EC tax avoidance proposals inadequate says Christian Aid

By agency reporter
February 1, 2016

New European Commission (EC) proposals, intended to curb Google-style tax avoidance by multinationals, do not go far enough in helping developing countries keep track of, and tax, the financial manoeuvring of major international companies operating within their borders, warns Christian Aid.

“This was a chance for the European Commission to show they are willing to use their powers to help developing countries as well as EU Member States. They haven’t taken it”, said Joseph Stead, Senior Economic Justice Adviser.

The EC is proposing that multinationals based in the EU report to tax authorities on a country-by-country basis in the jurisdiction where they have their head-quarters. The information about where profits are made and taxes paid would then be shared between member states, but not more widely.

“Although the OECD recommends that systems be put in place to make sure authorities in all countries can access the information, the EC seems to show no interest in using its power to help make this system work,” said Mr Stead.

”It’s now clear that the only way many developing countries will be able to get information on multinationals is for these country-by-country reports to be made public.”

Information on a country-by-country basis would enable the revenue authorities and civil society organisations in developing countries to spot potential abuse, including tax evasion and aggressive tax avoidance, and challenge the business entity concerned.

At present, multinationals are allowed to amalgamate the accounts of all their separate parts and present global totals, making that information impossible to obtain.

In its proposal document, the EC says it might recommend public country-by-country reporting once it has finished assessing the impact of such a move. No suggestions are forthcoming, however, as to how developing countries can access such information in the meantime.

The need to help developing countries raise tax revenues is urgent. International Monetary Fund experts have estimated that, through a range of tax avoidance techniques, developing countries could be losing between $100-$300 billion in tax a year from corporations. And the OECD agrees poorer countries lose more to tax dodging than they receive in aid.

The EC proposals do provide some welcome acknowledgement of the needs of developing countries when it comes to international tax, with the Commission joining the OECD, UN, World Bank and IMF in recognising that EU countries’ tax policies can harm developing countries, something that the UK government continues to refuse to address.
The Commission also rightly recognises the damage tax treaties can do to developing countries, and proposes further discussions. 

“We hope these will develop into concrete actions, spillover analyses of the impact of European tax policies on developing countries, and clear principles on ‘development friendly tax treaties’, which EU countries will abide by and which will help developing countries get a better deal, but a lot still needs to happen to make that a reality,” added Mr Stead.

“Overall, the proposals suggest that the Commission has missed some vitally important tricks which would help to make multinationals pay more of their fair share both in Europe and in developing countries.  The European Parliament recently recommended a wider range of recommendations for the Commission, and it is sad to see that more of those have not been adopted.

“And what proposals we do have, while welcome new tools in the fight against tax dodging, appear to introduce both more complexity and have a number of loopholes that could undermine the intention, and lessen any positive spillover on developing countries.”

The new proposals are the European Commission’s response to recommendations by the OECD about how countries can start catching up with tax-dodging multinationals. The OECD recommendations flowed from its BEPS (Base Erosion and Profit Shifting) project, which recognised the threat posed by multinationals using accounting trickery to cut their tax bills in many countries around the world.

“The Commission’s proposals may give developing countries some protection from multinational tax abuse, by reducing the incentive for EU-based multinationals to shift profits from a third country into a tax haven”, said Mr Stead.

“But the Commission is aiming disappointingly low, so any such protection will be weaker than it should be. Indeed, the proposals could even act as an increased incentive for EU countries to lower their own tax rates in an ‘accelerated race to the bottom’.

“At the heart of this is transparency. If we want the likes of Google to start paying their dues, we have to force them to come clean about their activities around the world. That means publicly revealing what they are up to in every country, including tax havens.”

* Christian Aid


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