The European Commission recommended on Tuesday 14 July that Member States should not provide financial support to companies with links to countries that feature on the EU’s ‘black’ list of non-cooperative jurisdictions for tax purposes.
Several countries, such as Poland, Denmark and France, have already taken this step as part of their respective national aid packages targeted at dealing with the Covid-19 crisis. The recommendation provides a “model to follow” for countries that would like to follow suit and prevent the use of public support in tax avoidance schemes, while complying with EU regulations.
In the Commission’s view, therefore, companies who receive financial support from the State should not: - be resident for tax purposes in, or incorporated under the laws of, jurisdictions appearing on the EU’s list; - be controlled, directly or indirectly, by shareholders in jurisdictions that feature on the list; - control, directly or indirectly, subsidiaries or own permanent establishments in jurisdictions on the list; - share ownership with companies in jurisdictions on the list.
Nevertheless, the European Commission recommends exceptions to these restrictions in order “to protect honest taxpayers”. Even if it has links with jurisdictions on the EU ‘black’ list, a company should, for example, be eligible for financial support if it can prove that it has paid appropriate levels of tax in the Member State for a given period (e.g. the last three years) or if it has a tangible economic presence in the listed country (staff, equipment, goods and premises).
Member States should agree on “reasonable” requirements that companies must adhere to in order to prove that they do not have links with listed countries. It also suggests that appropriate sanctions are introduced to deter applicants from providing false or inaccurate information.
“The EU list of countries and territories that are uncooperative for tax purposes is the best basis for applying these restrictions, as it will allow all Member States to act consistently and avoid the adoption of individual measures that could violate EU law”, explains the European Commission in its recommendation.
This is a view that is not shared by everyone, particularly by the European Parliament or by organisations such as Oxfam, who consider that the EU list is not a robust instrument since it does not include European tax havens.
Moving beyond the Covid-19 crisis
The Commission explained that it was prompted to issue this recommendation at the request of Member States and also because the volume of financial support granted to undertakings in the current Covid-19 circumstances, calls for immediate and coordinated action to prevent the misuse of public funding.
Furthermore beyond State Aid and the circumstances surrounding Covid-19, the granting of financial support should address the need to tackle tax avoidance, she believes.
She therefore suggests that restrictions should also be put in place for those companies that have been convicted of serious financial offences, including financial fraud, corruption and non-compliance with tax and social security obligations.
See the recommendation: https://bit.ly/2AXS3Ih (Original version in French by Marion Fontana)