Irish EU presidency must tackle tax havens
by Sven Giegold
16 January 2013
The role of the Ireland in facilitating large multinationals to avoid their tax responsibilities for economic activities carried out across the EU has been well documented, writes MEP
The European Commission estimates that 'legitimate' tax avoidance and dumping deprives exchequers in European Union member states of €1 trillion in revenue per year. That means €1 trillion, which would otherwise be available to reduce the public debt or to invest in economic revival, is being lost to EU citizens.
The failure to address this problem in the context of the current economic crisis is hard to grasp, all the more so in a context where even the International Monetary Fund has now accepted that the exclusive preoccupation with austerity and contraction in public spending has not succeeded; and has exacerbated the problems in crisis countries.
While the internal market has removed national boundaries for companies, taxation systems have remained under national control. Whether through non-existent regulation or loopholes in European rules, this result is the massive scale non-illegal tax avoidance estimated by the commission.
The role of the Ireland in facilitating large multinationals to avoid their tax responsibilities for economic activities carried out across the EU has been well documented. Unfortunately, if not surprisingly, the programme of the Irish presidency does not prioritise action to address this urgent matter.
The Greens have called for a European tax pact, which would include measures to strengthen government revenues so that not only the weakest members of society bear the burden of complying with the European fiscal pact. Ireland now has a unique opportunity, at the helm of the EU over the next six months, to change its tune and lead the way in making this complementary tax pact a reality rather than shirking its responsibility.
At present, transnational companies can and do channel their profits between European subsidiaries of their corporate group to tax regimes with more limited bases and lower rates to reduce their tax responsibilities. Finally, introducing a mandatory EU common consolidated corporate tax base would be an important step to addressing this. It would provide greater transparency and ensure profits are treated the same way for taxation across the EU, also making it easier for responsible cross-border businesses to comply in different jurisdictions.
This should be accompanied by a minimum EU corporate tax rate of 25 per cent to eliminate the scope for tax dumping, while allowing for peripheral economies to remain competitive. This would also mean fair corporate taxation by ensuring big transnational firms comply with the same conditions as smaller firms. The goal should be to have all member states participating in this regime and to start with the broadest number of participants as possible.
Together with harmonising corporate taxation, there is a need to close loopholes in existing EU rules - which facilitate the shifting of profits earned by corporations to other jurisdictions; either lower EU tax regimes or tax havens outside the EU to avoid tax responsibilities.
Closing arbitrage loopholes implies setting minimum EU standards for bilateral double taxation treaties within the EU, while ensuring common European tax treaties with third countries. This will save corporations the bureaucratic burden of sifting through a myriad of double taxation treaties and will enhance the fight against tax havens, creating a common EU approach.
Other loopholes that need to be closed include the broad abolition of withholding taxes within the union by the EU Parent-Subsidiary Directive and the EU Interest and Royalties Directive. These directives must be revised to include anti-abuse conditions. There is also a need to introduce cross-border minimum tax rates on dividends, interest and royalty payments between related entities of EU corporate groups. To make tax planning by companies transparent, there is a need for comprehensive country-by-country reporting by transnational corporations.
Europe must work to end tax havens. The starting point must be adopting a common European definition of tax havens and automatic sanctions for jurisdictions not complying with European standards. This definition must include all low-tax regions within and outside the EU and become a springboard for recapturing provisions and limitations on entities in future financial market legislation. Member states should follow France's lead and impose a tax penalty on corporate cash flows into tax havens.
In order to end individual tax evasion, there is a need for a comprehensive and automatic exchange of information. A thorough revision of the savings tax directive, along the lines of the stalled proposals from the commission in 2008 - including a framework for the geographical and substantial expansion of information exchange, is urgently needed. These proposals - which were delayed by recent German, British and Austrian bilateral tax agreements with Switzerland must now be fast-tracked.
We need a common EU approach to exert pressure on tax havens. This implies EU-imposed restrictions on the operations of banks that have repeatedly violated tax laws or have not met information requirements. We also need a European version of the United States Foreign Account Tax Compliant Act requiring third country financial institutions to automatically provide EU tax administrations with information on taxpayers' earnings.
The fight against tax havens must also include a provision ensuring top earners in Europe do not evade their tax liability by shifting their domicile because they too have claimed benefit from the infrastructure of their country of citizenship. Fast-tracking the implementation of a financial transaction in as many member states as possible including Ireland, coordinating wealth taxes and raising minimum carbon and energy tax rates - and removing loopholes - are the other aspects of taxation policy on which the Irish presidency could and should surprise us all by delivering on.
