Taxes and competition: ” ” the possible role of the EU

The debate on taxation and fight on fiscal evasion, especially for multinationals, is at the centre of Community debates

Forms of tax competition already existed in the Middle Ages, but their growth is linked to increased mobility of people and capital. Significant from the middle of the nineteenth century, tax competition has become a common practice with the development of new information technologies. It is not reprehensible in itself, but it is necessary to prevent it from becoming unfair competition, especially in the framework of the European Union, with its large common market. Following recent revelations about tax agreements of multinationals with Luxembourg and other states within the EU, the European Commission announced new initiatives and the European Parliament has set up a dedicated commission. To ensure that tax competition does not become harmful and that it serves the public interest, governments must guarantee at least two things and adhere to a principle. First, the assessment bases on which the tax rate is applied must be comparable. But today in the European Union – the only relevant and realistic scale for companies’ taxation – there are various definitions of taxable base with the possibility of many exceptions, as evidenced in the LuxLeaks revelations. Moreover, it is possible to devise different tax rates between countries and territories with different economic development levels. An enterprise in a remote area will, for example, find it harder to access distant markets… valid reasons to justify a difference in taxes on corporate income. However, within the EU it would be wise to respect a “fork” within which the tax rates may be applied to avoid any slippage. Finally, the guiding principle for corporate taxation in Europe should be the following: profit should be taxed where it is generated. The measures announced at the beginning of February by the European Commission, aimed at putting an end to corporate aggressive “fiscal planning” that scandalize us when they gain media attention, ought to be interpreted in the light of the above-mentioned reflections. Thus, Margrethe Vestager, EU Commissioner for Competition, on February 3rd announced an in-depth investigation on Belgium’s fiscal agreements with a set of multinational companies. For the fist time the inquiry doesn’t refer to a specific case – as the ongoing investigations into tax rulings regarding Starbucks in the Netherlands, Amazon and Fiat in Luxembourg or Appel in Ireland – but to the possibility of favourable tax regimes as a whole. Then, on February 18, Valdis Dombrovskis, Vice President of the Commission, announced the presentation of an amendment to the Directive on administrative cooperation to introduce the automatic exchange of information on “récrits fiscaux”, a technical term to designate these agreements, tabled for mid-March. Until now this directive essentially concerned the automatic exchange of information on dividends and earnings. Finally, the Commission has announced for the month of June an action plan relaunch the proposal for a corporate consolidated tax base (CCTB) considered an old “boogeyman” in Brussels and whose last proposal dates back to 2011. On its part the European Parliament established a Special Committee on Tax Rulings between governments and large international corporations. The Committee’s first meeting was held Monday, March 9 in Strasbourg under the presidency of French MEP Alain Lamassoure. For an initial period of six months, the Committee will hold hearings with experts and will look into tax ruling practices in some Member Countries as far back as 1 January 1991 before presenting a list of recommendations. These initiatives that have doubled at global level thanks to G20 action plans and to the work carried out by OECD, are meant to cut evasion, along with illegal strategies for fiscal optimization adopted by large enterprises. Just like some wealthy individuals and families, since the 1980s they gave in to excesses. However, their tax contribution is necessary to reduce income inequalities that are now threatening global stability. Today we have to get back to normal and it is to be hoped that Europe will play a key role.

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