Taxation, stumbling block ” “of the European Union

The Luxleaks case is just the tip of an iceberg. The States' strenuous defence of fiscal sovereignty to the detriment of justice " "

Fiscal issues have been recently “scaring” European chronicles. The Luxleaks on Luxembourg’s tax arrangements with corporations require rapid European solutions, but negotiations on key dossiers remain locked in Brussels. Since coming into office as President of the European Commission, last November 1st, Jean-Claude Juncker has been overwhelmed by the revelation of 548 tax agreements that the government of Luxembourg stipulated in the period 2002 – 2010 with over 340 multinational companies. At the time, Juncker was the Prime Minister of the Grand Duchy. These agreements – the so-called “tax rulings” – have allowed multinationals to substantially lower their tax burden, sometimes at a rate of less than 1%, and in full respect of the law. Among the companies that have been able to save billions of euros figure major brands like Pepsi, Ikea, Accenture, Burberry, Procter & Gamble, Heinz, JP Morgan, FedEx, Abbott, Amazon, Deutsche Bank. There have been statements of indignation against these practices, which, however, are not the exclusive privilege of Luxembourg. Indeed, also Cyprus, Ireland and the Netherlands have been singled out. But it is clear that the lack of political will and – consequently – the lack of a legal framework – prevent the implementation of actions to counteract harmful tax competition within the EU. There is much talk, instead of taking action. In the corridors of Brussels and Strasbourg discussions focus on how to harmonize the tax base of corporate income tax. In 2011 the Commission also presented to the Member States an official proposal for a common system regarding tax base calculations for businesses operating in the European Union. But nothing has really changed since then, and it remains to be seen whether the Commissioner in charge, Frenchman Pierre Moscovici, will be able to pursue this matter. Other fiscal dossiers are equally gridlocked in the Council of Ministers (thus blocked by Member States). So after the ECOFIN Council of 7 November, the Italian Presidency had to acknowledge the failure of the negotiations on the anti-abuse clause of the “mother-daughter” Directive which would enable Member States to ignore the “juridical heaps” regarding parent companies and their subsidiaries, when the latter are not ‘shell’ companies, as often happens. The Netherlands and the United Kingdom have notified last week that they had yet to consult their respective parliaments, and Belgium has asked for more time for reflection, while the fiscal dossier has been lying, unaddressed, on the agenda for months. Moreover, during the same meeting, European Finance Ministers failed to solve hanging issues regarding the Financial Transaction Tax (FTT), as the Italian Presidency had hoped. Also on the agenda since 2011, in the smaller version of a strengthened cooperation, eleven States pursue the project of introducing taxation on shares and derivatives transactions, but France, a public defender of FTT, seems to want a much lighter version so as not to damage its very banks involved in the derivatives. Other countries such as Austria and Slovenia defend a system whose main effect would be to shift the location of the transaction, both within the EU – countries such as Luxembourg, the Netherlands and the United Kingdom don’t take part in the strengthened cooperation – as well as outside the Union. Thus if there is an agreement by the end of the year it will be only be a minor agreement on a lower tax-rate, which would exclude government securities and most of the derivatives. These factors indicate that the States continue defending their sovereignty on taxation tooth and nail while the richest population brackets and the largest companies often pay ludicrous taxes. This negatively impacts the legitimacy of the States and it increases citizens’ sense of injustice. Pope Francis has repeatedly criticized a “system at the centre of which there is the god of money, and not the human person”. To change the system, the political realm has to regain control. For this to happen, at least in the European Union – and the examples given are evidence of it – governments and citizens must be willing to put an end to the rule of unanimity on taxation. To start, corporation tax should become a European tax.

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