EESC: “A favourable tax system for fair competition and growth”

This morning in Brussels, the European Economic and Social Committee (EESC) hosted a debate, presenting their paper “A favourable tax system for fair competition and growth”. It brought together representatives of DG TAXUD, the OECD, NGOs, Accountancy Europe and others.

Here are some of the key comments made during the event.

Michael Smyth, EESC Vice-President

Michael said the group are here with an open mind to set out the proposals in their report, and hear comments and ideas.

From his background as an economist, he sees a place for tax competition in development. For example, an area like Transylvania has no possibility of converging without some package of policies that attract investment and inject capital. That has to involve some use of the tax system, whether income or corporate taxation.

However, in general the debate about corporate tax tends to happen at macro level instead.

Joost van Iersel, EESC

Joost highlighted the strong competition between Member States as well as third countries.

Tax authorities, the OECD, the Commission and NGOs are trying to get some order into the disorder. He is in favour of this. It creates much needed stability and predictability.

Petru Sorin Dandea, Rapporteur for the report

The question is how we can eliminate the loopholes we have today between fiscal systems around the EU, which are used by big corporations. This leads to an important financial loss for countries. We find giant corporations paying less and less tax with individuals seeing their taxes go up to meet fiscal deficits.

Petru recognised the efforts by the Commission. For example he supported the Commission work on public CBCR, which will allow the public to see more information about the affairs of large companies. He also referenced the work on the list of non-cooperative jurisdictions. All of these efforts are good and necessary steps in fighting tax avoidance, but are not sufficient.

EESC have some proposals for the Commission and Members States to go further.

Some ideas:

• Harmonisation of the fiscal system will eliminate the loopholes
• Tax havens are the cornerstones of fiscal avoidance activities. Many companies conducting their activities there are moving mountains of money there just because the tax level there is very low or non-existent. The report recommends the addition of penalties aimed at these countries and the companies carrying on their businesses in these countries. Fighting fiscal avoidance in a global need, requiring global actions.
• On CCCTB, if this proves successful given existing proposed thresholds, proposal is that this should be extended Europe-wide for all sizes of business.
• Encouraging Member States to employ qualified specialists, supported with technology, to increase fiscal surveillance.

Gaëtan Nicodeme, Head of Unit, DG TAXUD

Gaëtan responded on behalf of the Commission, and set out the recent context and initiatives.

• What have we observed over recent year?
• A decrease in corporate tax rates
• Rates in one jurisdiction impact on rates in other
• The rate of decrease has levelled since the financial crisis
• The effective rate has gone down
• However, corporate tax revenue collection has remained stable at 2-3% of GDP 

He talked through the recent achievement.

He then mentioned some of the current work, and specifically the CCCTB re-launch, which addresses the issues of the past.

David Bradbury, Head of Tax Policy and Statistics, OECD

The OECD clearly feels these issues are at the top of the policy agenda.

David gave some background to the BEPS process, highlighting the collaboration between the OECD and G20 countries, but also the inclusion of other countries.

David then went on to talk about the specifics of Action 11 of the BEPS project, around measuring BEPS.

One of the key comments was that MNEs have effective tax rates on average 4-8.5% lower than similar domestic firms. This could reflect the availability of mismatches in the international tax regime.

The OECD is now focused on implementation. This must happen in a coordinated and multilateral fashion. The OECD proposed the Inclusive Framework, which now has about 100 members, covering 93% of global GDP.

David said that the EU has taken an active leadership role in delivering BEPS proposals including through the Anti Tax Avoidance Directive.

On the transparency agenda, this is every bit as important as BEPS, and indeed predates it. He set out the key elements:

•  The Global Forum
• Automatic exchange of information
• List of non-cooperative jurisdictions

How you design your tax laws has an impact on both efficiency and equity. Assessing the tax regime requires you to look at the tax itself, but also how it sits within the system.

He also briefly discussed tax policy principles for inclusive growth, and that a broad tax base is the correct starting point in most cases.

David said that transparency is not just about finding cash stashed off shore. It is also about providing for the more effective taxation of capital income. The discounted nature of the taxation of capital income has on occasions been linked to the unfairness of the tax system.

More broadly, it is important to recognise that US tax reform will have an impact on the rest of the world.

David later clarified that the OECD tax haven list will be published in July, but that the OECD has not been asked as part of that work to consider what sanctions might apply to countries on that list.

Michael Murphy, Head of the Irish delegation to the Committee for the Regions

Michael gave a broad recap on the work of the Commission on tax competition, and in particular as they relate to Ireland.

