Thursday

26th Nov 2020

Commission - EU must combat €1tn tax dodging

  • The Commission estimates that 1 trillion is lost each year to tax dodging (Photo: Fotolia)

EU countries must apply common tax rules to combat tax havens and loopholes allowing businesses to avoid corporation tax, according to new proposals released on Thursday (6 December) by the European Commission.

The Commission estimates that around 1 trillion euros is lost each year to tax evasion and avoidance in the EU, The situation is particularly acute at a time when governments across Europe are implementing austerity budgets and attempting to increase taxes to plug budget deficits and rebuild public finances.

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Launching the proposals, the EU Tax commissioner Algirdas Semeta said tax evasion was "a scandalous loss of much-needed revenue" and "a threat to fair taxation".

"In a single market, within a globalised economy, national mismatches and loopholes become the playthings of those that seek to escape taxation", he added.

The EU has a limited role in tax policy which is currently limited to co-ordination of rules on VAT and provisions on administrative co-operation between countries.

The commission paper comes against the backdrop of revelations that a number of leading high-street firms, including Starbucks and Amazon, have exploited national tax systems to minimise their liabilities. There was public outcry when it was revealed that coffee-giant Starbucks had paid just €11 million in UK corporation tax over 14 years and nothing since 2009 despite racking up over one billion in sales. The controversy led to Starbucks promising on Thursday (6 December) that it would pay €25 million in corporation tax in 2013 and 2014.

Indeed, the Commission recommendation on 'Aggressive tax planning' comments that existing single market rules allow businesses to "structure arrangements with such jurisdictions via the member state with the weakest response….this does not only erode member states' tax bases but also endangers fair competitive conditions for business."

The commission calls on EU countries to include a clause in Double Tax Conventions (DTCs) agreed with other countries , as well as for an EU-wide rule on tax abuse. It also encourages member states to identify tax havens and place them on national 'blacklists', while detailing measures to persuade them to apply EU law.

Meanwhile, the EU executive also calls for an end to "harmful tax competition" between EU countries. In 2011 the commission tabled legislation for a common corporate tax base in a bid to stop countries competing to offer the lowest tax rates.

The two recommendations are not legally binding on governments but Commissioner Semeta has indicated that he would table "legislative proposals for action" if member states fail to act.

Ten EU countries, including Italy, have already received instructions from the EU executive to improve tax compliance as part of their national economic reform programmes in the 2012 European economic semester.

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