27th Feb 2024

Tax avoidance and VAT gap on menu for future EU revenue

  • The EU is losing €59.5bn per year in revenues by the tax avoidance of the super-rich in tax havens such as Bermuda, pictured here (Photo: Mike Oropeza)
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Measures to increase tax revenues and foster cross-border investment by tackling tax obstacles and distortions in the single market are expected to be high on the EU agenda, following a discussion between MEPs and national MPs on the future of the single market and taxation on Tuesday (13 February).

Every year, the EU loses €59.5bn in revenues by the tax avoidance of the super-rich, in tax havens such as Bermuda or the Cayman Islands, a study by the Greens in the European Parliament has estimated.

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Ireland, Luxembourg, and Germany are the member states that lose the most revenues from these practices, and between 40 and 45 percent of the world's foreign direct investment stock is hosted in tax havens.

"Although we have very different views [across the political spectrum], we can agree that we need to tackle tax avoidance and, in this way, raise revenue," Paul Tang MEP (Socialists & Democrats), chair of the subcommittee on tax in the parliament, told the discussion in Brussels between MP and MEPs.

Ireland and Luxembourg themselves are in fact also among the five EU countries, along with Cyprus, Malta, and the Netherlands, that have characteristics of tax havens despite not being on the EU's list of tax havens (which will be updated on Thursday 22 February), an analysis by Oxfam points out.

"We have to address the problem of tax rulings," Dimitrios Papadimoulis, Left MEP and a vice president at the EU parliament, said. "The Netherlands, Luxembourg, and Ireland have had these issues," he added. "This prevents investments, this is a burden on small and medium-enterprises and undermines our European future".

And with the EU facing both external and internal competitiveness challenges, Dutch MEP Tang called for a long-term perspective when discussing competitiveness and the two percent of GDP of extra investment needed to make European economies sustainable by 2050.

"The rules are intended to make sure that private investments take into account people and planet, and redirect from unsustainable to sustainable activities," Tang said.

"That will make Europe more competitive," he said, citing the EU's need for investment to meet future challenges such as an ageing society and the need to spend more on defence.

Belgian finance minister Vincent Van Peteghem pointed as well to the VAT gap, the difference between what a state should collect in taxes and what it receives — stressing it will be among the priorities of the Belgian EU presidency.

"We have to address the black hole of the VAT," agreed Papadimoulis of The Left said. "Citizens pay the VAT, but it never reaches the state budget, so we need more discipline".

To harmonise or not to harmonise?

After the discussion in the parliament, it became clear that an agreement on how taxation can play a role in the future of the EU's competitiveness and in the strengthening of the single market is far from being a reality.

While some MPs agreed on the need for EU reform and greater harmonisation of tax rules, others stressed the importance of not overlooking the burdens faced by businesses operating in the single market — and some others said the EU should not have power over tax matters.

"We have to do what we can to cut the administrative burden on companies," Mathias Tegnér, member of the committee on taxation at the Swedish parliament.

Between 2014 and 2020, there were 14 separate directives in the fiscal area, Tegnér said, arguing that this legislation needed time to be digested.

"We need to avoid over-regulating when it comes to our fiscal policies, and ensure that rules are proportionate," he said.

On 1 January 2024, new EU rules introducing a minimum effective tax rate of 15 percent for multinational companies operating in the EU came into force.

However, the EU is currently under global scrutiny over its position on the creation of a new UN authority on international tax policy that could stop tax evasion, with some member states such as France and Germany opposing the new tax body.

EU under pressure to change tack after UN tax defeat

EU ministers face a race against time to decide on whether to work with a new UN authority on international tax policy. But France and Germany have been leading European opposition to the new tax body.


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