Out-Law News 2 min. read
23 May 2013, 4:45 pm
The European Parliament has adopted a new resolution on fighting tax fraud, tax evasion and tax havens. The MEPs want more stringent measures to be adopted so that EU member states can "halve the €1 trillion uncollected 'tax gap'" that currently exists by 2020, but said that this would not involve "raising tax rates".
"Measures to reduce the tax gap and tackle tax havens, evasion and avoidance would result in fair and transparent competitive conditions on the internal market, help with fiscal consolidation while reducing sovereign debt levels, increase public investment resources, improve the efficiency and fairness of national tax systems, and raise general tax compliance levels, both in the EU and in developing countries," the Parliament's resolution said.
The MEPs want to clamp down on businesses operating out of tax havens that shift their profits to those locations in order to avoid paying higher rates of tax elsewhere – an act referred to as 'transfer pricing'. It said that the European Commission should "create a public European blacklist of tax havens by 31 December 2014". Countries should be deemed to be blacklisted tax havens if they conform to a range of criteria, MEPs said. Countries where businesses are given tax advantages even if they do not conduct "any real economic activity" or have a "substantial economic presence" should, if other criteria was also met, be deemed to be a tax haven, they said.
In a separate communication, consultative body, the European Economic and Social Committee (EESC), said that the possibility should remain open for EU member states to be labelled as blacklisted tax havens.
If a tax haven is blacklisted it should have consequences for businesses that base themselves there, according to the Parliament's resolution. Firms based in blacklisted jurisdictions should be banned from bidding for EU public contracts and should not be provided with state aid, it said. In addition, there should be a "special levy on all transactions to or from blacklisted jurisdictions".
The MEPs also called on the European Commission to force companies into publishing "a simple, single figure for the amount of tax paid in each Member State in which they operate". Proposals should also be brought forward to improve information sharing between tax authorities, whilst the Commission should also look into where a new taxation regime should be introduced for "cross-border business models and electronic commerce", they said.
Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com, said that the EU would face a challenge to obtain international consensus on measures to clamp down on businesses transferring profits outside of the trading bloc.
"The fight against tax evasion and aggressive tax avoidance has taken a significant step forward at EU level, with countries agreeing on specific steps in relation to tax havens," Self said. "However, making real progress on other issues, such as transfer pricing, requires much broader commitment across the OECD and beyond. A key question is whether countries as diverse as the US, India and Bangladesh can reach agreement on what a 'fair share' of tax would look like."
"Tying EU procurement rules to tax issues has already commenced in the UK, with changes taking effect from 1 April 2013. However, as regulated procurement processes need to be fair and objective, the rules around when and in what circumstances it is appropriate to bar companies which operate in tax havens will require clear guidance if it is to be effective." procurement law expert Stuart Cairns of Pinsent Masons said.
Heather Self added: "Some of the EU's proposals, such as country-by-country reporting, would impose significant compliance burdens without necessarily delivering equivalent benefits - I am sceptical of the EU's ability to 'monitor respect for transfer pricing rules' based on voluminous raw data. A better approach is that suggested by the CBI's recent principles on reasonable tax planning."