Home News EU unveils clampdown on tax avoidance after LuxLeaks

EU unveils clampdown on tax avoidance after LuxLeaks

Published on 18/03/2015

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 a 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, member 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 providing tax rulings to companies, Moscovici said, this being the strict responsibility of member states that would have never approved scrapping them.

– ‘Veil of secrecy’ –

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 contents of a tax ruling would remain out of the public eye, remaining privileged information for 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.

Ian Young, of ICAEW, a Britain-based accountant trade group, told Bloomberg News that transparency was no guarantee that profits would be taxed fairly.

“Disclosure does not automatically equal transparency, and transparency does not automatically lead to fairness, which is the ultimate aim,” Young said.

A major European business lobby defended the continued discretion over tax deals as they often contain sensitive information.

The EU must “ensure we don’t throw the baby out with the bathwater – tax rulings are essential to encourage companies to invest in Europe,” Business Europe said in a statement.

In the fallout of LuxLeaks, the EU’s 28 leaders tasked the commission to draw up measures and Moscovici said he expected quick passage from member states with implementation as early as January 1, 2016.

Support is also required from the European parliament, where the biggest party, the right-of-centre EPP, welcomed the plan.

“We no longer want letter-box companies,” the party said, referring to how major companies set up in-name-only headquarters in tax haven countries, such as Luxembourg, but also Ireland and the Netherlands.

The EU has launched fair competition probes against those countries, suspecting that tax rulings provided multinationals such as Apple, Starbucks and Amazon violated the bloc’s single market.