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23rd Feb 2020

Luxleaks committee demands overhaul of EU tax rules

  • Amazon is one of a series of multi-nationals whose tax arrangements are under scrutiny from an MEP inquiry committee. (Photo: Nic Taylor)

Governments that offer multi-national firms sweetheart tax deals should not be allowed to benefit if the European Union orders them to claw back the aid, according to a new report by the European Parliament’s special committee on tax rulings.

Instead, the proceeds should be “returned to the member states which have suffered from an erosion of their tax bases or to the EU budget, and not to the member state which granted the illegal tax-related aid, as is currently the case,” the report contends.

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The European Commission is still investigating whether so-called ‘sweetheart’ tax agreements in Ireland, the Netherlands and Luxembourg, involving companies such a Apple, Starbucks and Fiat, constitute illegal state aid. The probe could lead to hundreds of millions of euros in new taxes being paid to the governments in question, despite the fact that they were responsible for offering special tax treatment.

The cross-party inquiry committee was set up in February in the wake of the “LuxLeaks” scandal, in which reporters disclosed the extent of tax-avoidance structures in Luxembourg allowing companies to benefit from significant reductions to their tax rate on income earned from intellectual property.

Also included in the 40-page draft report by Michael Theurer, a German liberal, and Elisa Ferreira, the Socialist group spokesperson on economic affairs, are recommendations that firms which refused to assist the committee investigation should be banned from the EU’s Transparency Register allowing them to access the EU institutions.

The MEPs also call for comprehensive exchange of tax information between European countries alongside a common consolidated corporate tax base.

“A compulsory EU-wide Common Consolidated Corporate Tax Base (CCCTB), which would solve not only the issue of preferential regimes and mismatches between national tax systems, but also most of the issues leading to tax base erosion at European level,” it argues.

Despite the level of controversy surrounding the LuxLeaks scandal, which was heightened by the fact that European Commission chief Jean-Claude Juncker was Luxembourg’s prime minister when the tax deals were struck, the inquiry committee has become something of a damp squib.

The committee report is not legally binding, and its work has been beset by political obstacles throughout its six-month mandate. The terms of reference were weakened by the parliament’s centrist political groups, denying it the right to demand documents on tax rulings from individual governments.

The report reveals that only four out of eighteen companies agreed to have a representative appear before the committee, while seven national governments failed to even reply to the committee’s requests for information.

For his part, EU tax commissioner Pierre Moscovici set out plans in March that would establish a system of automatic exchange of information on tax rulings and require national tax authorities to send each other short reports on rulings on a quarterly basis.

Although the commission is pushing governments to adopt its revised proposal for a Common Consolidated Corporate Tax Base across the EU, any legislation on tax requires the unanimous support of all governments, a reality which “reduces the incentive to move from the status quo towards a more cooperative solution”, the report notes.

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