Thursday

2nd Feb 2023

Commission unveils anti-tax avoidance package

  • Moscovici: "Tax avoidance has a cost, it is not just a matter of moral judgement." (Photo: European Commission)

The European Commission presented on Thursday (28 January) a package of proposals obliging large companies to pay taxes in the EU countries where they make a profit.

The package includes an anti-tax avoidance directive to impose coordinated anti-abuse measures to all member states, a recommendation that member states revise their tax treaties and a plan to revise the black list of tax havens outside the EU.

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"Today we are taking a major step towards creating a level-playing field for all our businesses, for fair and effective taxation for all Europeans," the EU tax commissioner, Pierre Moscovici, said at a press conference.

Another item of the package is a country-by-country automatic exchange of tax-related information on multinational companies' activities.

The reporting will not be public, but the commission is assessing whether "increased transparency harms competitiveness", Moscovici said, adding that he supported publicising the information.

'Tax avoidance has a cost'

The new proposal comes after EU states agreed last October on an exchange of information on tax rulings and the commission ruled on several cases of tax avoidance, including by major companies like Fiat or Starbucks.

Tax arrangements between states and several other firms, such as Apple and McDonald's, are still under investigation.

"Tax avoidance has a cost, it is not just a matter of moral judgement," Moscovici said. The commissioner, using a figure from the European Parliament, reminded that 50 to 70 million euros are lost each year in the EU because of tax abuse.

"It is five times the amount of funds dedicated to the migrant crisis in 2015-2016," he said, adding that is was "less money for public services" like health or transport.

"This is unfair competition for European local companies, and a shortfall for citizens who unjustly have to make up for the gap."

To become law, the commission's package will have to get through the EU Parliament and be adopted unanimously by the member states. Some of them, particularly Ireland and the UK, could be difficult to convince because low taxation is part of their economic model.

"I expect a lively discussion," Moscovici admitted.

The commissioner took care to specify that member states would keep their "fiscal sovereignty" and continue to be able to "choose their own corporate tax rate as long as they respect fair tax competition".

"We are not at the harmonisation level, we are at the coordination level," he said to alleviate concerns.

He nevertheless added that "nobody can resist" the trend towards fairer taxation.

The directive unveiled by the commission aims at: preventing companies from shifting profits to low tax countries; relocating assets to avoid tax; exploiting national mismatches to avoid taxation; establishing artificial debt arrangements to minimise tax.

It also aims at preventing double non-taxation of certain companies' income and counteracting aggressive tax planning when other rules don’t apply.

'Global problem'

These measures follow, for the most part, the so-called BEPS package - standing for Base Erosion and Profit Shifting - agreed at the OECD last year in a global move to fight tax avoidance.


This was "a global problem" and the EU "cannot be alone in its corporate tax reform," Moscovici said.

As part of this move the EU will try to force tax havens to change their customs. The EU list of "third countries that refuse to play fair" will be reviewed and a "constructive dialogue" will start.

"The idea is to focus on jurisdictions which are economically relevant and prioritise our assessments," a EU official said.

"What we want is to readjust tax good governance criteria", as the current criteria were established pre-2008, before new, separate, EU and OECD regulations were introduced.

Varied reception

The commission's package, which Moscovici described as "balanced, ambitious and, I hope, clever" received diverse responses from political parties, business associations and NGOs.

"This is the moment of truth in which we will see the sincerity of the EU member states," said MEP Burkhard Balz on behalf of the centre-right European People's Party (EPP) group. "States which oppose these rules want to base their economies on taking bread out of the mouths of others."

"These important proposals will close a number of the scandalous loopholes that have enabled companies to avoid and evade tax across Europe," said MEP Michael Theurer from the liberal ALDE group.

"However, there is much more work to do," he added, asking for public country-to-country reporting, measures "on patent and licence boxes as well as on a CCCTB (Common Consolidated Corporate Tax Base)".

The commission said it will "relaunch" the CCCTB in the autumn.

Chas Roy-Chowdhury, head of taxation at the Association of Chartered Certified Accountants (ACCA), warned against "a separate set of EU rules, which would be different to the ones set out by the OECD [and] would risk creating uncertainty".

The NGO ActionAid, for its part, welcomed a "step forward but the detail fails to back that up" but said that "some of the proposals are so timid that they could even worsen the race to the bottom on corporate taxation".

The European Network on Debt and Development (Eurodad) was even more critical. "This package is woefully inadequate to stem the tsunami of scandalous cases of multinational corporations failing to pay their taxes, it said.

"A crucial first step to making a real difference would be for multinationals to publicly report where they make their profits and where they pay their taxes. Instead, the European Commission is presenting a package on how to introduce secret reporting that keeps parliamentarians, journalists and the general public in the dark", said the NGO's tax justice coordinator, Tove Ryding.

EU may impose full tax transparency on US firms

Big US firms like Google and Amazon could be forced to reveal their earnings and tax rates to the wider public as the European Commission mulls a new proposal set for April.

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