The European Commission presented an Action Plan on Wednesday (17 June) to reform corporate taxation in the EU. The largest political groups in the European Parliament reacted positively to the initiative, suggesting that Commission President Jean-Claude Juncker has consolidated his powerbase among MEPs following the Luxleaks scandal.
The initiative, which aims to establish a system in which companies pay their taxes where they make their profits, was launched against the background of the Luxleaks scandal, which destabilised the former Luxembourg premier during his first days in office.
In fact, the parliamentary groups who voted to keep Juncker in office last November also appear to back the Commission’s plan.
The Action Plan sets out a series of initiatives to tackle tax avoidance, secure sustainable revenues and strengthen the Single Market for businesses. It includes a strategy to re-launch the Common Consolidated Corporate Tax Base (CCCTB) and a framework to ensure effective taxation where profits are generated.
Corporate taxes have remained in the headlines because of the way multinationals can legally reduce their bills by basing themselves in low-tax centres. The EU is already investigating the tax arrangements of Apple, Starbucks and Amazon in some member states.
The Commission is also publishing a first pan-EU list of third-country non-cooperative tax jurisdictions, and launching a public consultation to assess whether companies should have to publicly disclose certain tax information.
EPP and S&D largely favourable
The European Peoples’ Party, the largest group in the European Parliament, welcomed the Commission’s plan. Its spokesperson in the Parliament’s Special Committee on Tax Fairness Burkhard Balz (CDU, Germany) said that the only way to stop tax avoidance and aggressive corporate tax planning is joint action by all member states.
Balz sees a need for action first, because of systemic discrimination against small and medium-sized entreprises (SMEs). “SMEs do not have the resources to set up complicated tax planning schemes. De facto, only big multinational companies can profit from the mismatches between national systems. The new tax action plan must end this discrimination against SMEs,” Balz stressed.
Balz welcomed the step-by-step approach the Commission wants to take on the CCCTB. “Some member states so complicated the previous proposal, that it is wise to go first for a common tax base without consolidation,” he explained. A tax base without consolidation would not allow companies to set losses in one country off against profits in another country, Balz argued.
The Socialists and Democrats (S&D) group also welcomed the Commission’s plan as “a further step in the right direction”. They called on EU governments to act swiftly so that taxes are paid where profits are generated, and to ensure tax transparency in general.
S&D spokesperson on economic and monetary affairs Elisa Ferreira, (PS, Portugal) said the ball was now in the camp of the member states, but also warned of internal divisions between Commissioners.
“The Council cannot hide behind the unanimity rule to perpetuate a situation of privilege in some countries. Also, at the European Commission, there can be no doubt about the determination of its members to put an end to the present unfair and damaging tax dodging. The Commission must ensure, at the highest level, a real and effective coordination against harmful tax practices among Commissioners Johnathan Hill (internal market), Pierre Moscovici (tax), Margarethe Vestager (state aid), Valdis Dombrovskis (Eurozone) and Vera Jourová (justice) in their respective portfolios,” Ferreira stated.
The chairman of Parliament’s Economic and Monetary Affairs Committee, Roberto Gualtieri (S&D, IT) said that the legislature had championed many, if not all of the measures announced by the Commission. The Parliament will support any piece of legislation that contributes to the effective implementation of the principle that companies should pay a fair share of tax in the country where they make their profits, he said.
“I urge the Commission to stick to the consultation time-line and to the follow-up. The Economic and Monetary Affairs Committee will ensure a prompt and timely handling of the Commission proposals. I hope that this time the Member States will behave responsibly and will approve the package without delays and, more importantly, without watering it down,” Gualtirei said.
Greens and Conservatives critical
The Greens/EFA group criticised the Commission’s plan and said that they had challenged Juncker to “act or go”. Molly Scott Cato, tax spokesperson for the Greens/EFA group, stated that the proposal underlines “how the Commission is dragging its heels over the proposal for country-by-country tax reporting, which is a crucial measure for ensuring transparency of corporate taxation”
Philippe Lamberts, Greens/EFA Co-President and author of the tax transparency obligation for banks, added that regarding CCCTB, the countries that benefit most from the absence of a mandatory CCCTB, including Ireland and the UK, were “doing their best to sap the Commission’s resolve”.
“Without consolidation, which the Commission proposes to put off till the cows come home, the end of corporate tax dodging is inevitably also delayed. In order to be effective, a consolidated base must be accompanied by a minimum rate,” Lamberts said.
He also said that his group was disappointed that the Commission’s tax proposal, announced in March, consisting of a sensible clarification and extension of existing obligations to exchange information on sweetheart deals for multinationals, was being undermined “by a range of member states that prefer to continue to operate in the shadows where tax agreements are concerned”.
European Conservatives and Reformists MEPs criticised the attempt by the Commission to re-launch CCCTB. They believe that welcome moves to close legal loopholes should not become an excuse for the EU to impinge on the sovereign right of national governments to set their own corporate tax rates.
