EU Action on Tax Avoidance: Ramped Up a Gear

So many of the problems facing us today are international in scale. Even issues that might appear local, such as the independent bookshop on your high-street closing down, have an international dimension. Tax avoidance is when wealthy individuals or global corporations hide their earnings and profits in order to escape paying tax in the countries where they work. Multinational corporations can afford the expensive lawyers and accountants that are needed to exploit loopholes and shift profits between different countries. This means that companies, such as Amazon, end up paying far fewer taxes than your local book shop, and this impacts at the local level in terms of what your high-street looks like, and what your day to day experiences are. 

International problems require international solutions, and the EU is best placed to tackle tax avoidance. In the European Parliament, following  a successful call from the Greens, we have just established the Panama Papers Inquiry Committee, to investigate the recent scandals coming out of Panama-based law firm Mossack Fonseca. It showed how just one law firm helped clients launder money, dodge sanctions and evade taxes. Our committee, of which I am to be a full member, will assess whether member states failed to enforce EU rules on anti-money laundering or failed to alert each other and share information when they suspected tax evasion. We will identify the loopholes which exist, and make steps to close them. Ultimately we need to see all tax havens shut down and for the states and jurisdictions which make their money this way to have support transitioning to ethically sound local industries.

Meanwhile the European Commission is very active in the area of enforcing competition law to tackle tax avoiders. Commissioner Vestager, the Commissioner for Competition, has recently taken three very important decisions on unfair competition in Europe. Her and her team have published their decision on Belgium’s excess profit scheme, and have also published their decision to open investigation into transfer pricing arrangements on corporate taxation of McDonalds (Luxembourg).  The latter follows on from some a huge investigation led by trade unions campaigning at EU level to expose the tax loopholes used by the fast-food giant. They will also soon publish their decisions on Starbucks (Netherlands) and Fiat (Luxembourg). In May they also clarified the Commission’s application of State aid rules to tax rulings on the basis of decisions taken in the Notion of Aid Notice, and have also produced a working paper on state aid and tax rulings. State aid – when a government gives a company favourable rates, taxation, subsidies, or benefits – has gone hand in hand with tax rulings – aka sweetheart deals – in Europe. This working paper offers a summary of the different types of tax rulings that she has investigated, in order to ensure that all actors are treated the same.

Earlier this year my colleagues and I wrote to Commissioner Vestager to ask her to investigate the tax deal struck between George Osborne and Google, which was exposed in January. I was delighted that several constituents wrote to me at this time, asking me to do this. This agreement, which was for a paltry £130 million tax out of £6.5bn revenue, provided an economic advantage for Google and we believe that this could constitute illegal state aid. We received a prompt response from the Commissioner, and sent a further letter outlining where we judged EU competition laws to have been breached. She has replied that, ‘the European Commission has launched an inquiry into the tax ruling practice of all Member States including the UK under EU State aid rules’, and this is very encouraging. Her team of experts are currently assessing the information that we provided, and they will follow up if they have indications that EU State aid rules are not being complied with.

Far from being a faceless bureaucrat, Commissioner Vestager will come to the Economics committee, of which I am a member, at the end of June, for one of her regular discussions. She will further explain how she is directly and publicly going after companies who are dodging taxes. I hope at that stage the UK will still have its place at the EU table because without a doubt this is the best place to be to tackle tax avoidance and corporate power.