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Lessons from the Panama Papers: MEPs question Nike and McDonalds

Two years after the “Paradise Papers”, the exposure of incriminating tax data of ca. 300.000 letterbox companies in Panama by the International Consortium of Investigative Journalists ICIJ, the European Parliament’s Special Committee on Financial Crimes (TAX3) invited to a public hearing on 21st June 2018 to sound out the current situation with regard to international tax avoidance and evasion.

Besides the tax experts of OECD, science (COFFERS) and quality media (The Guardian/ICIJ), the Special Committe also invited representatives of Nike and McDonalds, who answered some penetrative questions by MEPs. Whilst Nike is among those multinational corporations, whose tax avoidance practices were proven by the “Paradise Papers”, McDonalds came under pressure through a new study (“Unhappier Meal Report 2018”), which exposes the corporation's highly intransparent restructuring, which was carried out in 2017, coinciding with the BREXIT. Apart from that, the EU Commission would be able to order the corporation to repay € 500 Mio to their place of business, Luxembourg, due to illegal tax concessions.

Both corporate representatives only provided little substantial and sometimes inconsistent answers. The representative of McDonalds, for example, criticised the findings of the “Unhappier Meal Report” as ambiguous and factually wrong. However, replying to the repeated questions of MEP Jeppe Kofod (S&D, DK), she said that she could not see any benefit to provide a written statement on the incorrect findings. Even though, both companies emphasised their support for the “BEPS Guidelines” of the OECD against base erosion and profit shifting, they nevertheless used perfidious methods to bypass such transparency measures: these include circulation through license fees and internal transfer pricing, branches in tax havens such as Delaware (McD) or Bermuda (Nike), and highly complex corporate structures.

Other multinational corporations, which had been invited to the hearing, did not even make an effort to answer any questions: the consultancy firms Appleby and Baker McKenzie, which are regarded as the decisive agencies for joining the Panamanian tax haven and the law firm Mossack Fonseca, declined the invitation without giving any reason. The French fashion group Kering gave its CEOs non-availability on the date of the hearing as a reason for its absence. Apple, whose effective tax cut is estimated at 1 % EU-wide in a new study (compare classic EU companies 23.2 %), excused itself because of ongoing proceedings. Committee Chair Petr Ježek (ALDE, CZ) rightly pointed out the inadmissibility of these excuses.

The Head of the OECD's International Co-operation and Tax Administration Division, Achim Pross, also had the opportunity to speak. Whilst Pross called the tax loss through aggressive tax planning worldwide, which is estimated at $ 240 billion - hence 10 % of the global corporate tax revenue of $ 2.4 trillion - problematic, he was optimistic with a view to the future. Due to EU-wide Country-by-Country reporting, which was implemented in 2017 and the automatic exchange of information by tax data of multinational corporations from an overall turnover of € 750 million, he was already recognising a “change in behaviour” by the corporations concerned.

Lucia Rossel Flores, scientist of the Dutch research project COFFERS, also saw multinational tax avoiders increasingly put on the spot by the improved exchange of information; however, she also referred to social inequality, which was closely connected to a tax race to the bottom. A leading exposer of the Panama Papers, Juliette Garside of the British Guardian and the International Consortium of Investigative Journalists (ICIJ) respectively, mentioned the cost intensive strategic injunction suits (so-called SLAPP lawsuits) during her work on the Panama exposures, among other by Appleby. Apart from an anti-SLAPP legislative initiative, she also demanded an EU agency against money laundering to prevent cases as those unveiled in Malta and Slovakia, triggering the brutal murder of the Journalists Daphne Caruana Galizia, and Jan Kuciak and his Fiancée.

As already reported in a previous article, the Special Committee on Financial Crimes was able to make important demands with their report on tax avoidance, which was published in December 2017: uniform European tax standards - in particular in view of strongly deviating countries such as Luxembourg, Great Britain, Ireland and Cyprus; improved funding of the poorly equipped authorities; or the guaranteed protection of whistleblowers, which has been under discussion in the European Parliament’s Committee on Legal Affairs since the end of April.

Unfortunately, tax issues - and thereby a major part of the truly effective measures against tax avoidance - are not subject to the Union’s common policy, thereby being outside Parliament’s influence. This means that ultimately the Finance Ministers will decide. Their decision is based on the principle of unanimity, whereby Member States, which provide the most favourable tax conditions for companies, tend to vote against. This will also be the case regarding the Common Consolidated Corporate Tax Base (CCCTB) that is currently under renegotiation and which, from the point of view of the Chamber of Labour, is a key instrument for the fair taxation of multinational corporations.

Further information:

AW-Blog: Paradise Papers - Tax scandal reveals volatile cases from Austria

ICIJ: New Panama Papers Leak Reveals Firm’s Chaotic Scramble to Identify Clients, Save Business Amid Global Fallout

GUE/NGL Study: Apple´s golden delicious tax deals in Ireland -less than 1% Tax in the EU?

EPSU Study: Unhappier Meal - Tax Avoidance Still on the Menu at McDonald´s

AK Position Paper: Draft Directive on the introduction of a Common Consolidated Corporate Tax Base

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