ECR head Ashley Fox said: “We believe that more transparency is the answer to tackling aggressive tax planning. However moves by EU officials towards greater harmonisation of taxation policy risk seriously undermining the sovereignty of national governments and the competitiveness of Europe.”
The South West and Gibraltar MEP, who also sits on the parliament’s temporary committee on taxation, added: “The UK is leading the way in preventing tax avoidance, for example by committing to introduce legislation to implement the model for country-by-country reporting already agreed at the G20 and the OECD.
“Corporate tax avoidance is a problem that stretches beyond the frontiers of Europe. The EU acting in isolation cannot solve this problem.”
Tamira Gunzburg, director of the Brussels office of ONE, the campaigning and advocacy organisation co-founded by Bono, said:
“We welcome the Commission involving stakeholders in its efforts to oblige large multinationals to publish where they declare profits and where they pay taxes. Yet this should not slow down the momentum for financial transparency. Given that measures already exist for certain sectors, we expect the Commission to charge ahead with legislation for public country-by-country reporting well before the end of the year.”
“This would benefit not just European citizens but also the world’s poorest. That is why the EU should announce a commitment to pass legislation on public reporting during the Financing for Development Summit in Addis Ababa in July. There, world leaders will decide on how to mobilise sources of financing beyond aid in order to end extreme poverty by 2030.”
Stephen Herring, Head of Taxation at the Institute of Directors (IoD), a non-party political organisation with approximately 35,000 members in the United Kingdom and overseas, stated:
“The attempt to relaunch the stalled Common Consolidated Corporate Tax Base (CCCTB) project smacks of unhelpful political populism. Each European government faces different economic pressures and corporate tax is an important tool in helping them adjust to changing circumstances. The EU should not be trying to impose a straightjacket on its members, particularly as it will almost certainly increase the level of tax for business.
“Trying to redistribute tax revenues between countries under a CCCTB would be incredibly bureaucratic, and fraught with uncertainty as countries squabble between themselves over how to share the money. The Commission is trying to defuse criticism by breaking up the process into two parts but this will not resolve the serious flaws with the proposals.”
ACCA (the Association of Chartered Certified Accountants) says the second EC “tax fairness” package is welcome, but stresses the need to be realistic about its implementation in a globalised world.
Chas Roy-Chowdhury, head of taxation at ACCA said: “We share the European Commission’s view that we need a fairer corporate tax system, better adapted to the needs of our global, mobile and digitalised world. Multinational companies (MNCs) must indeed pay taxes in the countries where they generate profits, and they should not be able to shift profits artificially to countries with low - or even zero - tax rates.
“However, while being in favour of the concept, we believe that the CCCTB may be difficult to implement as a mandatory system. Member states may not find it palatable to relinquish the complete design and implementation of their Corporation Tax system, and would probably wish that companies were able to choose. Most companies would probably be subject to the domestic system anyway, as they are not MNCs, and MNCs might actually consider that the domestic system was more attractive but would not be in a position to use it anymore, putting inward investment at risk.”
Eurodad, the European Network on Debt and Development, expressed disappointment at the Commission’s proposal.
Tove Maria Ryding, Tax Justice Coordinator at Eurodad, said: “It seems that the European Commission wants to postpone Christmas but make sure that big business gets its presents now. The option of offsetting profits in one country with losses made in another country could create a whole new playing field for tax speculation and lower tax payments. For a package that was meant to address the low tax payments of transnational companies this is highly worrying. It also means transnational corporations will now have even more privileges that are not available to national small and medium enterprises.”
“We won't be able to see the real impacts of this package as long as we're not allowed to see what multinationals make in profit and what they pay in taxes. That's why we need public country by country reporting […] With this list the Commission is pointing fingers at small developing countries such as Liberia, which is clearly not among the worse sinners in the offshore world. Meanwhile they have left out several of the big problems in the EU’s own backyard, including Luxembourg, Ireland and the Netherlands. The list is concerning as it indicates that the Commission has still not grasped the role that certain jurisdictions in the EU have in undermining the tax base of the developing countries that they are now pointing their fingers at.”
The Action Plan for Fair and Efficient Corporate Taxation is part of the Commission's agenda to tackle corporate tax avoidance, ensuring a fairer Single Market and promoting jobs, growth and investment in Europe.
In his July 2014 Political Guidelines, Commission President Jean-Claude Juncker said his team would step up efforts to combat tax evasion and tax fraud.
As a first step, the Commission proposed a Tax Transparency Package in March to create more openness and cooperation between member states on corporate tax issues.
A key element in the Package was a proposal for the automatic exchange of information on tax rulings. This proposal received unanimous political support from Finance Ministers at the Informal ECOFIN in April. Member states are now discussing it at technical level with the aim of reaching agreement by the end of the year.