Home MOREBUSINESS & ECONOMY “Pandora Papers remind us of the importance of implementing common & ambitious European rules to end tax dumping between member states”

“Pandora Papers remind us of the importance of implementing common & ambitious European rules to end tax dumping between member states”

by asma
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The European Parliament has outlined its priorities for reforming EU policy on harmful tax practices as well as a blueprint for a new system to assess national tax policies.

With fierce tax competition between countries evolving relentlessly in novel ways, both within the EU and internationally, MEPs say that the EU needs to review and step up its game in the fight against tax practices that deprive member states of substantial revenue, lead to unfair competition, and undermine citizens’ trust.

In a plenary resolution, prepared by Aurore Lalucq MEP, Parliament states that while tax competition among countries is not in itself problematic, common principles should govern how countries use their tax regimes and policies to attract businesses and profits. This policing is falling short, MEPs say, because policy and legislation has not kept up with innovative tax schemes over the last 20 years.

Fixes to the EU system.

MEPs make numerous proposals in the resolution to quickly improve policy on harmful tax practices, namely they:

  • request a definition of a ‘minimum level of economic substance’ – a threshold of economic activity within a country below which a company cannot be considered to be genuinely established there;
  • ask the Commission to issue guidelines on how to design fair and transparent tax incentives with fewer risks of distorting the Single Market;
  • demand that the Commission assesses the effectiveness of patent boxes and other intellectual property (IP) regimes;
  • call for the country-specific recommendations issued each year as part of the European Semester to be used to also tackle aggressive tax planning.
  • Reform and replace the EU’s key tool to fight harmful tax practices

Most importantly, MEPs call for a wholesale reform of the Code of Conduct on Business Taxation (CoC), a tool used to tackle harmful tax competition. The criteria, governance and scope of the Code of Conduct should all be revised, MEPs urge.

With its focus on preferential tax regimes, the CoC’s current criteria for judging a tax practice as harmful are outdated, the resolution says, arguing that such preferential regimes have been replaced by other systems. Instead, the reformed criteria and scope should be broader and include an effective tax rate criterion in line with the internationally agreed minimum effective tax rate, as well as clear economic substance requirements. The governance would also need to be reformed to make decisions binding and the decision-making process more transparent and efficient.

Members also laid out a detailed plan for developing a ‘Framework on Aggressive Tax Arrangements and Low Rates’ that would eventually replace the current CoC.

The Pandora Papers remind us of the importance of implementing common and ambitious European rules to end tax dumping between member states, while fighting tax havens elsewhere. This report recognises the obsolescence of the current Code of Conduct. Parliament calls for their updating in order to strengthen the criteria for compiling the list of tax havens and demands the Code’s recommendations be legally binding in order to effectively combat harmful tax practices and aggressive tax competition.

Aurore Lalucq MEP.

The proliferation of tax scandals in the last decade (Lux Leaks, Panama Papers, Paradise Papers and most recently, Pandora papers) involving multinational corporations and net worth individuals has revealed the extent and seriousness of these phenomena and the urgency of finding definitive solutions to overcome them.

Conservative estimates put the costs around 4-10 % of global corporate income tax revenues, or EUR 84-202 billion annually.

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