion by British EP Molly Scott Cato (Greens) that each EU country produce their own report on tax rulings was also not received with enthusiasm by the finance ministers. 

Positions

Burkhard Balz, a German EPP group MEP, said, "The possibility to avoid taxes results from the simple fact that national tax systems are so different. Since every Member State has different tax bases, tax rates, tax exceptions and tax incentives, some companies simply shift different parts of their economic activity to different countries optimising their taxes. The practice to use these loopholes is legal, but unfair."

"I am against unifying the tax rates, but what exactly is taxed and where, this should be harmonised," he added.

Background

The fight against tax evasion is one of the Juncker Commission's main priorities. News of the systematic, state sanctioned tax evasion practices of many multinationals based in Luxembourg, known as the Luxleaks scandal, broke shortly after the new Commission was sworn in.

On 18 March the Commission presented a package of measures aimed at strengthening tax transparency, notably by introducing a system for the automatic exchange of information on tax rulings between member states. 

Timeline

  • 6 October: informal meeting of the Economic and Monetary Affairs Council

Further Reading

European Commission