Sven Giegold
Mitglied der Grünen/EFA-Fraktion im Europaparlament

Sprecher Europagruppe Grüne

Green action plan against tax fraud and evasion in Europa

Action plan against tax fraud and evasion in Europe

The trove of documents leaked in 2013 (Offshore Leaks) and again in 2014 (Lux-Leaks) by the International Consortium of Investigative Journalists (ICIJ) have shed a welcome light on the dark reality of tax fraud and evasion. The EU Commission has estimated that this costs European treasuries around a trillion euros every year. The only winners of the aggressive tax competition between EU member states, which makes this possible,  This is the result of an all-out competition between States, and in particular EU Member-States, are the wealthiest taxpayers, whether individuals or corporations, and the losers are the vast majority of European citizens and small and medium-sized businesses.

In spite of the expressions of feigned surprise and indignation, this is hardly news to any serious EU policymaker or observer. The European Commission and EU finance ministers cannot honestly imply that they were unaware of these tax arrangements. Practical measures to remedy the situation, including legislative proposals, have been around for a long time, but so far there has been a clear lack of political will to act on them. On the contrary, most EU member states continue to tolerate tax havens, with some even operating provisions within their own tax-codes provisions that enable rich foreign taxpayers to avoid tax. The opportunity offered by ‘Luxembourg leaks’ must not be squandered. Political inaction would be irresponsible and would add to citizens’ disillusion with the European Union at a time when all member states are struggling to balance their budgets, finance investments and when austerity programmes are causing suffering to an increasing number of the European citizens.

In our view, concrete action should develop along three distinct axes:

(A)  Enforcing existing rules

1. Proper EU investigation and follow-up: Earlier this year, the European Commission launched an investigation on tax rulings granted by Ireland, Luxembourg and the Netherlands on the suspicion that they constitute prohibited state aid. This investigation has since been enlarged to include Cyprus, Malta and the United Kingdom. As Greens, we argue that the investigation must be broadened to all EU member states suspected of similar practices and deepened in order to catch other suspected cases, with those unearthed by the LuxLeaks scandal being the most prominent. In addition, the Commission must ensure that adequate funds and staff are allocated to this investigation as a matter of top priority. To date, only eight employees work on this issue in the Commission’s directorate-general for competition. Should it be established that individual tax deals constitute illegal state aid, the sums must be recouped by member states concerned; and as the damage of such practices impacts on the entire EU, we would argue that the recovered funds should go directly towards the funding of the €300 billion investment plan for Europe, proposed by Commission president Juncker.

Action to be taken by: European Commission and EU governments (to agree on allocation of recouped illegal subsidies to EU investment plan)

2. Correcting budgetary irregularity: Should there be any suspicion that these massive tax deals had a material impact on the financial contributions of member states to the EU budget, an investigation by the EU’s anti-fraud arm OLAF might also be warranted.

Action to be taken by: European Commission

3. Clamping down on tax dodging practices: Many corporations have established legal entities in several member states for the sole purpose of tax optimisation; if this is considered to be illegal, national authorities must launch investigations into these practices in their jurisdictions where appropriate.

Action to be taken by: EU governments

(b)  Tax transparency

While, in and of itself, transparency cannot eliminate tax fraud or tax evasion, it increases the attention and pressure on governments, companies and individuals seeking to avoid paying tax. Measures that should be taken in this field include:

4. Transparency on company accounts: Country-by-country financial reporting is an important regulatory tool for highlighting discrepancies between economic activity and taxes paid. Such reporting is already mandatory for extractive and forestry industries in the EU, and from 2015 this requirement will be extended to the finance sector, thanks to the determination of Green MEPs.      However, it must be extended to include all sectors, to ensure full transparency.

Action to be taken by: European Commission (legislative proposal); European Parliament and finance ministers EU member states (in Council) (amendment and eventual adoption).

5. Full transparency on national tax schemes: All tax rulings granted by authorities across the EU should be made public, so that outrageously favourable deals would become next to impossible to grant. This could be achieved by adapting the EU accounting directive.Transparency will undermine the ability of EU governments to agree ‘sweetheart deals’ with corporations.

