This week, Commission Vice President Valdis Dombrovskis and Commissioner for Tax, Pierre Moscovici presented an action plan against tax avoidance. Over the past years, many corporations operating at multinational level have developed strategies to reduce their tax payments to a minimum by exploiting dubious tax rules - for example within the scope of Double Taxation Agreements. The public interest in some companies’ lack of solidarity triggered by the financial crisis and the publication of secret documents, prompted the Juncker Commission to make tax policy one of its priorities. However, there are quite a few who doubt whether the presented proposals are making sense.

Effective taxation of corporations as a question of social justice

According to the Commission, the current corporation tax system in European countries has its origins in the 1930s. As a result it would be “outdated and inefficient” as today markets and the type of products would be quite different. According to the EU authority, the exploitation of loopholes by companies would lead to greater tax burdens for citizens, who had to compensate the losses caused by this through tax payments of their own.

In March already, Commissioner Moscovici had presented the proposal to automatically exchange so-called tax agreements between Member States and Commission as early as January 1, 2016 – AK EUROPA reported. Transparency shall expose unfair “tax deals” between companies and financial authorities and put pressure on corporations within the Union. However, to implement this plan, unanimity is required in the Council, which this week discussed the way forward in Luxembourg.

Fresh attempt in respect of unified assessment basis – tax competition remains

Tax competition in the EU will remain intact; tax harmonisation based on minimum levels of taxation, as they were among other demanded by the tax expert Otto Farny (AK Vienna) in Brussels this week, are currently not open to debate. Instead, tax competition shall become transparent and more comparable based on Europe-wide profit assessments. The Commission plans to “revive” the so-called “Common Consolidated Corporate Tax Base” (CCCTB), which has been stuck in the Council for years. To achieve this, a tiered approach has been chosen: to start with, the rules for the tax base shall be unified. Later, the “consolidation” will be carried out, i.e. the joint taxation for European parts of the same corporation. That way, profits in one country can simply offset losses in another. However, in turn there shall be stricter rules for internal transfer prices, which play a significant role in respect of tax avoidance constructions. It remains to be seen whether the new approach will get the debate in the Council, which has to agree unanimously, moving again.

Transparency for corporations postponed; black list of tax havens published

Bipartisan demands for country-by-country reporting for large corporations are not expected to be met in the near future. The idea behind it would be that corporations would have to disclose how much tax they have paid and other details. Companies that only pay a small volume of tax would have to justify this in public, which could result in a certain amount of pressure. Due to data protection concerns (corporate secrets), the Commission intends to carry out a public consultation, which will be open to entries until the end of September.

Based on the new “black list”, which contains the most important tax havens, among them Liechtenstein and Monaco, the Commission will put political pressure on countries that assist corporations in avoiding paying tax in the EU.

Further information:

“Stand der Dinge im Kampf gegen Steuervermeidung” (blog.arbeit-wirtschaft.at by AK and ÖG, German only)