The European Parliaments Special Committee on Tax Rulings adopted a report by the co-rapporteurs Elisa Ferreira (S&D, PT) and Michael Theurer (ALDE, DE) on tax rulings and other measures similar in nature or effect.
To recall, the LuxLeaks scandal, which erupted on 5 November 2014, revealed the extent of the use of secret deals featuring complex financial structures designed to obtain drastic tax reductions. The scandal brought public and media attention to those issues, disclosing questionable tax practices promoted by accountancy firms in one specific Member State. Members noted the Commissions investigations and the work carried out by Parliament through its special committee had shown that this was not the only case, but that taking tax measures to reduce some large corporations overall tax liabilities so as to artificially increase the national tax base at the expense of other countries, some of which were subject to austerity measures, was a practice that was widespread within Europe and beyond.
Bearing this mind, the Special Committee made the following recommendations:
Place of taxation: Members noted that aggressive tax planning by multinational corporations (MNCs) often result in disconnection between where value is created and where profits are taxed. They called on Member States to respect the principle of profits taxation in the place they are generated, stressing that new entrants and firms, including SMEs, that do not use aggressive tax practices are penalised as compared with multinationals, which are able to shift profits only by virtue of their size and their ability to arrange business internationally. The Special Committee noted with concern that, all other things being equal, the resulting lower tax liabilities leave multinational corporations (MNCs) with a higher post-tax profit and thereby create an uneven playing field with their competitors on the single market. This distortion of a level playing field in favour of multinationals contradicts the fundamental principle of the single market. The report called on the Member States to:
Cooperation and coordination on advance tax rulings: the report deplored the content of the political agreement of 6 October 2015 within the Council, which falls short of the Commissions legislative proposal of March 2015 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation. It called on the Council to stick to the Commissions proposal and take due account of the Parliaments opinion thereon, in particular as regards: (i) the scope of the directive (all tax rulings instead of cross-border only), (ii) the retroactivity period (all tax rulings still valid should be exchanged) and (iii) the information provided to the Commission, which should have access to the tax rulings.
The Special Committee considered that the basic elements of all rulings that have an impact on other Member States should be not only shared between tax administrations and the Commission, but also presented in the country-by-country reporting by MNCs.
Transparency: Members felt that increased transparency regarding the activities of multinational companies is essential for ensuring that tax administrations are able to efficiently combat Base Erosion and Profit Shifting (BEPS). All MNCs in all sectors should disclose in their financial statements, broken down by Member State and by third country in which they have an establishment, a range of aggregate information, including their profit or loss before tax, taxes on profit or loss, number of employees, assets held, basic information about tax rulings (country-by-country reporting). This information should be made available to the public, possibly in the form of a central EU register.
Member States are asked to implement a more extensive country-by-country reporting system available to tax authorities, building on the OECD standard and including more detailed information, such as tax returns and intra-group transactions.
Common Consolidated Corporate Tax Base (CCCTB): whilst welcoming the action plan proposed by the Commission on 17 June 2015 to address tax avoidance, the report called on the Commission to speed up work on a compulsory EU-wide Common Consolidated Corporate Tax Base (CCCTB), which would address not only the issue of preferential regimes and mismatches between national tax systems, but also most of the issues leading to tax base erosion at European level (in particular transfer pricing issues). Pending the adoption of a full CCCTB and its full implementation at EU level, the Commission was asked, inter alia, to:
The Commission should also issue clear legislation on the definition of economic substance, value creation and permanent establishment, with a view to tackling the issue of letterbox companies, and to develop EU criteria and legislation for the treatment of R&D.
State aid: in this regard, Members called on the Commission to:
Code of Conduct on business taxation: Members called for an urgent reform of the Code of Conduct on business taxation and of the Group responsible for its enforcement, given that, to date it has proved to be of questionable value. The reform should aim to address both real obstacles currently in the way of effectively tackling harmful tax practices and an EU-wide coordination and cooperation on tax policy.
Protection of whistleblowers: the report called on the Commission to propose, by June 2016, an EU legislative framework for the effective protection of whistleblowers and the like. It stressed that it is not acceptable that citizens and journalists can be subject to prosecution rather than legal protection when, acting in the public interest, they report suspected illegal activity, in particular in cases of tax avoidance, tax evasion and money laundering. The Commission was asked to consider a range of tools for ensuring such protection against unjustified legal prosecution, economic sanctions and discrimination.