Since the LuxLeaks scandal, the fair taxation agenda has made some headway. But resistance from member states has also blocked many measures during the Juncker Commission mandate. EURACTIV France reports.
What conclusions can be drawn from the Juncker Commission’s fair taxation agenda? At a time when the ‘yellow vests’ are protesting in France against the injustice of ‘green’ taxation, and with only a few weeks to go before the European elections on 25 May, has Europe taken enough action?
The mandate of the Juncker Commission (2014-2019) will have been marked by tax evasion scandals. Luxembourg’s former prime minister took office in Brussels just as the LuxLeaks scandal broke, directly implicating his country (Luxembourg) during his tenure as prime minister.
An emergency triggered by the LuxLeaks
Having only just been appointed to head the European executive, Jean-Claude Juncker had to face the revelations of the International Consortium of Investigative Journalists (ICIJ), which unveiled Luxembourg’s system of tax deals.
These secret agreements between the Luxembourg tax administration and 300 multinationals saved them billions of euros in taxes. While Luxembourg was caught out by LuxLeaks, tax deals are in fact a common practice between member states’ tax administrations and multinationals.
The LuxLeaks scandal – the first in a long series – kicked off the Juncker Commission’s fight against tax evasion. This led to the automatic exchange of information on tax deals being adopted in 2015. But only within limits. The regulation only applies to cross-border agreements, and the latter are only exchanged between tax administrations. The Commission will therefore have no right of scrutiny.
The country-by-country reporting, adopted in 2016, also represents a further step towards tax transparency. This European law requires multinationals to publish details of their activities in each country every year. An exercise that makes it easier to identify companies that do not report their profits in the country where they make their profits, in order to reduce their taxation.
But here too, an exemption clause allows multinationals to waive this obligation in order to “protect their commercial interests”.
Braving each scandal, from the Panama Papers to the Bahamas Leaks and the OffShore Leaks, the European authorities have nevertheless continued their legislative crusade against illegal but also legal tax practices, such as tax optimisation, which sets out to pay as little tax as possible while remaining within the law.
Protection of whistle-blowers: a symbolic step forward
Another victory claimed by the EU is the law on the protection of whistle-blowers, which has just been agreed. The man behind LuxLeaks, the whistle-blower Antoine Deltour, was prosecuted in Luxembourg for having forwarded the confidential documents of professional services firm PwC to the press.
This situation prompted the EU to propose a specific text on the protection of whistle-
blowers, particularly in the tax field.
The blacklist of tax havens adopted on 12 March by European finance ministers is also one of the new features. With 15 names, 10 of which are new, the blacklist identifies jurisdictions whose taxation does not comply with European standards.
“But all this must not hide the fact that it is still difficult to make progress on certain issues”, explains one source to the European Commission. “When it comes to taxes, member states have great difficulty in reaching agreement”.
While the fight against tax evasion may be a unifying factor in Europe, other measures still come up against the unanimity rule. This is the case of the tax on the digital giants, officially abandoned by the member states against the backdrop of opposition from four countries.
The common base, a repeated failure for… 20 years
Tax negotiations have also stumbled over the emblematic text of the CCCTB or common consolidated corporate tax base. Championed by Commissioner Pierre Moscovici, the idea of the proposed law is to harmonise the definition of taxable profit between the different member states.
But above all to establish a mechanism for the fair distribution of tax revenue between member states.
The idea was raised in 2001, then in 2007 before being put back on the table in 2011 and finally in 2016… but will not come to anything before the end of the mandate. “The CCCTB is a fine project that everyone is defending, but on which no one can agree”, regrets one source in the European Commission.
The idea of harmonising taxation is often blocked by states’ fear of being short-changed. And large companies prefer to keep their access to the finance ministries of their respective countries, who tend to be more accommodating than Brussels when it comes to granting tax exemptions.
Another text that has fallen into European limbo is the Financial Transaction Tax (FTT). This very popular financial transaction tax measure has been discussed since 2011 between a handful of member states that have come together within the framework of ‘enhanced cooperation’.
This organisation of a minimum of 9 member states was held up as a solution to advance the tax issue between like-minded States, by allowing the recalcitrant ones to be left aside. But even with a smaller number of people around the table, nothing has ever come of the FTT.
The tax on financial transactions, a never-ending story
At a last ditch meeting, European ministers once again postponed the adoption of the tax on financial transactions, ringing the political death knell for the project launched in 2011.
Some progress has been made on the fair taxation agenda, but difficulties on “structuring projects” remain, acknowledges a European source.
Before the European elections in May 2019, the question of the decision-making process was put back on the table by Jean-Claude Juncker. Doing away with the unanimity rule could perhaps advance decisions on social justice. But the first exchanges with European ministers revealed a tangible division.
“Today, regulating tax competition in Europe is a sensitive issue. Some small States have built their economic models on this competition. This model is now being challenged,” explains a European source. It seems as if the battle is far from having been won.