Thursday

26th May 2022

Tax probes frustrate EU competition chief

  • Vestager recently launched probes against Google and Gazprom (Photo: European Commission)

Cracking down on sweetheart tax deals with multinational corporations is proving more difficult than the European Commission had anticipated.

Delays, uncooperative member states, and missed deadlines are among the frustrations highlighted Tuesday (5 May) by the EU’s competition chief, Margrethe Vestager.

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Speaking at a special committee on tax rulings at the European Parliament, Vestager retracted a self-imposed deadline initially set for the middle of the year to complete investigations into Apple, Starbucks, Fiat, and Amazon.

“It has become clear that obtaining information is both challenging and time consuming. We do not necessarily get information that we ask for the first time and not necessarily the second time either,” she said.

“I will not be giving you a new fixed deadline for the finalisation of these cases”.

The four companies last year fell under separate commission investigations following revelations on government-backed tax rulings, also known as comfort letters, that provide selective tax advantages to companies.

Apple is being examined for its tax dealing in Ireland, Starbucks in the Netherlands, and both Fiat and Amazon in Luxembourg. All say they followed the law.

The commission has a total of five tax-ruling cases open against four member states and hinted it may launch another one linked to McDonalds. The American fast food chain is accused of dodging more than €1 billion in taxes in Europe. It too is based in Luxembourg.

Vestager didn’t go into specifics on why the deadline was dropped.

But she noted that the commission regularly runs into obstacles whenever it requests specific information from governments.

The Brussels executive last December asked member states to give information on their approach to tax rulings in general and to inform them of their individual tax rulings between 2010 and 2013.

The Czech Republic, Estonia, and Poland have yet to hand over names of companies that may have preferential tax deals, she said.

"We need this information in order to assess what is happening with concrete companies," said the Danish-born commissioner.

The commission can issue an injunction and force member states to hand over the information, if necessary.

National governments arrange their tax rules to attract companies to set up shop on their territories. Vestager says the problem arises when tax competition becomes a privilege for one company but not another.

The commissioner wants a consolidated common corporate tax base (CCTB) and an automatic exchange of information on tax rulings to make it more difficult for governments and companies to benefit from elaborate tax avoidance schemes to the detriment of others.

“This is in my opinion a minimum,” she said, announcing that the commission intends to come forward with additional proposals on tax transparency by the end of the year.

But CCTB will face resistance from member states who view tax matters as a question of national sovereignty, according to Jane McCormick, a senior partner dealing with tax at KPMG, a large financial services company.

“The CCTB will be politically difficult to achieve and will only solve the problem within the EU,” she said.

Moscovici proposal

Pierre Moscovici, the EU’s taxation commissioner, in March proposed a bill that would require national authorities to send each other short reports every three months on tax rulings.

His plan involves setting up an automatic exchange of information. It would enable national authorities to know what is going in other tax jurisdictions without having to ask for it.

But pro-transparency groups say it falls short because it excludes countries outside the EU that are also affected by the tax rulings.

“The system will stop at the borders of the EU and is not clear how governments that are not in the EU will get the information,” said Koen Roovers, a tax expert at the Brussels-based Financial Transparency Coalition.

Roovers said another issue with Moscovici’s proposal is that it is not entirely clear if the information that is to be exchanged will be sufficient to fully understand how the tax ruling will impact the tax basis of partner countries.

Member states issue thousands of tax rulings every year.

Some of them, like the ones revealed by journalists in last year’s Luxembourg Leaks, allowed at least 340 international firms to pay as little as 0.25 percent tax on their profits via elaborate schemes.

“I wonder if governments are fully aware of what they sign up to when they grant a tax ruling,” said Roovers.

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