This week, the rapporteurs of the Social Democratic and the Conservative group presented a first draft of the report on tax avoidance and tax evasion of multinational corporations in the Committee on Economic and Monetary Affairs of the European Parliament. The decision, to draw up such a report was triggered by the LuxLeaks scandal about a year ago when it became known that Luxembourg had concluded secret tax deals with 340 companies, guaranteeing extremely low tax rates (partly under 1 %).

To begin with, the report summarises the findings from the LuxLeaks scandal: based on secret tax deals (so-called tax rulings), the state of Luxembourg agrees in advance to grant corporations a certain, extremely low tax rate. As a result, these shift their profits to Luxembourg, thereby avoiding paying taxes in those states, where these profits were in fact generated. Such practices are called aggressive tax planning or tax avoidance and are, in contrast to tax fraud, even legal. And: tax rulings, which are used by countries to attract companies, are indeed also common practice in other EU States. With serious consequences for public finances: according to a study by Eurostat, based on tax avoidance in respect of corporation tax, EU-wide losses of tax revenue amount to 160 to 190 billion euro.

Even though company taxation lies within the sole competence of the Member States, in view of companies' cross-border activities, European cooperation is necessary. Hence the parliamentary report shall be presented to the Commission before the end of the year, which in turn is to draw up legislative proposals before the end of June 2016.

The recommendations of the report (to be adopted) are divided into three sections: transparency, coordination and convergence. The section on transparency includes for example the important demand for country-specific reporting by multinational corporations, which means that companies are obliged to disclose the level of tax they pay in each individual country they operate in. This makes it possible to uncover anomalies. Apart from that, the report in its current form also demands the automatic exchange of information on tax rulings between states. Tax rulings shall be made public a year following their signing. Another important request is the protection of whistle-blowers, hence people in the private or public sector, who disclose information on tax avoidance or fraud in the public interest: without them, abuses such as those concerning LuxLeaks would not have become known. Due to the fact that they infringe their duty to maintain secrecy, whistle-blowers often have to deal with serious consequences, which might culminate in criminal trials. They shall be protected in future.

The section covering the coordination of tax policy, demands among other a Common Consolidated Corporate Tax Base by the end of 2017, to ensure that profits can be ascertained by applying a harmonised method.

The last section, “Convergence” deals with “tax oases”, for which the draft report demands a unified definition. The proposal as a sanction against tax avoidance is that companies using tax oases might be excluded from public subsidies and contracts.

Even though the draft report already includes some important proposals for greater tax justice, they still remain trapped within the tight corset of current EU Treaties: as long as Member States retain sole tax authority and as long as there are no common minimum tax rates, the competition to provide the lowest corporate tax rate will continue.

Further information:

Draft report

Eurostat study on Taxation trends in the European Union