Tax avoidance: The corporate giants

tax avoidance

Gerry Callaghan catches up with the latest on the EU’s attempts to crack down on corporate tax avoidance.

US multinationals such as Amazon, Facebook and Google could be forced to open up to public scrutiny their tax arrangements with EU governments. It is estimated that nearly €70m is lost each year from member states budget’s through tax avoidance by large corporations. On 28th January 2016, the European commission published a draft anti-tax avoidance package aiming for a coordinated EU-wide response to corporate tax avoidance and increased transparency. According to the Guardian, in the UK, the commission’s proposal could come as soon as mid-April. However, the proposal would need to be backed by all 28 member states and will be met with strong objections from Washington.

A lack of transparency has allowed companies to unfairly secure lower tax rates in some countries, effectively cheating nations within the EU out of huge sums of money. In 2014, the so-called Luxleaks media exposure revealed the ways in which hundreds of global companies had secured tax deals with Luxembourg, allowing them to save billions in taxes. Also, in October 2015, the commission ruled that tax advantages granted to Fiat by Luxembourg and to Starbucks by the Netherlands were illegal and ordered the companies to each pay between €20m and €30m in back taxes. Last month, it forced Belgium to collect unpaid taxes totaling €700m from 35 large companies that it had previously excused through tax breaks. Furthermore, Google could be forced to pay more UK tax by the EU after officials confirmed they will look into complaints from the Scottish National Party and UK Labour that the tech giant’s €170m settlement amounted to “special treatment”. The EU is also currently investigating Ireland’s tax arrangements with Apple.

“We are taking a major step towards creating a level-playing field for all our businesses, for fair and effective taxation for all Europeans,” said the EU economic and financial affairs commissioner, Pierre Moscovici, at a press conference. “Tax avoidance has a cost, it is not just a matter of moral judgement,” he said. Using a figure from the European Parliament, Moscovici reiterated that between €50 and €70 million euros are lost each year in the EU because of tax abuse.” It is five times the amount of funds dedicated to the migrant crisis in 2015-2016,” he said, adding that is was “less money for public services” like health or transport. “This is unfair competition for European local companies, and a shortfall for citizens who unjustly have to make up for the gap.”

Transparent country-by-country reporting could be a huge step forward, because without it large companies can make secretive deals with governments on where and how they declare their profits. The new legislation will attempt to level the playing field for smaller and medium-sized companies, currently at a competitive disadvantage, by requiring larger organizations to publicly disclose their earnings and tax rates in every country where they operate. Executive Director of the Tax Justice Network, John Christensen, welcomed the plans. “For a very long time big companies have been saying their tax affairs are a matter of competitive confidentiality,” he said. “We think it is incredibly important as a matter of principle that this information is made public.”

However, the move is likely to upset Washington which sees the EU as unfairly targeting big US digital companies. In a letter to US Treasury Secretary, Jack Lew, several Senators warned that the EU’s investigations could lead to “retroactive taxation” of multinationals. The Senators “urged” Lew to “increase efforts to caution” the commission to avoid imposing these “discriminatory” taxes, calling it a “direct threat to its interests”. The affected companies will likely claim tax credits in the US for paying these overseas taxes, leaving both the US government and taxpayers worse off. Robert Stack, the US Treasury’s deputy assistant secretary for international tax affairs, said last month he is concerned about the “basic fairness” of investigations of US companies and their tax affairs in Europe.

Speaking after the commission released its draft directive, MEP Burkhard Balz of the European People’s Party (EPP) group, said: “This is the moment of truth in which we will see the sincerity of the EU member states”. He continued: “States which oppose these rules want to base their economies on taking bread out of the mouths of others.” According to MEP Michael Theurer, from the liberal ALDE group, “These important proposals will close a number of the scandalous loopholes that have enabled companies to avoid and evade taxes across Europe”.

Nevertheless, to become law, the commission’s package will have to get through the European Parliament and be adopted unanimously by the member states. Some of them, particularly Ireland and the UK, could be difficult to convince because low taxation is part of their economic model.
Photo US Treasury building in Washington, D.C.: AgnosticPreachersKid