Fight against tax evasion

Over the last five past years, the fight against tax evasion made headlines as a result of the revelations of repeated leaks and related journalistic investigations into scandals such as Luxleaks, Panama Papers, Paradise Papers and CumEx files, to name but some.

An average European SME pays around 23% corporate tax, while some multi-national companies pay less than 1%. This is possible because multi-national companies can use loopholes between national tax systems when shifting their accounting from one country to the other. This is - most of the time - legal, but unfair.

There is cross-party unanimity among politicians and citizens that all economic actors, be they large digital multinationals, small enterprises or ordinary hard-working citizens, have to pay their fair share of taxes.

Tax policy is a competency of EU Member States, with Parliament playing a consultancy role. Any tax measure needs unanimity among Member States. The EPP Group is the driving force behind the fight against tax fraud, tax evasion, aggressive tax planning and money laundering in the European Parliament.

Parliament has voted in favour of a large variety of measures against these practices; but the most prominent measures failed because of EU Member States being against or not agreeing on any position. The EPP Group calls on EU countries to drop their opposition against key measures, such as the Common Consolidated Corporate Tax Base and taxing digital multinational companies (explanation further down).

In the outgoing term, the European Parliament set up four Special and Investigative Committees. They were set up following a number of different scandals and leaks. All four Committees investigated aggressive tax planning schemes and made recommendations on how to tackle the problems. The last of these, which was concluded in March 2019, also looked into money laundering practices.

Since 2014, the European Commission has made more than 25 legislative proposals relating to tax matters. More than half were adopted by the end of the term. These were mostly measures focusing on the exchange of information between the tax authorities of Member States. Measures introducing new common principles into the tax systems of Member States (with the aim to tackle the problem of tax evasion etc.) had the support of the Parliament, but failed because of lacking consensus among Member States.

The EPP Group fought for:

• the principal of corporate tax being paid in the country where the economic value is being added
• updating tax systems to the new realities of the digital economy
• a level-playing field and tax fairness between all taxpayers
• fraudsters not having any competitive tax advantage over honest taxpayers
• better protection of national and EU Budgets against losses due to tax fraud, tax evasion and  aggressive tax planning
• protecting the global competiveness of our economy
• taxation power remaining mainly in the hands of the Member States, with limited EU competences

The EPP Group believes changes need to be made in these four main areas.

1. Fair Taxation of Digital Multinational Companies

The age of digitalisation puts new pressure on corporate tax systems. One of the main problems is to establish where digital companies should pay their taxes and how much they should pay on revenues resulting from the provision of certain digital services. The EPP Group was the first group in the EU Institutions to call for the concept of a 'significant digital presence' to determine in which country digital multinational companies have to pay taxes.

2. Public Country-by-Country Reporting

• The extent of the problem of corporate tax evasion and aggressive tax planning is widely unknown to the public, because many practices are legal and companies keep them secret. But if a company has to report publicly that most of its employees are in country A, while it pays most of the taxes in country B, then it becomes visible that taxes are artificially shifted away from where the economic activity is to low tax countries. This public reporting is called Public Country-by-Country Reporting (Public CbCR).
• Making this kind of information publicly available does not solve the problem of legal tax evasion, but it makes the problem visible and creates political pressure to tackle it.
• The European Parliament as a whole has been in favour of public CbCR, but EU Member States were unable to agree on a joint position. The EPP Group made sure that Parliament's demands are in line with OECD standards.
• The EPP Group is in favour of detailed Public CbCR only if it is complemented by a safeguard clause to protect commercially sensitive information. (The aim of the safeguard clause is to prevent European companies being disadvantaged over non-European companies.)  

3. Common Consolidated Corporate Tax Base

The EPP Group has been in favour of harmonising corporate tax bases (what exactly has to be taxed and where it has to be taxed), while leaving the decision on the tax rate (levels of tax) up to the Member States.

4. A New VAT Regime

• The current VAT system leaves the door open to fraud, because it does not keep pace with the challenges of today's global, digital and mobile economy. It needs to be modernised because it is too complex for the growing number of EU businesses operating cross-border.
• During this Parliamentary term, the EPP Group has been working towards a shift of paradigm regarding the way VAT is collected, moving from a origin-based principle to a destination-based framework, whereby the final amount of VAT is always paid to the Member State of the final consumer and charged at the rate of that Member State.
• The ambition for the next Parliamentary term - for the EPP Group - is to finish the modernisation of the EU VAT system in order to end more than 25 years of the transitional system.

All achievements – in terms of the Parliament - in the field of taxation can only be of a political nature, not legislative, because Parliament is only consulted on tax matters; it cannot legislate.

The EPP Group has been part of a cross-party coalition, which increased political pressure on EU Member States to agree on more far-reaching reforms of their tax system and on common measures, while defending the principle of healthy tax competition - and being the voice of reason.

The dividing lines in the debate on tax evasion are not due to different political affiliation, but to national interest. Countries with a small industrial base or who are situated at the periphery of Europe will - most of the time - be in favour of allowing tax schemes that attract taxpayers. Countries with advanced industry are against these practices.