Anneliese Dodds MEP: EU Parliament acts as spearhead against aggressive tax avoidance

The joint issues of tax evasion and aggressive tax avoidance have been a priority for the European Union for years. The ‘Lux Leaks’ scandal of November 2014 thrust the issue into the political spotlight, and forced even the centre-right to pay attention and realise the need for action. In just over a year since the scandal broke, a range of activity has taken place within the three EU institutions to tackle tax issues on a European level.

The European Parliament has been the main source of political pressure and is the most radical institution in terms of the action it is calling for. The Commission has produced a number of new proposals which are to be welcomed, though at times lack ambition. The Council has been the most reluctant institution to take action, regularly blocking or watering down proposals. This is a particular challenge in the area of taxation, as most of the levers are in the hands of the Council.

In response to the ‘Lux Leaks’ scandal, the European Parliament established a new Special Committee on Tax Rulings (TAXE), to look at the general issue of tax evasion and aggressive tax avoidance, and consider areas in which reform might be necessary. Throughout 2015, the Committee conducted hearings with multinational corporations, including Google and Facebook, tax advisory firms, trade unions, NGOs, national and European politicians including President Jean-Claude Juncker, in addition to visiting member states.

The Committee’s work culminated in a report, voted through overwhelmingly by the whole Parliament in November 2015, which called for a range of progressive measures to tackle tax avoidance. At the same time, the European Parliament’s standing Committee on Economic and Monetary Affairs (ECON) produced a legislative report on bringing transparency, coordination and convergence to EU corporate tax. This report focused specifically on key proposals for new laws that the EU should introduce in order to combat tax evasion and aggressive tax avoidance.

This report was co-written by Ludek Niedermayer MEP (EPP, Czech Republic) and myself, and called for Public Country-by-Country Reporting so that multinationals would need to report where they record their profits; greater protection for whistleblowers to encourage more instances of the Lux Leaks case; a pan-EU Common Consolidated Corporate Tax Base (CCCTB) meaning that companies would only need to report their tax affairs once, with member states dividing the revenues based on where the profits were generated; and a new EU regime for tax havens with sanctions for the countries identified and the companies who use them.

This report was also voted through overwhelmingly by the Parliament in December 2015 and the European Commission is now required to turn each of the report’s recommendations into concrete legislative proposals - or the relevant Commissioner has to appear before Parliament and explain why they will not.

In December 2015 the Parliament also agreed to extend the Committee’s mandate by a further six months (to May 2016), largely because the national governments of EU member states had so far refused to share vital documents with the Committee and so it had been unable to fully carry out its work.

The European Commission has also announced three separate packages aimed at clamping down on tax evasion and aggressive tax avoidance. The first of these was the Tax Transparency Package in March 2015 which called for EU countries to automatically exchange information about any ‘sweetheart deals’ and started an impact assessment regarding the introduction of Public Country-by-Country Reporting.

In June 2015 the Commission announced its second package: the Action Plan for Fair and Efficient Corporate Taxation. The main emphasis of this package was re-launching a proposal for a Common Consolidated Corporate Tax Base and publishing an EU list of tax havens. It also built on the work of the previous package by initiating a full public consultation of Public Country-by-Country Reporting. An announcement on this consultation is expected from the Commission in the coming weeks that will call for Public Country-by-Country Reporting, although it is expected to have a very restricted reach.

The latest of the packages from the Commission was announced in January of this year. The Anti-Tax Avoidance Package looks to introduce a new Directive at EU level based on recommendations made by the OECD as part of its Base Erosion and Profit Shifting Project. It also included a proposal to introduce Countryby-Country Reporting to tax authorities, but not to the public as a whole. The Commission will now develop a number of its recommendations into formal legislative proposals and submit them to the Council for approval.