The European Parliament has launched its reflection on how to better tackle harmful tax practices in the EU. Rapporteur for Parliament, Aurore Lalucq MEP (S&D, France) has just unveiled her draft own-initiative report, which sets out some initial ideas.
The draft text begins by recalling that the proliferation of tax scandals involving multinationals and wealthy individuals, such as the Lux Leaks and the Panama Papers, has revealed the extent and seriousness of this phenomenon and underlined the urgency of finding definitive solutions to overcome them.
“Governments lose €1,000 billion annually through tax fraud and tax evasion and avoidance. Every euro that is owed and not paid to where it belongs is a euro stolen from workers, the unemployed and the sick. It is a blow to solidarity”, she writes.
The rapporteur welcomes the proposal on minimum effective taxation (pillar II) in the framework of the international tax reform discussed at the OECD, which is aimed at combating harmful tax practices. It also welcomes the recent US proposals (see EUROPE 12708/4), which could facilitate an agreement on the second pillar by mid-2021.
In doing so, it invites the Commission to assess now the legislative proposals that will be needed to implement this second pillar at EU level.
It also calls for the adoption of a definition of ‘minimum level of economic substance’, which would evolve progressively as reported income increases and which could be used to assess whether a tax regime is potentially harmful.
Aurore Lalucq also suggests that the Commission should produce guidelines on how to design tax incentives that are less likely to distort the single market.
In any case, the implementation of new EU tools against harmful tax practices should privilege the use of legislative instruments and explore Treaty provisions to facilitate decision-making, such as qualified majority voting, she stresses.
Urgent reform of the Code of Conduct
The rapporteur also calls for an urgent revision of the criteria, governance and scope of the Code of Conduct on business taxation - one of the EU’s main tools - through a legally binding instrument to replace the current intergovernmental arrangements.
According to Lalucq, the current scope needs to be progressively updated in order to look into the general characteristics of a tax system to determine whether they have harmful effects.
In addition, personal income and wealth tax regimes that could lead to significant distortions of the single market should be included.
It also demands that Parliament be included in the process of designing and adopting new policies and criteria to combat harmful tax practices.
See the draft report: https://bit.ly/3eaQ0RV (original version in French by Marion Fontana)