Nick Shaxson ■ Europe’s Anti Tax Avoidance Package: adding fuel to the fire?
The European Commission has announced:
“The European Commission has today opened up a new chapter in its campaign for fair, efficient and growth-friendly taxation in the EU with new proposals to tackle corporate tax avoidance. The Anti Tax Avoidance Package calls on Member States to take a stronger and more coordinated stance against companies that seek to avoid paying their fair share of tax and to implement the international standards against base erosion and profit shifting.”
Adding fuel to fire – How the European Commission’s ATAP risks boosting tax avoidance
The Tax Justice Network is deeply disappointed by the European Commission’s ‘Anti Tax Avoidance Package’ (ATAP), published today. Each possible step forward is undermined either by taking the lowest-common denominator position – so that in some cases member states’ own rules would actually be weakened by adopting the package – or by the creation of major loopholes likely to thwart the intent from the outset. The impact on avoidance, and tax revenues, is at best uncertain; while the measures will do nothing to enhance the transparency or accountability of the EU’s tax rules.
The Commission, and member states, must do much better – starting with a decision to require publication of multinationals’ country-by-country reporting.
Main elements of the package
There are four main elements in ATAP:
- Measures against common tax avoidance methods
These include measures to limit the use of controlled foreign companies (CFCs: CFC rules are generally designed to make it harder for companies to dodge tax via tax havens) and of interest deductions. Both these measures are weak – in part because of the need to exempt CFCs in member states except where they are ‘wholly artificial’, so that only third country CFCs are likely to be affected. In addition, more positive measures such as an exit tax on the transfer of assets outside the EU or EEA are hamstrung by glaring loopholes – in this case, the absence of any measures to prevent corporate inversions.
- Recommendation to member states on how to prevent tax treaty abuses
While not world-changing, these may possibly set a useful precedent for developing countries – in particular, the suggestion that treaties in force be deemed not to apply when certain conditions concomitant with tax abuse are present in the treaty partner.
- Process for listing third countries that do not cooperate
This is an interesting development, including a basis in objectively verifiable criteria which sets it apart from the traditional ‘tax haven’ lists which we have shown to be politically manipulable and as a result incapable of identifying the major havens. However, our research also shows that much of the revenue losses suffered by EU member states are due to profit-shifting to other member states – typically not to third countries – and so again, the refusal to apply proper scrutiny at home will prevent this being a more useful tool.
- Proposal for member states to share country-by-country reporting data
As the originators of the proposal, now adopted by the OECD, for country-by-country reporting (CBCR) by multinationals, we support measures to ensure better availability and use of the data. However, this is but a small change and fails to address the central problem with the OECD standard: namely, that the data are not to be made public.
The first, critical step will be to mandate the publication of multinationals’ country-by-country reporting on their economic activities, profits and tax paid. Only by publishing this information will it be possible to start restoring citizens’ trust in multinationals, in tax authorities and in the fairness of international rules. Failure in this to date, especially if perpetuated by the Commission when they consider the final impact assessment due shortly, appears to reflect a lack of understanding of the degree of breakdown in public trust. Making CBCR public is crucial to begin to rebuild accountability, in four distinct ways:
- Accountability of multinationals like Google
- Accountability of tax authorities like HMRC (are doing their job fully and fairly, or not – with current opacity, who knows?)
- Accountability of governments (e.g. to see which are most aggressively poaching the corporate tax base from other countries)
- Accountability of overall efforts (EC, OECD etc: – is the problem being curtailed over time as various efforts come into place?)
We are delighted to hear UK Chancellor George Osborne join the support for public CBCR today. We urge the Commission to realise that this will be crucial to the restoration of public trust, and are especially concerned to note that the Commission’s vote on the impact assessment (and possible proposal) on public CBCR has been shifted from the meeting agenda for 8 March, to 12 April.