Tax – Is Europe Leading by Example?
Analysis of the European Commission's anti-tax avoidance package
As Europe slowly pulled itself out of the economic and financial crisis, European governments’ attention turned to focus, inter alia, on the need to conserve resources to boost Member States’ budgets and address perceived inequalities in the single market. Within this context - and driven by public and NGO concern - the spotlight turned on those Member States that sought to attract investment from multinational corporations by offering them so-called sweetheart deals which offered companies preferential tax arrangements. In November 2014 Lux Leaks, which identified more than 340 companies deemed to have pursued aggressive and unfair tax planning practices fanned attention on the issue and catapulted the extent of tax avoidance in Europe to public attention. This provided the impetus for the European Commission to review its policy and start implementing changes. Since 2014 the Commission has focused its attention on fighting tax avoidance and aggressive tax planning - both internally (via State Aid cases on tax rulings and actions set in the 2015 Plan for Fair and Efficient Corporate Taxation in the EU) and internationally supporting the OECD Base Erosion and Profit Shifting (OECD BEPS) initiative which was launched in 2013.
In the EU, the official State Aid investigations are being actively pursued and three decisions have already been taken against Member States’ tax rulings practices by the Competition Commissioner, Margrethe Vestager. This is only the tip of the iceberg. Mrs. Vestager has instructed her team to carry out a structured analysis of all EU Member States’ tax rulings practices between 2010 and 2013, which will be used as a template for further investigations and legislative change.
Coupled with this, the European Parliament began to take interest in the matter. Whilst the Parliament has no authority in tax, it is able to keep the European Commission and the Council accountable for progress. In 2015 it created an ad hoc committee on tax (TAXE1 and 2) to focus on aggressive tax planning. The Parliament took the Lux Leaks’ scandal as a starting point for its inquiry report on the negative impact of aggressive tax planning on public finances. These committees have been instrumental in maintaining pressure on the Commission, calling Margrethe Vestager, Commissioner for Competition, to appear before the Committee and give evidence on the State Aid cases concerning selective tax rulings. In November 2015 the European Parliament, after many failed attempts, managed to summon 11 multinational companies to a public hearing on their tax practices.