Action to be taken by: European Commission (legislative proposal); European Parliament and finance ministers EU member states (in Council) (amendment and eventual adoption).

6. Transparency on who owns what: To prevent the concealment of earnings through the use of trusts and other complex legal structures, we need a public register of the beneficial owners of all businesses. Such a measure was adopted by the European Parliament earlier this year (2014), as part of the anti-money laundering directive. We expect EU governments in Council to agree to this measure in ongoing negotiations to finalise this legislation with the EU Parliament.

Action to be taken by: Finance ministers of EU governments.

(C) Tax harmonisation

The third front is both the most important and the most difficult, as it requires member states to end their long-running tax wars and to gradually shift to cooperation rather than competition in tax matters, beginning with corporate taxation. Decisions on taxation policy at EU level remain the exclusive responsibility of EU governments and requires unanimity for all decisions in Council. Too often, this procedural fact has been used as an excuse for inaction. We believe that a coalition of the willing must be built around this project of corporate tax harmonisation and that we must use the political momentum of the Luxleaks revelations to build such a coalition.

7. Closing loopholes which enable corporate tax avoidance: The EU’s parent-subsidiary directive, the interest and royalties directive and the mergers directive must all be revised to close all existing loopholes. The relief of double taxation should only be permitted to be granted if a minimum tax rate has actually been paid.

Action to be taken by: European Parliament and finance ministers EU member states (in Council) (amendment and eventual adoption).

8. Closing routes for tax avoidance outside the EU: Once all internal EU loopholes have been closed, routes to avoidance through third countries must also be closed. To achieve this, the recently enhanced rules on the automatic exchange of information on taxation between EU governments must be made watertight. Other avoidance methods can be prevented by the introduction of a minimum withholding tax and the application of the credit method instead of the exemption method in the case of partner countries where there is no minimum taxation. The double taxation agreements between EU member states with third party countries must be based on common standards. In general, no double taxation agreements should be entered into with tax havens.

Action to be taken by: Commission (to follow up on its 2012 recommendation on tax havens) and EU governments.

9. Consistent and common taxation of corporations: A first step in this direction was taken in 2011 with the proposal for a common, consolidated corporate tax base (CCCTB), which would provide for a uniform definition of profit across the EU. This would make it possible to ensure that company profits are registered in EU member states according to the extent of economic activity that takes place in their territory. This project has been put on hold by EU finance ministers but it is high time for it to be adopted and made mandatory for all transnational corporations.Action to be taken by: Finance ministers of EU governments (in Council), European Commission (to adapt its proposal).

10. Moving towards common corporate taxation: Fully squaring the circle implies a gradual harmonisation of corporate tax rates, including a minimum corporate tax rate as well as minimum standards for double taxation agreements with third party countries (i.e. automatic information exchange, minimal rate for withholding tax, etc.).

Action to be taken by: European Parliament and finance ministers EU member states (in Council) (amendment and eventual adoption).

Jean-Claude Juncker was right when he said that his Commission term would be the “last chance” for Europe. Without a fundamental change in the direction of EU policy, the disillusion amongst the citizens’ of Europe with their institutions and their representatives can only increase. Without determined action against tax fraud and tax evasion, there can be no return to strong public finances. The European Union cannot earn the “social triple-A rating” that Juncker aspires to if those who should pay the most tax are allowed to play one member state off against the other in order to avoid their contributions. Most importantly, tax justice is an essential element to restore the foundation of our democracies and to rebuild the trust of our citizens in the effectiveness of their institutions and the willingness of their policymakers to act in the interests of all, not just the favoured few. As can be seen from the ten points outlined here, all EU institutions and national governments have a shared responsibility to make the fight against tax evasion and tax fraud their top priority. However, in his capacity as President of the EU Commission and because of his questionable past as head of government of one of EU’s major tax havens, Jean-Claude Juncker personally is obliged to demonstrate unremitting effort and determined leadership in this area. His credibility is at stake.