TTIP: big business ‘could sue governments over tax on profits’

17 Feb 16

A new trade agreement proposed between the United States and the European Union could allow corporations to effectively sue governments who try to collect tax on their profits, campaigners have warned.

 

A report, published by Global Justice Now and Transnational Institute, outlines how multinational companies would be able to use a provision in the deal to challenge governments on tax matters in a corporate court convened behind closed doors.

Nick Dearden, director of Global Justice Now, which describes itself as a democratic social justice organisation, said despite the enormous outcry over corporate tax evasion, EU member states could soon be signed up to a deal preventing the creation of laws to address tax justice.

“The ability to enact effective and fair tax systems to finance vital public services is one of the defining features of sovereignty,” he said.

“The fact multinational companies would be able to challenge and undermine that is testament to the terrifying extent of the corporate grab embedded in this toxic trade deal.”

The controversial deal, the Transatlantic Trade and Investment Partnership (TTIP), is currently being negotiated largely in secret by the US and EU. It will form a bilateral trade agreement that hopes to reduce regulatory barriers for business.

But it also contains an ‘investor protection’ provision allowing corporations to effectively sue governments for taking action to harm their business.

Analysis shows that an increasing number of companies are using such provisions, a mechanism formally known as the investor-state dispute settlement (ISDS) system, to challenge and lower their tax bills in closed “corporate courts”, often with success.

The report details 40 tax-related disputes where corporations have sued companies. Vodafone, for example, has launched an arbitration claim, still ongoing, against India after being ordered to pay tax on an $11bn acquisition deal.

Corporate investors in the food and drink industry successfully sued Romania, winning a $250m award, after the country tried to terminate its tax breaks early – a specific demand from the European Commission for Romania to join the EU.

US agribusiness giants Cargill and Archer Daniels Midland have also successfully sued Mexico for introducing a sugar tax on the sales of soft drinks containing high-fructose corn syrup.

All these cases have been based on the investor protection provisions which form an integral part of the TTIP, as well as similar deals being negotiated between the EU and Canada, the EU-Canada Comprehensive Economic Trade Agreement (CETA).

The report also argues that supposed tax ‘carve outs’ written into treaties have not succeeded in stopping taxes from being challenged and defeated.

It stressed that if member states or the EU as a whole tried to introduce tax practices with social or environmental benefits, it could result in a closed-door lawsuit and billions of pounds in damages awarded a corporation.

“This is yet more lining in the pockets of corporate executives stolen from the public taxpayer. New trade deals such as TTIP and CETA have to be stopped and the public interest defended,” said Cecilia Olivet from the Transnational Institute, which works to strengthen international social movements and champion the interests of the world’s poorest people.

The European Commission, which is currently undertaking a crackdown on corporate tax avoidance, was surprised when 97% of respondents in a public consultation felt strongly against the ISDS.

In September 2015 the commission proposed an alternative system, but US negotiators and the business lobby are insistent on keeping the original ISDS in TTIP.

Controversy surrounding the provision has been prominent and is still ongoing. Civil society and many citizens have objected to the ISDS and at one point France refused to sign the TTIP if the ISDS was included. 

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