NGOs slam EU’s 'two-faced' approach to tax

3 Nov 15

Tax systems within the European Union remain largely secretive and opaque despite leaders’ claims that measures are underway to fix loopholes, the European Network on Debt and Development (Eurodad) has said.

The coalition of 46 NGOs from 20 European countries including Oxfam, Save the Children and ActionAid said that, while some reforms have been made, these remain only partially effective as Europe’s nations undergo a race to the bottom on corporate taxation.

Eurodad’s report, published today and titled Fifty Shades of Tax Dodging, referred to some countries as “Janus-faced” in their approach, publicly committed to fighting tax avoidance while privately advocating greater secrecy, less cooperation and sidelining developing countries in their tax discussions.

The NGOs scrutinised commitments and actions on tax and transparency in 15 member states, as well as the European Commission and Parliament in order to determine the role of the EU in what they describe “dysfunctional” and “unjust” corporate tax system. They rated performance across four categories: negotiation of tax treaties; transparency; reporting; and the inclusion of developing countries.

The report found that, where some loopholes have been closed, defensive mechanisms against harmful tax practices are weak and a range of options remain available for multinational corporations looking to skip out on their tax duties.

An apparatus of corporate tax rulings, treaties, letterbox companies and special corporate tax regimes remains in place and facilitates large scale corporate tax avoidance.

In some cases, such as controversial patent boxes that provide for special tax regimes for intellectual property revenues, “damaging” policies are in fact proliferating across Europe, the report claimed.

Where on the one hand transparency around the true owners of companies has been improved, for example through the introduction of public registers of country ownership, often new opaque structures known as trusts have also been created that offer alternative options for concealing ownership.

A strong political commitment to ‘tax competition’ between governments working to attract multinational corporations with lucrative tax reduction opportunities prevails, resulting in a race to the bottom, Eurodad said.

While member states’ tax administrations do exchange tax information, this is highly secretive and leaves citizens, parliamentarians and journalists in the dark. Journalists and whistleblowers who leak information and are the main source of tax dodging revelations face prosecution.

Developing countries too are excluded from the ring. More than 100 developing nations were found to have no say in the decision-making process when global tax standard rules were being set.

When developing countries pushed for global tax democracy at this year’s Financing for Development conference in Addis Ababa, the EU took a hard line against this and played a key role in blocking their proposals for an intergovernmental United Nations body on tax.

As a result of such behaviour decision-making on global tax standards remains within a closed “club of rich countries”, the report said.

Denmark and Slovenia were credited with making the most progress, especially in regards to transparency around the true owners of companies.

The European Parliament, which recently finalised a number of recommendations to combat tax dodging, was the only body to be seen to apply best practice across all four areas studied in the report.

Some of the worst offenders named in the report are the UK, Germany, France, Luxembourg and Spain. 

Despite the European Commission’s recent ruling that Starbucks and Fiat Finance must repay lost tax after being granted unlawful state aid by Luxembourg and the Netherlands, it was also not rated highly in the report and criticised for: not seeming to take a public stance on EU member states use of tax treaties with developing countries; a lack of transparency in its anti-money laundering directive; and inconsistency and hostility in its approach to the European Parliament’s push for country-by-country reporting.

A commission spokesperson said the commission acknowledges the concerns of Eurodad and that “contrary to the views set out in the report” the fight against tax fraud and evasion is a top priority, however all decisions on taxation at the EU level require unanimity and the Commission’s role is to facilitate member states' agreement on future action.

The spokesperson also noted achievements the Commission has already made, such as the launch of a Tax Transparency Package last March, an Action Plan on Corporate Taxation in June, agreements on the automatic exchange of tax information and publishing a list of third countries that member states reported as not conforming to tax good governance standards, which have already delivered “concrete results”. 

In addition, the spokesperson continued, the Commission wants to make further progress towards “fair, efficient and growth-friendly corporate taxation” and plans to present further measures to enhance transparency, combat tax avoidance, and ensure companies pay their fair share, including implementing international standards on base erosion and profit shifting. 

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