14 September 2015

ECON: Draft report with recommendations to the EC on bringing transparency, coordination and convergence to Corporate Tax policies

KEY FINDINGS FROM LUXLEAKS SCANDAL

A. whereas a consortium of journalists, the International Consortium of Investigative Journalists (ICIJ), on tax rulings and other harmful practices in Luxembourg (LuxLeaks) revealed in November 2014 that nearly 340 multinational companies secured secret deals from Luxembourg that allowed many of them to slash their global tax bills, while creating little or no economic activity within Luxembourg;

B. whereas the revelations showed that tax advisors have helped multinational companies to obtain at least 548 tax rulings in Luxembourg between 2002 and 2010; whereas those secret deals feature complex financial structures designed to create substantial tax reductions; whereas the tax rulings provide written assurance that multinational companies’ tax-saving plans would be viewed favourably by Luxembourg authorities;

C. whereas, as a result of those tax rulings, some companies have enjoyed effective tax rates of less than 1 % on the profits they have shifted into Luxembourg;

D. whereas in many cases Luxembourg subsidiaries handling hundreds of millions of euros in business maintain little presence and conduct little economic activity in Luxembourg, with some addresses being home to more than 1,600 companies;

E. whereas the investigations carried out under the TAXE Committee revealed that the practice of tax rulings does not exclusively take place in Luxembourg but is common across the Union; whereas the practice of tax rulings can be used legitimately to provide legal certainty for business, but is nevertheless open to potential abuse; whereas regard is had to the report from the Organisation for Economic Cooperation and Development (OECD) published on 12 February 2013 entitled ‘Addressing Base Erosion and Profit Shifting’ proposed new international standards to combat base erosion and profit shifting (BEPS); whereas regard is also had to the Communiqué issued following the Meeting of Finance Ministers and Central Bank Governors of the G20 which took place on [to be inserted];

CORPORATE TAXATION AND AGGRESSIVE TAX PLANNING

F. whereas corporate income tax revenue for the 28 Member States of the Union amounted to an average of 2,6% of GDP in 2012;

G. whereas aggressive tax planning consists in taking advantage of the technicalities of a tax system, or of mismatches between two or more tax systems, for the purpose of reducing tax liability; whereas aggressive tax planning schemes often result in the use of a combination of international tax mismatches, very favourable specific national tax rules and the use of tax havens; whereas, unlike aggressive tax planning, tax fraud and tax evasion constitute an illegal activity of evading tax liabilities;

H. whereas a study estimates that revenue losses for the Union due to tax avoidance from corporate taxation could amount to around EUR 50-70 billion, this figure representing the sum lost to profit shifting; whereas the same study estimates that those revenue losses for the Union due to tax avoidance from corporate taxation could in reality amount to around EUR 160-190 billion if special tax arrangements, inefficiencies in collection and other such activities were taken into account;

I. whereas the same study estimates corporate income tax efficiency to be 75 %, although the study also confirms that this does not represent the amounts that could be expected to be recovered by tax authorities, because a certain percentage of those sums would be excessively expensive or technically difficult to collect; whereas according to the study, if a complete solution to the problem of base erosion and profit shifting (BEPS) were available and implementable across the Union, the estimated positive impact on tax revenues for Member State governments would be 0,2 % of total tax revenues ; whereas loss arising from BEPS represents a threat to the proper functioning of the internal market and to the credibility, efficiency and fairness of corporate tax systems within the Union; whereas the same study also makes clear that its calculations do not include estimates of activity within the shadow economy, and that the opacity of certain companies' structures and payments mean it is difficult to estimate the impact on tax revenues accurately, and therefore there may be a significantly larger impact than the report estimates for;

J. whereas the loss arising from BEPS also demonstrates the lack of a level playing-field between those companies which operate only in one country and pay their taxes there, and certain multinational companies which are able to shift profits from high tax to low tax jurisdictions and engage in aggressive tax planning, thereby reducing their overall tax base and placing additional pressure on public finances;

K. whereas multinational companies’ use of aggressive tax planning practices conflicts with the principle of fair competition and corporate responsibility;

L. whereas aggressive tax planning is facilitated by increasing business complexity and by the digitalisation and globalisation of the economy, among other factors, leading to distortions of competition harmful to Union undertakings and growth;

M. whereas the fight against aggressive tax planning cannot be tackled by Member States individually; whereas the lack of coordinated action is causing many Member States to adopt unilateral national measures; whereas such measures have often proven ineffective, insufficient and in some cases even detrimental to the cause; whereas what is needed is therefore a coordinated and multi-pronged approach at national, Union and international level; 

N. whereas the Union has been a pioneer in the global fight against aggressive tax planning, notably in promoting progress at OECD level on the BEPS project ; whereas the Union should continue to play a pioneering role as the BEPS project develops;

O. whereas the power to legislate on corporate taxation is currently vested in the Member States;

P. whereas the lack of coordinated tax policies in the Union leads to significant cost and administrative burden for citizens and businesses operating cross-border within the Union, and results in unintended non-taxation or facilitates aggressive tax planning;

Q. whereas the revelations of the LuxLeaks scandal and the work carried out by the TAXE Committee clearly show the need for Union legislative measures to improve transparency, coordination and convergence within corporate tax policies in the Union;

R. whereas the European Commission and the Member States should continue to play a very active role in the international arena in order to work for the establishment of international standards based at least on principles of transparency, exchange of information and abolition of harmful tax measures;

S. whereas the principle of 'Policy Coherence for Development', as set out in the Treaty on the Functioning of the European Union (TFEU), requires the Union to ensure that all stages of policy-making in every field, including in relation to corporate taxation, do not militate against, and instead promote, the goal of sustainable development; [...]

Full draft report

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