This article is part of our special report European Corporate Reporting.
SPECIAL REPORT / EU leaders responding to the public outcry over tax evasion by multinational companies have triggered a quest for pan-European solutions to tax fraud, but the debate has also enabled the European Commission to return to a controversial proposal for a Common Consolidated Corporate Tax Base (CCCTB).
As the financial crisis rumbled on, multinational technology behemoths such as Apple, Google or Amazon found themselves under the spotlight, accused of dodging taxes, provoking the fury of hard-pressed taxpayers.
The international community, member states and the EU Commission have all vied to respond with a variety of proposals to tighten tax loopholes and rake in uncollected revenues.
“This increased media attention and the inherent challenge of dealing comprehensively with such a complex subject has encouraged the perception that the rules for the taxation of cross-border activities are regularly broken and that taxes are paid only by the naïve,” according to Pascal Saint-Amans, the director of the centre for tax policy at the Organisation for Economic Co-operation and Development (OECD).
In February this year, the OECD published a report, 'Addressing Base Erosion and Profit Shifting (BEPS)', which analysed the root causes of BEPS, a term which refers to the gaps exploited by companies who avoid taxation in their home countries by shifting their activities abroad to low or no tax jurisdictions.
This resulted in an agreement by the G20 group of industrialised nations in Moscow this October to launch an action plan on BEPs providing comprehensive, coordinated strategies for the countries concerned, with the goal of encouraging its member countries to implement the plan over the next couple of years.
EU Commission busy on tax portfolio
Having discussed the tax issue broadly at a Brussels summit in May this year, EU leaders have agreed that the issue will top the agenda of their December European Council.
“I believe it is very likely that large corporates and corporate groups operating cross-border within the EU will find they are required to report more information regarding taxes, transfer pricing arrangements and perhaps aggressive tax planning undertaken over the coming years,” according to Kevin Doyle, a Dublin-based partner with auditing and consultancy firm BDO.
This is taking place against an already active anti tax-fraud agenda at the EU executive. This autumn (19 September), an EU survey recorded uncollected VAT receipts totalling €193 billion across the European Union during 2011, or 1.5% of the bloc's GDP.
"The amount of VAT that is slipping through the net is unacceptable; particularly given the impact such sums could have in bolstering public finances," said Algirdas Šemeta, the EU's taxation and anti-fraud commissioner, simultaneously launching further measures to counter the problem.
A large upswing in carousel fraud – which sees swindlers import goods VAT-free, sell to domestic buyers charging VAT, then disappear without paying the tax – is also responsible, according to the EU executive.
Ongoing problems over savings tax directive proposal
Šemeta said that the EU’s VAT Quick Reaction Mechanism, adopted in July 2013, would allow member states to react more swiftly to sudden, large-scale cases of VAT fraud.
Meanwhile, Šemeta is continuing to fight for an extended savings accord by the end of this year, against opposition from Austria and Luxembourg.
Luxembourg Finance Minister Luc Frieden claimed to be surprised that the savings-tax proposal came up for discussion at a meeting of EU finance chiefs in Brussels last week (15 November).
No decisions can be taken on extending the scope of the existing law until the EU’s executive arm has completed talks on the issue with Switzerland, Liechtenstein, Andorra, San Marino and Monaco, Frieden said.
Šemeta was unrepentant, however, telling ministers the draft law must be agreed by the end of the year. “The world is already moving and the EU must not be left behind,” he said.
The proposal aims to set standards for how EU member states can collect information on income that their residents earn from savings held in other countries, extending a current agreement to cover income from trusts, foundations, funds and other financial products. It will also require all EU nations to take part in information exchanges after a transition period.
Commission to propose new digital taxation working group
A new working group examining taxation in the digital economy will be proposed by the tax commissioner next week, EURACTIV has learned.
The group will meet for the first time before the end of the year and will return to the Commission with firm proposals next spring, before the current European Parliament’s term expires. The proposal will aim to address public indignation surrounding the seemingly low levels of tax paid within the EU by large US internet companies such as Google and Amazon.
The digital tax working group will be bring to the table next spring another highly contentious tax issue, which has found itself back in favour as a result of the tax evasion debate, the common consolidated corporate tax base (CCCTB).
The concept of CCCTB would require member states to develop common rules for determining the tax base of companies with operations in several EU countries. The Commission unveiled a draft CCCTB proposal in March 2011, insisting that the idea is not about harmonising corporate tax rates and that it would reduce administrative burdens and boost cross-border ventures.
It proved highly controversial with member states, however, who fiercely guard their independence from the EU executive in respect of tax issues.
A well-placed Commission source confirmed to EURACTIV that “technical discussions” had been under way for some time, with the hope that a new proposal may be ready to tabled during the Greek EU presidency, in the first half of 2014.
“The CCCTB has been raised again and again amongst ministers recently, because originally it was considered as a measure designed to make life easier for business within the EU, but now the attractions of the transparency that it would encourage have given it more legs,” according to the Commission source.
“Certainly I expect the work on the CCCTB to be taken forward under the Greek presidency, we might also see an [EU financial ministers] discussion for the first time on the dossier,” one EU diplomat told EURACTIV on condition of anonymity.
Such a move would certainly see strong protest, even if the backdrop of tax evasion were used as a justification for a new CCCTB proposal. Austria and Luxembourg have already demonstrated in relation to the proposal for a savings tax directive how such proposals can be mired in dispute, in a sector which EU rules say requires unanimous agreement between the member states.
The Commission is conscious that any move to harmonise taxation is likely to run into opposition. Britain, for instance, does not want to participate in the regime, which would remain optional. And Ireland has succesfully resisted a push on the CCCTB even when it came under pressure by Germany and France, who had only just agreed to its bailout programme.
“That being said, the use of an enhanced co-operation approach to the Financial Transaction Tax (FTT) means one can never say that we will not see the introduction of CCCTB through similar means, or perhaps a watered-down agreement in relation to the Common Corporation Tax Base over the coming years,” said BDO’s Doyle.
The beginning of 2014 will see tax issues once again dominating the European debate, just as the politically sensitive period of European electioneering kicks off. This is no coincidence, given that public indignation has been key to the issue soaring up the policy agenda.
The European Commission has long sought to harmonise national corporate tax systems, claiming that this will contribute to its goal of creating more growth and jobs in Europe and boosting the competitiveness of EU companies.
Currently, there are 28 different systems in Europe for calculating a company's taxable earnings, making it costly and burdensome for businesses to operate in several member states. The Commission says creating a single tax base will encourage cross-border activities and investments.
The idea of a common consolidated corporate tax base (CCCTB) was initially voiced in a 2001 communication but progress has been slow due to member states' reluctance to allow the Commission to encroach upon their national sovereignty in this area.
A first report on progress to date and next steps towards a CCCTB was issued in April 2006. The Commission followed up a year later with a communication outlining the remaining steps to be taken to establish a single tax base for European companies by 2010.
But the plan has since been stuck in the pipeline due to opposition from at least seven member states, which fear losing their sovereignty over national tax. When the first progress report was debated in 2006, 12 countries were in favour and seven – Ireland, the UK, Lithuania, Latvia, Slovakia, Malta and Cyprus – were against. The rest were still undecided.
- 25 Nov. 2013: Commission to announce launch of a new working group to report on taxation within the European digital economy
- 1 Jan. - 30 June 2014: Commission likely to unveil new proposal on the common consolidated corporate tax base (CCCTB).
- European Commission: Common Tax Base
EURACTIV Slovakia Da?ové úniky otvárajú priestor pre nový návrh korporátneho zda?ovania