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AfricaMoney | June 28, 2017

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The Expert Explains: What next on the EU corporate tax agenda?

The Expert Explains: What next on the EU corporate tax agenda?

 Back in June, the European Commission published an EU blacklist of ‘tax havens’ around the world, which included Mauritius, Seychelles and the Maldives. However, this does not mark the end of the story, and the EU corporate tax agenda still continues apace. What next on the EU corporate tax agenda? For those who wish to dig deeper, here’s the explanation, straight from the desk of our expert guest contributor, Samantha Seewoosurrun, a reputed professional consultant in the financial services sector.

Back in June, the European Commission published an EU blacklist of ‘tax havens’ around the world, which included Mauritius, Seychelles and the Maldives. However, this does not mark the end of the story, and the EU corporate tax agenda still continues apace.

The European Parliament has set up a Special Committee on tax rulings and other measures ‘similar in nature or effect’, and the whole Parliament is due to vote on its report in November. The Committee has a wide ranging mandate, which includes to analyse and assess the third-country dimension of’ aggressive tax planning’ carried out by companies established or incorporated in EU Member States, as well as the exchange of information with third countries.

In the preparatory stages of its work, the Committee invited a number of multinationals to a hearing to provide evidence, with fairly limited success: the only companies which appeared were Airbus, BNP Paribas Fortis, TOTAL and SSE, while others such as HSBC, Barclays and Google declined for various reasons, with some agreeing to private or written contacts.

At the hearing, MEPs grilled the companies on their activities in alleged ‘tax havens’, with the companies seeking to defend their ground. TOTAL said that it would be closing subsidiaries in Bermuda, Cayman Islands and the Bahamas and argued that it pays tax on profits where these profits are made, at well above usual rates in some countries, such as 85% in Nigeria and 50% in Angola. BNP Paribas claimed that there was a ‘lack of rigour’ in accounting methods used by NGOs which undermined the cause they sought to champion. TOTAL noted that the Tax Justice Network even included Germany and Belgium on its list of tax havens, which it argued made them look“ridiculous”.

Earlier this week, the Committee held a special hearing with EU Finance Ministers from Luxembourg, Italy, France, Spain and Germany, where Committee Members expressed the view that the corporate taxation system has reached its limits and led to unwanted side effects. It called for action to harmonise corporate tax practices across Europe to make it ‘fairer’. It also urged Ministers make progress in the fight on ‘aggressive tax planning practices’ and country-by-country reporting of corporate profits and taxes in countries where business is done.

The Luxembourg Finance Minister Pierre Gramegna, who currently chairs EU ministerial meetings on taxation, emphasised that fighting fraud and tax evasion was a top priority and that “Finance Ministers agree that they cannot do without corporate tax revenues and multinational companies should pay a fair share”.

The Committee’s draft Report is calling for further action on alleged ‘tax havens’, asking the European Commission to continue its work on a clear definition and a common set of criteria to identify tax havens and appropriate sanctions for countries cooperating with them. It also reiterates that “genuinely European lists, regularly updated, would be more effective as a means of promoting good tax governance and changing tax behaviours towards and within those jurisdictions”. Furthermore, it calls for the development of a common EU framework for bilateral treaties in tax matters and a progressive substitution of the huge number of bilateral individual tax treaties by EU/third countries, and also for new free trade agreements to be accompanied by enhanced tax cooperation.

So where will it all end, and who needs to worry about it? The EU corporate tax agenda is likely to continue on this relentless path for some time, now that the EU considers that the international momentum on tax avoidance is on its side. At the same time, there could yet be an opportunity here. More detailed EU work and analysis to separate out the ‘good guys’ from the ‘bad’ could mean that countries like Mauritius – which should arguably never been on the list in the first place – will be in a stronger position to insist upon their removal from the blacklist, sooner rather than later.

 

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