After the LuxLeaks affair in November 2014, the European Parliament established a special committee "on tax rulings and other measures similar in nature or effect" (TAXE) in February 2015. The committee's report was adopted in a plenary session of the European Parliament on 25 November 2015. The Conference of Presidents also decided to set up a new temporary committee (for six months) to follow up on the work done by TAXE.
TAXE adopts recommendations
After more than fifteen public sessions, countless informal meetings with various parties, and much hard work, TAXE adopted recommendations for achieving fair and transparent corporate taxation within the European Union. The most important issues to be addressed are well known: multinationals do not pay tax where they make their profits; it's unfair that large companies pay such little tax; and tax matters tend to be settled behind closed doors, in the antechambers of political and administrative circles.
The solution proposed by TAXE is three-fold: (i) mandatory country-by-country reports on profits realised, taxes paid and subsidies received; (ii) the introduction of a common consolidated corporate tax base; and (iii) the systematic sharing of tax rulings and other tax-related information. The proposal, which was submitted to a plenary vote in mid-November, was more than 30 pages long and summed up all of the problems detected and suggested items to be integrated into legislation. Annex 3 of the proposal contained a list of multinationals invited to participate in the committee's meetings. Only 4 of the 18 companies mentioned wished to express their views before TAXE. On 16 November, TAXE held an extraordinary meeting during which companies that had declined the previous invitations could share their views on recent developments in corporate taxation.
Have we taken the right path?
This article does not analyse the measures taken in detail but rather proposes a few points for reflection and attention:
- We have noted fierce competition between the OECD and the EU concerning implementation of the Action Plan on Base Erosion and Profit Shifting (BEPS). Although the objectives of these two players are commendable and Belgium could set a good example, it should be noted that it is not necessary for Belgium to be the best student in the (European or world) class at any price. Our country should indeed correctly implement the adopted measures but when doing so, the government and tax authorities should be attentive to the need to ensure the competitiveness of Belgian businesses on a global level playing field.
- The European Commission recently found two tax agreements concluded between companies and Member States (Starbucks and Fiat, with the Netherlands and Luxembourg, respectively) to be illegal, on the ground that they distort competition and constitute unlawful state aid. Contrary to what has been stated in a number of articles, this is not a new power and is completed unrelated to LuxLeaks. Indeed, for many years, taxation was not a priority, either for the Commission or the Member States. Today, however, politicians realise that tax issues are a way - effective in the short term - of garnering sympathy and winning over the public.
- Although expressly targeted by TAXE, it should be noted that Belgian ruling practice (with the exception of advance tax rulings on excess profits) is in line with best practices: the decisions are published in full (on a no-name basis).
- Although the push for greater transparency (the country-by-country reporting advocated by BEPS and the exchange of rulings supported by the EU) is commendable, a real risk exists of the tax authorities being inundated with a flood of information. The processing and analysis of this information are very labour intensive or require a particularly performant IT system in order to select the files that pose a risk. Moreover, it is important to bear in mind that businesses must invest more and more energy to ensure compliance with the various rules and regulations, instead of being able to focus their efforts on value creation.