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17th Oct 2021

EU proposes new tax transparency rules

  • Moscovici: 'Tolerance has reached rock-bottom for companies that avoid paying their fair share of taxes' (Photo: Alan Cleaver)

Peer pressure will underpin a new European Commission proposal to make big companies pay their fair share of tax and prevent governments from cheating others out of taxable revenue streams.

The Brussels-executive on Wednesday (18 March) told reporters that requiring member states to be more transparent in their tax rulings would create a “virtuous circle” between states and companies.

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  • Loopholes in the EU savings tax directive were exploited by the Geneva subsidiary of UK banking giant HSBC bank. (Photo: Gyver Chang)

“Better transparency will lead to greater scrutiny,” said EU commissioner for taxation Pierre Moscovici.

Moscovici’s so-called tax transparency package is seen, in part, as a response to the series of tax scandals over the past few months that have implicated large banks and multinationals.

The media disclosures are an embarrassment to the EU commission president Jean-Claude Juncker, who under his 14-year tenure as Luxembourg’s prime minister and finance minister, oversaw many of the deals that allowed big firms pay less than 2 percent tax liability in the Grand Duchy.

The latest legislative proposal from the commission intends to crack down on those schemes by imposing an automatic exchange of information on tax rulings and requiring national authorities to send each other short reports every three months.

It is a step up from current rules that only require a “spontaneous” exchange of information but is said to fall short on addressing the sweetheart deals exposed by last year's LuxLeaks scandal.

Koen Roovers at the Financial Transparency Coalition said in a statement that the commission’s package is a “fractional” response to the Luxembourg tax scandal because the public will still remain in the dark.

"Over 150 companies in the leak were associated with the United States, but they will simply be out of bounds under this proposal,” he said.

“If all EU tax rulings were made public, companies would have a harder time negotiating the types of tax deals that don’t stand up to public scrutiny,” he added.

UK Green MEP Molly Scott Cato, who heads the political group's economic and finance portfolio, said the commission's package did not tackle the problems exposed by the LuxLeak disclosures either.

“In particular, the Commission does not recognise that tax competition or dumping is a major underlying problem, which undermines the EU's internal market,” she said.

But the former French finance minister defended the new proposal and said it “will radically improve transparency” and “move us closer to our goal of fair taxation and fairer tax competition in the Union”.

He expects member states to back the proposal and have it implemented at the start of next year.

“Today’s package is not the end of the story. It is the beginning of the story,” he added, noting public disclosure requirements for companies may be part of another proposal set for later this year.

The commission also plans on repealing the savings tax directive whose loopholes were exploited by the Geneva subsidiary of UK banking giant HSBC bank.

National governments have come under intense pressure to crack down on shady deals that allow firms to reduce tax liabilities by shifting their profits towards states with beneficial tax regimes.

Their tax rulings allow for aggressive tax planning where companies in places like Luxembourg can then channel taxable profits back into the business and away from the public coffer.

The schemes are thought to sap government budgets of around €1 trillion a year, according to one report, but the commission says the lack of reliable data makes the calculation a nearly impossible exercise.

“We can’t give a figure, it’s a lot of money is all I can say,” said Moscovici.

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