Tax evasion and Tax Avoidance. The Global and European momentum
Economic inequality is increasing and it puts a threat to the social and moral cohesion of European society. Pope Francis has repeated his concern about growing economic inequality on many occasions. In a globalised economy, better international and European cooperation can make taxation fairer and can contribute to reducing economic inequality. Therefore, Justice and Peace Europe has dedicated its annual concerted action in 2016 to fairer taxation. This briefing gives an overview of the current state of play at the EU and global level and should allow national commissions to pursue their activities.
1. G20/OECD-BEPS project
At their meeting in London 2009 and in the immediate aftermath of the 2008 financial crisis, the G20 declared their intention to take action against tax havens and to work towards more transparency in the banking sector. “The era of banking secrecy is over”, they declared. With his political support but also driven by the political momentum generated by SwissLeaks, LuxLeaks and Panama Papers, the OECD developed its Base Erosion and Profit Sharing (BEPS) project to increase standards of transparency and to tackle practices of aggressive fiscal planning and tax avoidance schemes by multinationals. Globally and estimated 100-240 billion US dollars are lost every year through the non-payment of corporate income taxes. As a basic assumption the BEPS initiative wants to make sure that profits should be taxed where economic activities take place and value is created.
At the European level, taxation matters also received a new level of attention due to the diverse leaks and revelations in the media. Until today, three major initiatives have been taken by the Juncker Commission.
Following the LuxLeaks at the end of 2014, the Council and the European Parliament agreed in October 2015 on a proposal by the European Commission for a “tax-rulings” directive. It will enter into force at the beginning of 2017 and put in place an automatic exchange of tax-rulings among member states.
Tax Avoidance Package
At the beginning of the year 2016, on 28 January, the European Commission adopted and published its Tax Avoidance package. It included a draft proposal for a “Tax avoidance” directive, which mainly transposes elements of the BEPS project into EU law and leads whit different instruments used by multinationals to “optimize” their tax bill.
A political agreement in the Council on this directive is expected on 25 May. Furthermore, tha package included and amendment to the existing “Administrative Cooperation” directive to provide and exchange of tax related information of multinationals among fiscal administrations of member states. The Council reached a common agreement on this amendment in March and a final adoption is expected in the first semester of 2016.
Tax Transparency Rules for Multinationals
On 12 April 2016, the Commission – just a few days after de revelation of the Panama Papers – adopted a proposal to force multinational companies with global revenues exceeding 750 million € a year to publish key information on where they make their profits and were they pay their tax in the EU on a country-by-country basis. Technically this should be done through an amendment of the already existing “Accounting” directive. At the last moment, the Commission inserted a provision asking multinationals to publish the same information on a country-by-country basis also for tax havens. This provision would make the establishment of an EU list for tax havens obligatory and touches on de delicate question whether to include the US or not. A first exchange in the Council on 22 April 2016 showed that several member states are not in favour of the initiative. A conclusion of the negotiations is not envisaged under the Dutch Presidency (first half of 2016). The European Parliament, who is co-legislator on this proposal, has on the contrary already asked for more ambition.
Still in the course of this year the Commission plans to present an amendment to the EU “Anti-money Laundering” directive (June) and its re-launch of the “Common Consolidated Corporate Tax Base” (by the end of this year). The goal is to establish whilst the actual tax rates should remain the decision of the members states.
The European Parliament, which has only limited competences when it comes to matters of taxation, has set up two special committees (TAXE 1 and TAXE 2) to investigate on the LucLeaks scandal. It is now on the verge of creating and inquiring committee with regard to de Panama Papers.
From the point of view of the Catholic Social Teaching, the current global and European efforts deserve to be supported. Very rich individuals should find less and less opportunities to escape the taxation of their income through banking secrecy and the existence of tax havens. Multinational companies should no longer be able to avoid paying taxes on profits where they are generated through the technical expertise of highly paid consultancies.
Brussels, 11 May 2016