Update: Two weeks in the fight against the tax dodgers
From pressure on Commission President Juncker to blacklisting of uncooperative companies, the last couple of weeks have confirmed that the fight against tax avoidance is firmly at top of the political agenda.
Brussels 30th September
In the world of tax things can sometimes seem to happen at a snail’s pace, particularly for those of us who want real change for a fairer tax system. Yet the last couple of weeks have confirmed that the fight against tax avoidance is firmly at top of the political agenda.
On Thursday 17th September European Commission President Jean-Claude Juncker was grilled by MEPs on the special committee on tax rulings (TAXE). The committee was set up in the wake of the LuxLeaks revelations that revealed the widespread use of secret tax deals in Luxembourg to help large companies avoid paying tax in other European countries. Most of these deals were made during Juncker’s tenure as Prime Minister of Luxembourg, between 1995 and 2013, and resulted in companies paying tax rates as low as 1% tax.
Mr Juncker strenuously denied having had anything to do with the tax deals, saying that it was ‘not his role’ to interfere with the decisions of the Luxembourgish tax authorities. Yet serious questions remain. German MEP, Fabio de Masi (GUE/NGL), asked him about an allegedly secret page on tax rulings in the 1997 ‘Krecké Report’, named after the former minister in Juncker’s then cabinet who authored the document. The committee has requested a full copy of the report, which has so far been denied to them, and Juncker claims to have had no knowledge of the ‘secret page.’ This however contradicts Mr Krecké’s assertion that he handed Juncker a copy of the full report in 1997. This shows that, despite the strong determination of some MEPs on the Special Taxe, the Committee’s powers are too limited when it comes to accessing national tax documents.
That said, there are big questions to be answered about what the former Luxembourg PM knew, and when and, most importantly, why nothing was done about it despite an already-existing directive on spontaneous exchange of information on tax rulings between member states and a twenty-year-old Business code of conduct that deals precisely with unfair tax competition. Furthermore, Mr Juncker avoided answering a request to name the member states blocking moves to end unfair tax competition.
If the European Parliament is to do its job properly, it ought to know why anti-tax avoidance measures are being held up in the Council.
The TAXE committee has also called for 14 multinational companies that refused invitations to the committee to be blacklisted from the European Transparency Register, in a highly symbolic move that would see their lobbyists barred from European Parliament premises. The list includes household names such as Amazon, Google, Barclay’s, HSBC, Coca-Cola and McDonald’s.
McDonald’s is particularly under the spotlight following a report co-published by EPSU in February that revealed the corporation’s use of a Luxembourg-based subsidiary to avoid paying tax in many European countries. These revelations have led the European Commission to launch a preliminary investigation into the company’s tax dealings in light of the EC rather strict rules on state aid.
The French Finance Minister, Michel Sapin, appeared in front of the TAXE committee on Tuesday (22nd September) along with the Finance Ministers of Germany, Italy, Spain and Luxembourg. Mr Sapin was challenged by French Socialist MEP Pervenche Berès about the investigation into McDonald’s. She asked what the current situation was with the French probe and called for member-state governments to cooperate on a Europe-wide audit of the company’s tax affairs, as called for by EPSU.
Sapin gave a welcomed reassurance that the McDonald’s inquiry is still on-going and implied that McDonald’s may well be ordered to cough up for some of its multi-million euro tax dodging in France.
The Ministers generally expressed support for the directive on the Automatic Exchange of Information (AEoI) on tax rulings currently being discussed in the Council and scheduled adoption on 6th October (replacing the abovementioned directive on spontaneous AEoI). This would be amongst the essential steps forward in preventing companies from using the gaps in European tax systems to avoid paying their fair share. But it needs to go further: when tax rulings serve the exclusive purpose of reducing the tax bill of profitable companies there should be a blanket ban in line with national and EU anti-abuse or anti-avoidance clauses. In addition, we need measures like public country-by-country reporting on tax (CBCR) and sufficiently resourced tax administrations to make sure that multinationals pay what they owe in tax. We also call for EU-wide corporate tax including a minimum tax rate of least 25 % to make sure we will still have such a progressive tax in the next decades. It is also worrying to hear Pierre Gramenga, Luxembourgish Finance Minister, speaking on behalf of the Council, say that the final AEoI on tax rulings directive would have a retroactivity of only five years, where the Commission had originally proposed ten and which is supported by Parliament. This means that many tax rulings that are still being used by corporations to dodge tax will remain secret. EPSU’s position is that in light of the cost of corporate tax avoidance for society , a 10 -year prescription would be proportionate and fair.
Last week, the EC tax good governance platform met on 24 September and discussed its new work programme including how to keep the recently published common list of tax havens up-to-date, including several linked to the UK. This list triggered a very polarised discussion between member states in favour and those against. EPSU has welcomed the list, especially given that it has been made public and the fact that it is based both on criteria of lack of transparency and also on unfair tax competition. The platform also discussed the cost of corporate tax avoidance and heard a brief summary of the responses to the EC public consultation on corporate transparency including CBCR which EPSU had responded to in the course of the summer.
The fight goes on. Juncker still has a lot of questions to answer about his role as Prime Minister of Luxembourg, action will need to be taken to ensure a strong agreement on AEoI and we have to keep up the pressure for across the board public country-by-country reporting by multinationals. There is a window of opportunity in the next weeks as part of the ongoing trialogue disussions in the context of the revision of the shareholders directive. Whilst Parliament supports public CBCR now, Council and Commission are delaying further arguing it needs an impact assessment.