EU seeks clampdown on tax avoidance after LuxLeaks

The EU intensified efforts to fight rampant tax avoidance by multinationals on Wednesday in its first major effort to counter the LuxLeaks scandal that poured embarrassment on commission head Jean-Claude Juncker.

The commission, the EU’s powerful executive arm, said its ambitious plan would force the EU’s 28 countries to share details of any tax deals agreed with some of the world’s biggest multinationals, ending the secrecy that allowed member states to often compete against each other to attract business and investment.

“Tolerance has reached rock-bottom for companies that avoid paying their fair share of taxes, and for the regimes that enable them to do this,” said EU Economics Affairs Commissioner Pierre Moscovici in announcing the plan.

“We have to rebuild the link between where companies really make their profits and where they are taxed,” he said.

The plan targets so-called tax rulings, secret deals at the heart of the LuxLeaks scandal that revealed last year that some of the world’s biggest companies — including Pepsi and Ikea — had lowered their tax rates to as little as one percent in secret pacts with tax authorities in Luxembourg.

The revelations, unearthed by a consortium of investigative journalists, were an especially huge embarrassment to Juncker, the then-newly installed Commission head who presided over the tax pacts for almost 19 years as Luxembourg prime minister.

Under the new regime proposed by the Commission, members states would be forced to reveal tax rulings made with companies to other bloc members automatically every three months.

This transparency, Moscovici said, would deny companies the ability to secretly shift profits and avoid taxes, at least within the EU.

The plan however did not question the perfectly legal practice of offering companies tax rulings, Moscovici said, this being the strict responsibility of member states.

Critics said the plan was too narrow in scope, and the transparency too limited, to truly address corporate tax avoidance they said occurs on a massive scale.

“Though this tax transparency package is supposed to be a response to the Luxembourg Leaks, it’s only addressing a fraction of the problem,” said Koen Roovers of the Financial Transparency Coalition in Brussels.

“Over 150 companies in the leak were associated with the United States, but they will simply be out of bounds under this proposal,” he said.

Activists also criticised that the tax ruling would remain out of the public eye, remaining privileged information for tax authorities.

“This is not tax transparency or tax justice. The veil of secrecy remains in place,” said Tove Maria Ryding, of the European Network on Debt and Development.