Sven Giegold is a Group of the Greens/European Free Alliance MEP and finance spokesperson
The European Commission estimates that 'legitimate' tax avoidance and dumping deprives exchequers in European Union member states of €1 trillion in revenue per year. That means €1 trillion, which would otherwise be available to reduce the public debt or to invest in economic revival, is being lost to EU citizens.
The failure to address this problem in the context of the current economic crisis is hard to grasp, all the more so in a context where even the International Monetary Fund has now accepted that the exclusive preoccupation with austerity and contraction in public spending has not succeeded; and has exacerbated the problems in crisis countries.
While the internal market has removed national boundaries for companies, taxation systems have remained under national control. Whether through non-existent regulation or loopholes in European rules, this result is the massive scale non-illegal tax avoidance estimated by the commission.
The role of the Ireland in facilitating large multinationals to avoid their tax responsibilities for economic activities carried out across the EU has been well documented. Unfortunately, if not surprisingly, the programme of the Irish presidency does not prioritise action to address this urgent matter.
The Greens have called for a European tax pact, which would include measures to strengthen government revenues so that not only the weakest members of society bear the burden of complying with the European fiscal pact. Ireland now has a unique opportunity, at the helm of the EU over the next six months, to change its tune and lead the way in making this complementary tax pact a reality rather than shirking its responsibility.
At present, transnational companies can and do channel their profits between European subsidiaries of their corporate group to tax regimes with more limited bases and lower rates to reduce their tax responsibilities. Finally, introducing a mandatory EU common consolidated corporate tax base would be an important step to addressing this. It would provide greater transparency and ensure profits are treated the same way for taxation across the EU, also making it easier for responsible cross-border businesses to comply in different jurisdictions.
This should be accompanied by a minimum EU corporate tax rate of 25 per cent to eliminate the scope for tax dumping, while allowing for peripheral economies to remain competitive. This would also mean fair corporate taxation by ensuring big transnational firms comply with the same conditions as smaller firms. The goal should be to have all member states participating in this regime and to start with the broadest number of participants as possible.
Together with harmonising corporate taxation, there is a need to close loopholes in existing EU rules - which facilitate the shifting of profits earned by corporations to other jurisdictions; either lower EU tax regimes or tax havens outside the EU to avoid tax responsibilities.
Closing arbitrage loopholes implies setting minimum EU standards for bilateral double taxation treaties within the EU, while ensuring common European tax treaties with third countries. This will save corporations the bureaucratic burden of sifting through a myriad of double taxation treaties and will enhance the fight against tax havens, creating a common EU approach.
Other loopholes that need to be closed include the broad abolition of withholding taxes within the union by the EU Parent-Subsidiary Directive and the EU Interest and Royalties Directive. These directives must be revised to include anti-abuse conditions. There is also a need to introduce cross-border minimum tax rates on dividends, interest and royalty payments between related entities of EU corporate groups. To make tax planning by companies transparent, there is a need for comprehensive country-by-country reporting by transnational corporations.
Europe must work to end tax havens. The starting point must be adopting a common European definition of tax havens and automatic sanctions for jurisdictions not complying with European standards. This definition must include all low-tax regions within and outside the EU and become a springboard for recapturing provisions and limitations on entities in future financial market legislation. Member states should follow France's lead and impose a tax penalty on corporate cash flows into tax havens.
In order to end individual tax evasion, there is a need for a comprehensive and automatic exchange of information. A thorough revision of the savings tax directive, along the lines of the stalled proposals from the commission in 2008 - including a framework for the geographical and substantial expansion of information exchange, is urgently needed. These proposals - which were delayed by recent German, British and Austrian bilateral tax agreements with Switzerland must now be fast-tracked.
We need a common EU approach to exert pressure on tax havens. This implies EU-imposed restrictions on the operations of banks that have repeatedly violated tax laws or have not met information requirements. We also need a European version of the United States Foreign Account Tax Compliant Act requiring third country financial institutions to automatically provide EU tax administrations with information on taxpayers' earnings.
The fight against tax havens must also include a provision ensuring top earners in Europe do not evade their tax liability by shifting their domicile because they too have claimed benefit from the infrastructure of their country of citizenship. Fast-tracking the implementation of a financial transaction in as many member states as possible including Ireland, coordinating wealth taxes and raising minimum carbon and energy tax rates - and removing loopholes - are the other aspects of taxation policy on which the Irish presidency could and should surprise us all by delivering on.
Sven Giegold is a Group of the Greens/European Free Alliance MEP and finance spokesperson
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