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30th Jul 2021

Corporate tax dodging still rampant in EU

  • Luxembourg is currently under investigation by the European Commission for using tax rulings as a form of illegal state aid (Photo: Jimmy Reu)

A number of member states are failing to tackle corporate tax avoidance despite media revelations and EU and national-level moves to close loopholes.

“It’s clear that in the EU it is business as usual for multinational corporations who want to dodge the rules to lower their tax bills”, said Tove Ryding from the Brussels-based European Network on Debt and Development (Eurodad) in a statement on Tuesday (3 November).

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The tax scandal erupted last November when the International Consortium of Investigative Journalists (ICIJ), based in the US, published leaked documents revealing how authorities in Luxembourg allowed hundreds of big companies to divert large sums of potential tax income away from national coffers elsewhere.

One year later, and the practice remains widespread throughout much of the EU and the developing world, according Eurodad.

The NGO, along with other tax experts, in a 140-page report compared levels of tax transparency in 15 EU states since last November’s revelations.

It found some governments are rolling back on transparency or introducing new mechanisms that allow for corporate tax dodging.

The issue spans into developing countries, where many of the companies operate but which have no say on global tax governance.

“The poorest countries are paying the price for a global tax system they did not create,” notes the report.

Despite the impact, developing countries remain excluded from having any input, in part, through moves orchestrated by France and the UK.

The report also says Luxembourg and Germany remain the “biggest culprits” in helping corporate tax dodgers, while fellow EU states, including Denmark and Slovenia, are pushing for greater transparency.

Among the issues at stake is whether to reveal the true identity of people behind corporate ownership in efforts to crack open shell companies and trusts.

The World Bank estimates a large chunk of proceeds from crime, corruption, and tax evasion is laundered through the murky corporate structures.

Both Denmark and Slovenia want public registers of company ownership, but Luxembourg and Germany are reluctant.

France is also among countries which are now opposing greater transparency.

The European Commission, for its part, also stopped short of granting full public access when it proposed a new EU anti-money laundering directive in 2014.

Meanwhile, the Organisation for Economic Cooperation and Development (OECD), a Paris-based club of wealthy states, has said that member governments are losing up to €214 billion annually because of aggressive corporate tax planning, also known as "base erosion and profit shifting" or BEPs.

The OECD issued recommendations on BEPs, including country by country reporting to make multinationals disclose key financial data for each country they operate in.

But only companies with an annual turnover of over $750 million have to comply and access to the reporting is restricted to selected tax administrators.

The Eurodad report also notes that patent boxes, which grant corporations preferential tax treatment on revenue from intellectual property, now “seem to be spreading in Europe”.

Luxembourg tax scandal may prompt EU action

An investigation into Luxembourg's tax regime has uncovered how the Italian mafia, the Russian underworld, and billionaires attempt to stash away their wealth. The European Commission has put itself on standby amid suggestions changes to EU law may be needed.

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