Green 8-Points action plan against Tax Avoidance by Large Companies in Europe
EU Commission President Jean-Claude Juncker and the European Ministers of Finance including president of the eurogroup Jeroen Dijsselbloem must now prove to everyone that they place the interests of European citizens above those of large tax-avoiding companies and tax havens. The suggestions have been around for a long time, but so far there has been a lack of political will. The opportunity offered by the “Luxembourg leaks” must not be squandered. Political inaction would irresponsibly aggravate European frustration. Therefore, here is the Green 8-Point Plan against aggressive tax avoidance by multinational corporations in Europe:
1. Transparency by law, instead of leaks
A central aspect of the Luxembourg leaks scandal has been the individual agreements between the (Luxembourg) tax authorities and the large companies, called “tax rulings”. These kinds of tailor-made tax deals are also prevalent in Ireland and the Netherlands. The public should have the right to learn about such things not only through investigative journalism, but from a public register. Notification and publication as prerequisites for the validity of these “rulings” could be achieved by a change in the EU accounting directive. This requires only a qualified majority in the Council and the agreement of the European Parliament.
2. Full transparency for company profits
Models of aggressive tax planning are eased by the opacity concerning the sources of corporate profits. Therefore, an important remedy is full transparency by way of complete “country by country reporting” on profits, taxes, sales, number of employees, etc. This will already be applicable for banks from 2015 as a result of the Capital Requirements Directive (CRD). An addition to the EU accounting directive approved by the co-decision procedure would make this generally compulsory for all large companies in all economic sectors. Large companies should make public their complete corporate structure and their service and financing relationships within the group.
3. Reclaiming unauthorised tax subsidies
Some multinational companies have squeezed their contribution to society down to a tax rate of 1%, to the detriment of small and medium-sized companies as well as all taxpayers. In many cases, countries like Luxemburg, Ireland or the Netherlands have used special tax deals to lure companies create jobs. These tax subsidies are illegal according to current EU law. The companies who accepted such illegal state aid should be publicly exposed and should also be required to pay back these illegal subsidies. The EU Commission must do more than just prevent future tax squeezing—it must also call for the proper consequences of an investigation into state aid in the current scandal. The EU is seeking money to invest in jobs and climate protection, and so these repayments must be collected by the concerned Member States and made available to the EU as soon as possible.
4. More audit staff, not just words
Some existing tax rulings and other forms of aggressive tax avoidance have already been made public. The previous EU Competition Commissioner Joaquín Almunia and his officials investigated them and exposed several as prima facie illegal state aid. According to current competition law, the EU Commission can already take action against this. However, the relevant department in the Directorate-General for Competition does not have the necessary staff to deepen and enlarge the investigations . To date, only eight (!) employees work there. More staff must be added to deepen the investigations and to extend them to other member states that may have similar schemes (Ireland, the Netherlands, Luxembourg, Gibraltar). An increase in staff is a good investment with a view to reclaiming subsidies. These staffing decisions can be taken immediately by the EU Commission on its own. The seriousness of all statements made by Commission President Juncker and Commissioner Vestager can be judged by the number of new employees in the relevant department.
5. Stop the games of hide-and-seek with interest and licensing fees
Many tax saving models to date, such as that employed by Starbucks, are based on offsetting real profits against apparent losses. This works by having one part of the company pay interest and licensing fees to another part, with the group’s financial head office located in countries where almost no taxes have to be paid on interest and licensing fees (the Netherlands in the case of Starbucks). These loopholes can be closed by reforming the directive on interest and royalties payements and the parent-subsidiary-directive. Tax privileges for interest and licensing fee payments in the Single Market must be bound to effective minimum tax rates.
6. Unified basis for assessment for company tax on large corporations
At the moment, each country differs in the matter of what exactly is subject to corporation tax. A common consolidated corporate tax base (CCCTB) would simplify calculations. This should be introduced as compulsory for large companies that operate across borders in any case. The European Parliament has already made it clear that voluntary application, as proposed by the EU Commission, is ineffective against aggressive tax avoidance. Small and medium-sized companies can continue to apply the national rules.
7. Minimum tax rates for EU company tax
On this basis, the European Parliament, Germany, France and other partners can take the initiative to create minimum tax rates in the EU corporate tax system. As it is already the case with value-added tax, the Single European Market requires minimum regulations so that competition does not become unfair. These tax rates may vary according to the prosperity of the member countries.
8. Minimum EU standards for double taxation agreements with third party countries
When all internal EU loopholes have been closed, bypasses through third party countries, including tax havens, must also be sealed. To do this, the recently enhanced rules on the automatic exchange of information must be made watertight. Other avoidance methods can be prevented by a minimum withholding tax and the application of the credit method instead of the exemption method in the case of partner countries where there is no minimum taxation. The double taxation agreements of member states with third party countries must have need common standards. In general, no double taxation agreements should be entered into with tax havens.