The European Commission intensified efforts to fight rampant tax avoidance by multinationals on Wednesday (18 March), in its first major effort to counter the LuxLeaks scandal that embarrassed President Jean-Claude Juncker just days after he took office.
The EU executive said its ambitious plan would force the EU’s 28 countries to share details of any tax deals agreed with some of the world’s biggest multinationals, ending the secrecy that allowed member states to often compete against each other to attract business and investment.
“Tolerance has reached rock-bottom for companies that avoid paying their fair share of taxes, and for the regimes that enable them to do this,” said EU Economics Affairs Commissioner Pierre Moscovici, as he announced the plan.
“We have to rebuild the link between where companies really make their profits and where they are taxed,” he said.
The plan targets so-called tax rulings, secret deals at the heart of the LuxLeaks scandal which revealed last year that some of the world’s biggest companies — including Pepsi and Ikea — had lowered their tax rates to as little as one percent in secret pacts with tax authorities in Luxembourg.
The revelations, unearthed by a consortium of investigative journalists, were an especially huge embarrassment to Juncker, the then-newly installed Commission head who presided over the tax pacts for almost 19 years as Luxembourg prime minister.
French centre-right MEP Alain Lamassoure, the European Parliament’s Special Committee on Tax Rulings’ chairman, said that transparency among member states is a first step.
“The next must be the maximum possible transparency among economic players themselves and consumers. The ultimate objective is justice, tax fairness among states and companies”.
Under the new regime proposed by the Commission, member states would be forced to reveal tax rulings made with companies to other bloc members automatically every three months.
This transparency, Moscovici said, would deny companies the ability to secretly shift profits and avoid taxes, at least within the EU.
The plan, however, did not question the perfectly legal practice of offering companies tax rulings, Moscovici said, this being the strict responsibility of member states.
Critics said the plan was too narrow in scope, and the transparency too limited, to truly address corporate tax avoidance they said occurs on a massive scale.
“Though this tax transparency package is supposed to be a response to the Luxembourg Leaks, it’s only addressing a fraction of the problem,” said Koen Roovers of the Financial Transparency Coalition in Brussels.
“Over 150 companies in the leak were associated with the United States, but they will simply be out of bounds under this proposal,” he said.
Activists also criticised the fact that the tax ruling would remain out of the public eye, remaining privileged information for tax authorities.
“This is not tax transparency or tax justice. The veil of secrecy remains in place,” said Tove Maria Ryding, of the European Network on Debt and Development.
Jacques Fabre, Administrator for Transparency in Paris, said “it is too much to talk of tax transparency when we know that none of this information will be available to the public”. The idea of publicising of tax rulings has not been completely ruled out by the Commission, but it is proceeding with caution on the matter.
A source in the Commission told EURACTIV “We will carry out an impact assessment on the matter of publishing tax rulings,” but added that publicising the agreements signed between states and companies would not necessarily be a more efficient way of tackling the issue than transmitting the information to the tax authorities.
This view is not shared by many NGOs, who call for greater protection for the interests of developing countries. Lucie Watrinet from CCFD-Terre Solidaire said “publicising information on tax rulings or on the activities and taxes paid by European businesses would allow other non-European countries access to data that could be very useful in understanding complex tax systems”.
New EU legislation, prosecutions in Luxembourg
The Commission has refused to pass judgement on tax rulings, stating that they are not illegal in themselves, but that a distinction should be drawn between legitimate and harmful rulings. “Even I negotiated them as Finance Minister of France,” said Pierre Moscovici.
The fate of the issue depends on the good will of the member states. But while the current Latvian presidency appears highly motivated on the subject, in July the Council presidency will be handed over to… Luxembourg. In charge of the Council agenda, the country will be unlikely to push the issue of tax rulings to the forefront.
A former employee of PricewaterhouseCoopers, Luxleaks whistleblower Antoine Deltour, is currently on trial in Luxembourg for violating trade secrets law.