EU committee pushing to remove tax competition

EUROPEAN PARLIAMENTARIANS intend to push ahead with ambitious plans to promote comprehensive European Union (EU) tax reform, seeking to leverage political opportunities created by the ‘Lux leaks’ scandal.

A special committee on tax rulings wants to write the base erosion and profit shifting (BEPS) proposals, made on 5 October, of the OECD into EU law, so that loopholes and contradictions within the EU’s 28 national tax laws are closed. The committee wants to impede multinationals from shifting profits to low tax jurisdictions within the EU, notably through the use of tax rulings.

MEPs want all tax rulings made available to tax authorities in all member states, including past rulings that still influence current tax payments. And it wants this information made available to the European Commission’s competition directorate general so it can decide whether certain tax rulings break EU state aid rules, and can be blocked – as has happened with last Wednesday’s (21 October) rulings against special treatment for Fiat in Luxembourg and Starbucks in the Netherlands.

Pushing the EC for tax reform

Speaking at a press conference in Strasbourg yesterday afternoon, senior members of the special committee on tax rulings stressed these proposals were a few of a detailed list of proposed reforms that the committee wants adopted by the full European Parliament in December – and which would then be presented to the European Commission and EU Council of Ministers as the basis for EU-wide tax reform.

Neither the commission nor member states have to listen – with the commission retaining the right to propose EU laws – but MEPs will be hoping that political pressure for a positive response will force the commission to act.

Commenting on this and also on the current negotiations over separate commission proposals for mandatory circulation of information on tax rulings between member states, the committee chair, French centre-right MEP Alain Lamassoure, said: “We have won a battle, but the war will be a long one. We hope that we will see a change of culture in the EU now.”

End tax competition

In particular, the committee wants an end to competition between member states on corporate taxation – and it is backing the proposal of a common consolidated corporate tax base, which the commission is mulling at present, through a public consultation process.

Lamassoure predicted such a rule would create healthy competition on quality administration rather than a race to the bottom in tax breaks. Instead, jurisdictions luring multinational headquarters to their shores would have to “show that they offer good service, [and] they are respectable in the way they function.”

Michael Theurer, German liberal MEP and co-rapporteur for the committee – coordinating its proposals and votes – said removing national tax law loopholes would help small-and-medium-sized companies compete against multinationals: “We need to have a level playing field and fair tax conditions for businesses.”

He was unhappy with the current proposals from the EU Council of Ministers to allow governments to restrict their circulation of tax rulings to those they deem themselves have cross-border application.

Swiss cheese

Referring to the role of the Netherlands and the reputation of Switzerland in promoting tax confidentiality, he said: “This is unacceptable – it has holes like a Swiss and Dutch cheese.” That said, he welcomed the model of an agreement between Swiss cantons in taxation competition, where they agreed a common consolidated tax base, and also to exchange tax information between them via the Swiss federal tax administration.

Other proposals in the package highlighted by Theurer included a rule that would insist that profits and dividends being moved out of the EU are always taxed before they are transferred to a non-EU jurisdiction. And he stressed that the committee was looking for reciprocity rules on tax treatment regarding non-EU jurisdictions – highlighting how the USA taxes profits but leaves significant cash flows untaxed.

The committee is looking for the EU to leverage reform through trade deals such as the EU-US Transatlantic Trade & Investment Partnership (TTIP) to push non-EU jurisdictions to have reciprocal agreements on tax, which could target multinationals. Finally, the committee wants better protection for whistleblowers highlighting tax evasion and aggressive avoidance – calling for the EU to establish a protection body, compensating whistleblowers who suffer personal losses by highlighting bad practices.

Lunch date

Looking ahead, the committee members said they would stage a meeting on 16 November with multinational companies to discuss their proposals, ahead of a December vote by the full parliament.

So far, Google, Facebook and the HSBC have said they will turn up – the MEPs were disappointed that earlier requests for meetings from other companies – notably IKEA – had been turned down (although the Swedes later offered MEPs a lunch date).

The press conference was told that the committee had asked parliamentary managers to block companies from lobbying MEPs if they refused to speak to the committee. A full version of the proposals should be published by Friday – click here for more.