He said that Ireland does not see their tax rate as lost revenue, but rather an initiator of foreign direct investment, bringing significant jobs. Tax completion is an indispensible tool in a small country’s arsenal in competing with larger nations.

The international tax system has improved, but corporations should pay their fair share in the same way.

When the EU competition cases come to final decisions, this will provide clarity but this may take many many years.

Nadja Salson, European Federation of Public Service Unions (“EFPSU”)

Nadja spoke about the challenges being made by the EU into multinationals. In particular she referred to McDonalds having allegedly avoided something like €1 billion in tax. The Commission is investigating this, which EFPSU welcomes.

Nadja quoted what she sees as a defensive response by the Prime Minister of Malta in recent days, and went on to say that it is not about tax competition, but tax war, as you don’t know where it will go or where it will end.

Perhaps we shouldn’t rely so much on the OECD. It does not represent all countries. Nadja supports a UN Tax Forum.

Nadha supported CCCTB, but is concerned about the 2 stage proposal, with consolidation being delayed. This also needs to be supported by common accounting rules across Europe, and a 25% minimum tax rate applied to common corporate tax base.

Public CBCR is essential to provide the mobilisation of public support and unions to support and hold

She called for sanctions against the users of tax havens. Without this the list has no effect. We saw the OECD black list had very little effect. She also believes that a zero tax rates should be in the criteria.

Jeroen Lammers, Business Europe

Jeroen set out many of the common desires from business, including stability, clarity and robust but fair tax authorities.

He said that we need to be careful to consider all taxes, and with a real world perspective.

Jeroen raised a significant concern with the EESC report, in that it does not consider a world outside of the EU, naming Brexit and the US as two key external factors. Perhaps this is because the outside world has not been such an issue, with the historic US regime (not a competitive threat in the past, with high rates). But that seems to be changing.

He also had concerns about the Financial Transaction Tax, asking how this can be a measure for growth.

He called for more focus on tax fraud, and feels the report gives the impression that BEPS and ATAD work over recent years didn’t happen. We should focus on implementing these measures first before looking to do more.

His shopping list was:

• Implement BEPS
• Look at tax rate on labour on profits and seek to lower both
• Consider making CCCTB optional, if it is that compelling
• Include in the report analysis of global development and how these impact.

Aurore Chardonnet, Oxfam

Oxfam is concerned with the inequality crisis, and that an effective tax regime should redistribute wealth and fund services.

She challenged the phrase “tax burden”, and suggested that large companies should be acknowledging the benefit they get from the taxes they pay, and the importance for their employees.

She questioned what the upside is of competition between governments. Competition between businesses is in the interests of consumers. Who benefits from competition between countries?

She then turned to the criteria used to define a tax haven. Aurore disagrees with the OECD. She believes if is not just transparency. It is also about countries are driving the race to the bottom on tax rates.

She welcomes the process being undertaken by EU, but would prefer more criteria to be taken into account, and particularly zero tax rates. She hopes that at the end of the process there won’t be an “empty list”, and Oxfam finds this very worrying.

Aurore is sceptical as to whether CCCTB will ever be adopted, and is keen for the focus to be on tax incentives and harmful tax practices. Although Aurore acknowledged that in some cases tax incentives do promote investment and the responsible flow of capital, sometime incentives do not face sufficient scrutiny or impact assessment.

Aurore called for there to be sanctions against tax havens, but this should not just be protectionist by large, rich countries.

Paul Gisby, Accountacy Europe

Paul started by saying that a sustainable economy requires sustainable tax policy.

Accountancy Europe support the EESC objective that measures against tax avoidance should be coordinated.

Paul acknowledged that there are loopholes. Some of these result from historic tax rules, whereas some are
unexpected consequences of more recent changes. They are remarkably difficult to address, particularly when amplified across an international arena. This is particularly challenging when the tax losses are impacting on or costing someone else, as this decreases the incentive to close the loophole.

There is also the scope for measures to address one loophole creating new ones. It can also increase the burden on business.

Within the EU, a level of tax completion is structural. The EU is a collection of different national, with different circumstances and different expectation. Some jurisdictions simply don’t need the same tax revenues as others. So it only right that there should be some variation.

Accountancy Europe believes tax competition should open, transparent and available to all. So it shouldn’t rely on sweetheart deals and secrecy.

Paul said that international tax cooperation goes hand in hand with tax competition.

Paul welcomed the work being done by the Commission, but urged caution against imposing automatic sanctions against those on any non-cooperative list. Some less developed countries do require inward investment, so there is a need for objective criteria.

Note: Any speaker at this event who feels this report material misrepresents their comments, please get in touch.