The European Parliament wants stronger measures against tax evasion

May 4th, 2012

flickr / Oxfam International

The European Parliament voted through a resolution calling for measures against tax evasion. The resolution was passed with an overwhelming 538 votes in favour, and only 73 against and 32 abstentions. The resolution of 19 April goes far in echoing Eurodad’s demand in calling for Automatic Information Exchange (AIE), Country-By-Country Reporting (CBCR), a mandatory Common Consolidated Corporate Tax Base (CCCBT) amongst other useful suggestions.

Single EU tax base for companies

The resolution calls for a mandatory Common Consolidated Corporate Tax Base (CCCTB) This would create a single European standard for what income is taxable and what is exempt. Taxable income would then be split between the countries where the company operates on the basis of the real economic activity that takes place within those countries (calculated by looking at staff levels and other factors). Compulsory CCCTB would be a major step in the fight against transfer pricing abuse ensuring more income is taxed where it is actually made. The European Commission has a proposal to introduce CCCTB on a voluntary basis for countries and companies an approach which would make tax competition worse, unlike the mandatory approach Parliament asks which would improve the situation.

Automatic exchange of tax information

Importantly, the resolution also calls for domestic tax authorities to cooperate and share information more. With the aim of ending bank secrecy, the Parliament supports extending the scope of the European Savings Tax Directive which now provides for information sharing but only on some topics. The declaration  implicitly criticises the unilateral approach of the EU Member States who undermined potential cooperation on information sharing by concluding so-called Rubik deals with Switzerland, namely Germany, the UK and more recently Austria.

The European Parliament can make country-by-country reporting standards stronger

Members of the European Parliament have an instrumental role in ensuring that the current review of the EU transparency and accounting directives tackle tax dodging by multinational companies and include a development perspective.

The background is that the EU is considering introducing a form of country-by-country reporting. While this is a big step in the right direction, the EU proposal is limited to addressing corruption only, not tax dodging. As it stands, it only requires disclosure of what a company pays to governments, and not how much it makes and what therefore what it should pay. The Parliament seems likely to strengthen the proposal to include information on companies’ financial performance needed to tackle tax dodging as it voted overwhelmingly in favour of this statement.

Revealing who really owns companies and bank accounts

Individuals with something to hide can set up companies or trusts without revealing that they actually own and control the company, they can then open a bank account for this company allowing them to shift, invest and spend ill gotten gains all around the world. The Parliament calls for public lists of all companies and trusts including the names of their real owners and controllers. This is important because companies where the owner is not revealed or an middle man poses as the owner for a fee are used to disguise a wide range or criminal and even terrorist activities.

This is timely as the European Commission put out a report on anti-money laundering including on the transposition of FATF standards. (For more information see this briefing from Transparency International.) This seems especially relevant following the revelations last month around the trial of James Ibori former governor of Delta state in Nigeria who used British banks to hide corrupt money. It has also been alleged that the UK development finance institution CDC unwittingly invested in opaque shell companies that Ibori partly controlled. The resolution also called for member states to renegotiate bilateral treaties with countries outside the EU that could encourage tax avoidance and to make sure their revenue authorities have adequate resources to deal with cross border evasion.

The parliamentary assembly of the Council of Europe which includes 47 countries within and outside the EU, also passed a resolution in favour of fairer taxation and efforts to reform secrecy jurisdictions.

These resolutions shows that the efforts of civil society over the last few years are starting to gain real ground and growing acknowledgement of the devastating effects of tax dodging and its role in the crisis, something that is referred to in these both declarations.

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Written by Alex Marriage

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