Tackling tax avoidance: EU Commission wants a bit more transparency

The debate about reforming corporate taxation in the EU led the European Commission (EC) to propose a “tax transparency package(opens in new window) ” on 18 March 2015. At its core is a draft law requiring all EU states to inform all other EU states about their cross-border tax rulings, i.e. decisions taken in advance by tax authorities regarding the taxation of a particular company.

However, EU states already had the duty to inform other states in the case of tax impacts, pursuant to a law from 1977(opens in new window) . As this law was not taken seriously by Luxembourg and the likes, it is not clear yet how well the new proposal will work – and if it will be endorsed by the member states.

Economic effects of financial reporting

Furthermore, the EC’s package includes checking the economic effects of financial reporting for large companies on a country-by-country basis. The effects (e.g. on investment) of this reporting by banks(opens in new window) was already checked last year(opens in new window) and the EC concluded that they were positive. Finally, the EC’s package includes reviewing the EU’s “Code of Conduct on Business Taxation” and collecting more data on tax evasion and avoidance in the EU. The EC announced a second package with rules against tax avoidance and for tax harmonisation by summer 2015. To push for a strong reform, 30 European NGOs wrote a letter to the President of the Commission(opens in new window) Juncker in March 2015. A response is pending.

Special committee TAXE

The European Parliament is also active on its own, with a new special committee TAXE(opens in new window) on corporate taxation, accompanied by the “annual tax report”(opens in new window) , a report on “Tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries”(opens in new window)  and a legislative initiative on “bringing transparency, coordination and convergence to corporate tax policies in the Union(opens in new window) .”

Action Plan

Meanwhile, the OECD and the G20 are continuing work on their Action Plan against “base erosion and profit shifting(opens in new window) ”, with many draft texts in the last months and critical replies from the “BEPS monitoring group”(opens in new window) . The OECD will release further draft texts to complete the Plan in upcoming months.

International civil society work is also supported by a new “Independent Commission for the Reform of International Corporate Taxation(opens in new window) ”, which aims for a wider and more inclusive discussion on international tax rules.