MEPs back corporate tax reforms

27 Nov 15

The European Parliament has overwhelmingly approved a suite of corporate tax reforms that will ensure multinational companies pay taxes where profits are made and increase transparency.

A total of 508 MEPs voted in favour of the adoption of recommendations put forward by the Special Committee on Tax Rulings last month. There were 108 vote against and 85 abstentions.

The votes put pressure on the European Commission to act on the recommendations of the Special Committee on Tax Rulings.

German MEP Michael Theurer, a member of the special committee member, said: “[The report] is a milestone on the bumpy road to an efficient regulatory framework to enable fair tax competition within the social market economy.

“I hope that the Lux Leaks scandal and the work of the tax rulings committee will be a game-changer in how we deal with tax issues.”

The so-called Lux Leaks scandal revealed how Luxembourg’s tax rulings enabled corporate giants like Skype and Koch Industries to avoid paying huge amounts of taxes on their profits.

The European Commission also recently ordered Starbucks and Fiat to repay huge sums after it ruled that ‘sweetheart’ tax rulings from the Netherlands and Luxembourg amounted to illegal state aid.

Such scandals have attracted huge amounts of political and public attention. A report by NGO Eurodad criticised the EU’s “two-faced” approach to tax while a YouGov poll found eight out of ten EU citizens think there needs to be a crack down on tax avoidance on Tuesday.  

The Special Committee On Tax Rulings agrees. Theurer called the report a “high-quality analysis of the unfair, illegitimate and in parts illegal practices of tax evasion and avoidance by certain multinational companies”.

It suggests that tax rules be based on the principle that multinational companies pay taxes where profits are made and advocates a system that would require companies to provide detailed breakdowns of their activities in every country that they operate.

In addition it calls for such information, as well as details on currently secretive tax rulings, to be systematically shared, a stronger role for the European Commission and a single, EU-wide set of rules that govern how cross-border companies calculate their taxable profits.

Some of the proposals put forward echo reforms finalised by the OECD last month and endorsed by G20 leaders in the recent summit in Ankara, however many have warned even these do not go far enough.

The MEPs who prepared the report described how they came up against “resistance from important actors” throughout the consultation process, with multinational companies initially reluctant to take part and certain member states and the European Commission creating difficulties.

A number of important documents were never received or were redacted. “We could have done better” if this was not the case, Theurer said.

They also noted the tendency towards aggressive tax competition between EU governments, whereby one is able to increase their national tax base at the expense of other European jurisdictions by offering increasingly attractive tax laws and rulings for multinationals.

Another committee member, Portuguese MEP Elisa Ferreira, said Europe could not leave in place a corporate tax framework that allows member states to compete against one another and “make a business” out of attracting multinationals.

The Federation of European Accountants (FEE) welcomed the report, which it said addresses the key political challenges in the field of tax and promotes a more coordinated, cooperative and transparent approach.

FEE president Petr Kriz said policy makers need to draft “concise legislation” with “clear definitions” to bring certainty for taxpayers and their advisors and combat “unacceptable” illegal tax practices.

FEE chief executive Olivier Boutellis-Taft agreed that common guidelines can help “restore public trust” but drafting such guidelines while ensuring a level playing field will present a new challenge.

The European Parliament is set to vote on a similar draft report suggesting measures to increase tax fairness, transparency and collection in the EU.

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