Brussels, 23/07/2015 (Agence Europe) - The draft report by the special committee on tax rulings (TAXE) of the European Parliament, by Portugal's Elisa Ferreira (S&D) and Michael Theurer of Germany (ALDE), includes mainly ideas on which the European Commission is already reflecting, but goes a bit further than what the Commission has already promised. This first version also calls for legal protection for whistleblowers and a framework for companies providing tax consultancy services, two points on which no legislative work is currently in the pipeline.
Tax rulings. If the investigations underway at DG Competition confirm that illegal state aid has been granted through tax rulings, the Commission could order this money to be paid back. Although the effect on the member state in terms of reputation could be considerable, the fact that it is able to recover illegal aid in spite of everything “would in itself constitute a bonus for not observing” the state aid rules, as it would probably not discourage the member states, in the event of any doubt, from granting abusive tax benefits, the draft report explains. It goes on to stress that the investigations underway and the LuxLeaks revelations indicate that some states did not comply with their obligation to notify the Commission of potential state aid. The draft report therefore calls on the Commission to look into the possibility of changing the existing rules to allow the money recovered in the event of illegal state aid to be given to the states which suffered from an erosion of their tax base or to the budget of the EU, rather than back to the state which granted the illegal tax aid. The draft report calls upon the Commission to establish guidelines clarifying what constitutes state aid in taxation matters and an appropriate transfer price.
On the exchange of information on tax rulings, which the Commission hopes to make automatic, the draft report argues that the first step would be for the Commission to use all of the elements at its disposal to enforce the existing legislation, which already provides for an automatic exchange. The text rejects the argument of the states that they did not exchange information because they did not receive any themselves (reciprocity) (see EUROPE 11317). Automatic exchange should concern all tax rulings, not only cross-border ones, as the Commission proposes. Negotiations at the Council are believed to have made very good progress at the last two technical meetings, although the role of the Commission remains a sticking point, as does the question of retroactivity, with constitutional problems raised by Poland. EUROPE will return to this.
The Commission has also been called upon to look into the possibility of a common EU framework the tax rulings, including common criteria (involving the countries concerned by the ruling, publication in simplified form of these rulings, etc).
Country-by-country reporting. The draft report reiterates the sign sent out by the European Parliament in its position on the shareholders' rights directive, in favour of country-by-country reporting in the public domain (rather than just for the tax administrations, as called for by the OECD). More consistent reporting should, however, be available to the tax administrations, on the basis of the OECD standard, but also including more details, such as intra-group transactions. The draft report calls on the Commission to support this position. The Commission is currently weighing up the idea of public reporting. In general, the EU needs to go further than the OECD is suggesting, according to the draft report.
List of tax havens. The draft report takes position on a difference of opinion currently ongoing between the Commission and the Director of the Centre for Tax Administration and Policy of the OECD, Pascal Saint-Amans, over the compilation of the national list of non-cooperative third countries in taxation matters (see EUROPE 11355). The draft report stresses that the OECD's work to establish its list was carried out in accordance with “a political process which led to arbitrary compromises”, by establishing criteria (such as the obligation to conclude tax agreements with 12 countries) and has had the result that “no jurisdiction has been listed as a non-cooperative tax haven”. The draft report argues that the OECD's approach is based solely on issues of tax transparency and exchange of information and is not enough to take account of the harmful aspect of certain practices, which corresponds to the argument already put forward by the Commissioner for Taxation, Pierre Moscovici. The text therefore calls upon the Commission to continue its work to establish a clear definition and common criteria to identify tax havens and the appropriate sanctions.
Code of Conduct group. The draft report laments the fact that the Code of Conduct working group on corporate taxation seems to have lost some of its impetus. The working group led to the withdrawal of some hundred harmful tax practices, but these have, in some cases, been replaced by other measures with the same harmful effect. The text regrets the fact that the status and governance of origin of the group have given too much way to political negotiations and compromise in order to reach a broad consensus. The draft report calls for a revision of the group as a matter of urgency, particularly by giving it a permanent chair with political responsibility. The Code of Conduct group was discussing its future on Thursday 23 July.
CCCTB. The draft report calls for a minimum rate of effective taxation to be defined in the framework of the Common Consolidated Corporate Tax Base (CCCTB), which the Commission is hoping to resurrect in 2016. France has made a similar request, but in the shorter term, and hopes that this issue will be dealt with in the framework of the interest and royalties directive, currently on the table of the Council.
In order to bring back the link between taxation and economic substance, the formula apportionment of the CCCTB should differentiate between sectors and take account of their specific natures, in particular for digital companies. The Commission should also continue its work on the allocation key, amongst other things in order to anticipate the tax revenue of the various states, on the basis of the structure of their economy. The draft report takes note of the fact that the Commission initially intends to leave aside the consolidation aspect, which will leave many questions open, such as the uncertainty related to transfer prices, one of the main tax avoidance tools of the multinationals. The text calls upon the Commission to drop its impact assessment.
Protection for whistleblowers. The draft report calls upon the Commission to propose a European legislative framework for the effective protection of whistleblowers, taking inspiration - why not? - from the American case, namely the Dodd-Franck Act, which provides financial rewards for whistleblowers and protects them from losing their jobs and from legal proceedings.
A framework for tax consultants. The text argues that the Commission should assess the possibility of bringing in sanctions for companies which practise or promote aggressive tax planning or optimisation, particularly as regards access to funding from the EU budget and to the role of consultant they may have in the institutions. Recently, the Corporate Europe Observatory was scathingly critical about the fact that the audit companies PwC, Deloitte and KPMG are involved in Commission expert groups on transfer prices, despite their involvement in the Luxleaks scandal (see EUROPE 11343). (Elodie Lamer)