Despite the uproar that followed the publication of ‘sweetheart’ deals between member states and corporations, the number of ‘secret’ unilateral tax agreements the countries signed with companies in 2016 actually rose 64% over the previous year to reach 2,053.
The advanced pricing agreements (APAs) are deals reached between multinationals and tax authorities to validate transfer pricing within the different divisions of the firm.
The APAs and tax rulings are secret deals reached between national authorities and companies. Although not all of them are illegal, national governments used them in some cases to offer extremely beneficiary conditions to multinationals to attract them to their territory.
The European Commission published late on Wednesday (14 March) the latest information available in the context of a EU joint transfer pricing forum.
The data from 2016 was provided by the capitals for the forum, a body which assists the Commission to find “non-legislative” solutions to practical problems posed by transfer pricing.
Commission officials argued that these agreements offer clarity and certainty to national authorities to know what revenues to expect from multinationals.
However, some of these agreements came under fire over the past years as they were used by giants like Starbucks or Fiat to substantially cut their tax bills.
In some cases, companies paid less than one 1% of taxes thanks to the tax gifts given by Luxembourg, as was revealed by a consortium of investigative journalists in 2014.
The Luxleaks scandal was followed by a series of revelations that put the fight against tax dodging on top of the EU’s agenda. The Commission has put forward several initiatives and opened investigations into some multinationals, including Apple, Starbucks, Amazon, McDonald’s or FIAT
The Commission forced Apple to pay back €13 billion in taxes after it found out that it was paying only 0,005% in taxes to Ireland.
Belgium on top
Luxembourg, seen as the friendliest jurisdiction in Europe for tax dodging, did not come out on top of the lists of APAs in 2016. Instead, Belgium took the top spot with 1,081 agreements valid that year, compared to 599 in the Grand Duchy.
Belgian authorities told the forum that the large number was due to the combination of APAs and tax rulings.
In order to address the abuses, the Commission put forward rules to increase transparency by automatically exchanging information on tax rulings between member states. It also forced multinationals to disclose their benefits and other data on a country-by-country basis.
The first exchange is still ongoing, after the rules took effect last year.
In addition, the Commission warned this month Belgium, Luxembourg, Malta, Cyprus, Hungary, Ireland and the Netherlands for their aggressive tax-planning schemes.
According to the EU executive, between €50 to €70 billion is lost in tax revenues every year because of tax erosion.
Moscovici described these countries as “black holes” in the European tax framework.
However, the Commission was not particularly concerned about the significant increase of APAs disclosed in the forum.
“The Commission follows with interest the issuance of tax rulings and has not hesitated to act when it sees that a specific arrangement has given cause for concern,” said Commission spokeswoman Vanessa Mock.
She pointed out that tax rulings and APAs “are not per see illegal” and could be “useful” both for companies and countries.
“For businesses, it clarifies what they should be paying their tax on, and for EU countries it allows them to foresee their expected revenue intake,” she said.
But NGOs found the information worrying.
”These figures are shocking. It seems that no amount of high profile tax scandals will deter some governments from making secret tax deals with multinational corporations,” said Tove Maria Ryding, tax justice coordinator at the European Network on Debt and Development (Eurodad).
Ryding believes that the rising number of APAs complicates Commission’s oversight. And although the executive has access to the automatic exchange of information among the national governments, she said the Commission has “very limited knowledge about the actual content”.
Transfer pricing would come to an end once the proposal for a Common Consolidated Corporate Tax Base is adopted.
In 2016, the Commission relaunched the initiative, which should bring a new system for taxing multinationals. The institution argues that the new model would be more business-friendly while also eliminating the main channels of profit-shifting.
The European Parliament backed on Thursday the CCCTB. However, the proposal is stuck at the Council’s table.
“Yet for all the tough talk by members of the European Council on tackling tax dodging, they have been blocking this essential reform. Not only is this hypocritical, it robs them of much-needed resources to invest in their people,” said Green MEP Eva Joly.