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30/09/2016

TAXE committee to fight tax evasion for another six months

Euro & Finance

TAXE committee to fight tax evasion for another six months

Elisa Ferreira

[European Parliament]

The European Parliament yesterday (25 November) adopted the TAXE committee’s report on the tax practices of big businesses in Europe. But Europe’s work on tax evasion is only just beginning. EurActiv France reports

After six months of examining tax optimisation practices in Europe, the European Parliament’s Special Committee on Tax Rulings (TAXE committee) presented its report to MEPs at the Strasbourg plenary this week.

The adoption of the report’s conclusions by a large majority marks an important political victory for the institution, which fought hard to set up the special committee in the wake of the Luxleaks scandal. This victory is especially impressive given the committee’s limited powers, on top of the fact that it was held back to a large extent by a lack of cooperation from member states.

Political scandal

Alain Lamassoure, a French Republican MEP (EPP group) and the president of the special committee, said, “The creation of the TAXE committee was a response to the political scandal of Luxleaks, and a change of mind-set is beginning to spread.” The Portuguese rapporteur, Elisa Ferreira (Partido Socialista), added that “the report presented marks a change in the rules of the game”.

This statement proved prophetic, as on the same day, Switzerland announced its adoption of the system to automatically exchange tax information with the European Union, a step that should lift the veil of secrecy from the country’s banking sector as soon as it is implemented.

A painful birth

But the birth and early life of the TAXE committee were not straightforward. Following the Luxleaks scandal’s revelations of secret tax rulings passed between 340 multinationals and the state of Luxembourg, a large number of members of the European Parliament had called for the establishment of a powerful committee of inquiry. This committee would have had greater, legally guaranteed investigative powers.

The issue threatened to divide the European People’s Party, whose leadership was reluctant to embarrass the European Commission President, Jean-Claude Juncker, Luxembourg’s former prime minister.

>>Read: Parliament despondent after failure of Luxleaks committee

A special committee with more limited powers finally emerged, with a mandate to investigate tax rulings between states and multinational companies in Europe, accused of creating unfair competition.

Severe conclusions

The 45 members of the TAXE committee wound up six months of work with a series of severe conclusions on the state of tax competition within the European Union. Aggressive tax planning, tax competition between member states and tax evasion all come at a heavy cost to the public purse.

The low tax rates applied to some of the multinationals investigated also unfairly leave SMEs and European citizens to shoulder a large share of the burden.

“Disney’s tax burden is only 3.3% on more than €1 billion of profit, and Facebook only paid £5,000 of tax in 2015; far less than the average Facebook user,” the German rapporteur Michael Theurer (ALDE) said during the debate in Strasbourg on Tuesday (24 November).

Political progress

Over recent months, the EU has made progress in a certain number of areas related to corporate tax. Brussels has opened inquiries into the anti-competitive arrangements of several member states, as well as certain multinational companies like Fiat and Starbucks.

>>Read: EU tax treaties draining developing countries

The EU also adopted the Commission’s Tax Transparency Package in October, which put in place a system for the automatic exchange of information on tax rulings between EU member states.

Also under discussion, the Action Plan for Fair and Efficient Corporate Taxation in the EU foresees the launch of a Common Consolidated Corporate Tax Base (CCCTB) in 2016. “The Commission wants to revitalise this dossier, which has been deadlocked in the Council for too long,” said Pierre Moscovici, the European Commissioner for Economic and Financial Affairs.

Half-hearted support from member states

But real progress has fallen far short of the lofty aims of the TAXE committee. The special committee had called for information on tax rulings to be shared between EU countries and the European Commission for as long as they are valid. But they had also demanded country by country reporting for the activities of multinationals, to ensure that their taxes are paid in the same place where their value is created.

One of the obstacles for the Parliament has been the half-hearted support from member states, not all of whom are willing to tackle this issue. “We have heard the call from the Parliament on country by country reporting,” Pierre Moscovici said, but “the binding unanimity rule in tax matters” has made progress on the subject impossible.

Victory over the lobbies

The TAXE committee did manage to score a notable victory against the lobbies of several multinationals.

After almost all the companies summoned by MEPs to explain their tax practices declined their invitations, the TAXE committee eventually got its way by threatening to revoke the accreditation of their lobbyists to the European Parliament.

>>Read: Parliament tax committee threatens to blacklist uncooperative lobbyists

“No company, whatever its size, can afford no to cooperate with the European Parliament,” said Alain Lamassoure. Of the 14 companies contacted, only two did not attend the hearing, while only four had accepted the committee’s original invitation.

The TAXE committee has not always been able to replicate this success with the member states. “The Parliament was unable to access certain documents,” said Michael Theurer.

Repeated requests from MEPs to access tax documents in the possession of the member states were often rejected. “We still have a way to go. You know the limits that exist. They were not set by the Commission,” Pierre Moscovici said.

Another six months

The work of the TAXE committee is not over. It will now seek to have its mandate extended a further six months. “The European Parliament believes its task is not finished. The fight against tax evasion and optimisation is only just beginning,” said the German MEP Peter Simon (S&D group).

Michael Theurer explained that a new mandate could allow the MEPs to address “the question of political responsibility that has not been resolved”. Among the national leaders in the firing line is Jean-Claude Juncker, the current president of the European Commission, who spent 18 years at the helm of Luxembourg, from 1995 to 2013.

The radical left MEP Fabio De Masi acknowledged that “Juncker was right when he said we should call it EUleaks, not Luxleaks, because some tax practices concern all the countries of the EU.”

>>Read: Grumpy Juncker: ‘Call it EUleaks, not Luxleaks!’

Background

On 12 February 2015, the European Parliament decided to launch a special committee for an initial period of six months, to investigate the sophisticated tax rulings of EU member states that became the centre of a media storm earlier this year.

With 45 members and the same number of substitutes, the TAXE Committee's role is primarily to investigate the compatibility of tax rulings with the rules on state aid and tax law. The special committee has now drafted a report, including recommendations on how to improve transparency and cooperation between member states to the benefit of the internal market, European companies and citizens.

The report was debated in the European Parliament’s plenary session on 24 November, and its conclusions adopted by a large majority on 25 November 2015.

Further Reading