On Thursday 7 October, the European Parliament adopted by a very large majority (506 votes in favour, 81 against and 99 abstentions) the draft resolution submitted by the Committee on Economic and Monetary Affairs calling for an in-depth reform of European policy to combat harmful tax practices (see EUROPE 12762/18).
“ In the midst of the Pandora Papers scandal , Parliament is sending a very clear signal that it wants to tackle practices that deprive states of precious resources while undermining the conditions for ‘living together’”, said Aurore Lalucq (S&D, France), rapporteur on this dossier.
While tax competition between countries is not a problem per se, common principles should govern the way EU Member States use their tax systems to attract business and profits, say MEPs.
In particular, they are asking for: - a common definition of a ‘minimum level of economic substance’, i.e. a threshold of economic activity below which a company cannot be considered as established in a country; - guidelines on fair and transparent tax incentives with less risk of distorting the single market; - an assessment of the effectiveness of patent-friendly tax regimes and other intellectual property regimes; - specific annual country-by-country recommendations to also combat aggressive tax planning.
Code of conduct. The Parliament is also calling for a comprehensive reform of the Code of Conduct on business taxation, whose criteria, governance and scope should be thoroughly reviewed.
In particular, the criteria and scope should include an effective tax rate criterion, in line with the minimum tax rate being negotiated at the OECD (Pillar II of the international tax reform), as well as clear requirements on economic substance. Preferential personal income regimes, which attract wealthy and mobile individuals, should also fall within the scope of the Code. Another proposal is that the governance of this mechanism should be reformed so that the decisions taken are binding and the decision-making process becomes more transparent.
“All these measures should enable us to put an end to years of abuse and aggressive tax competition. No country should be ‘too big to be blacklisted’,” Ms Lalucq stressed.
According to the OECD, the costs of tax erosion are between 4 and 10% of global corporate tax revenues, i.e. a range of €84-202 billion per year.
See the Parliament’s resolution: https://bit.ly/3uUnKtF (Original version in French by Mathieu Bion)