The LuxLeaks financial scandal, which entailed disclosure by the International Consortium of Investigative Journalists of tax rulings, galvanized public opinion and gave rise to the creation of TAXE, the European Parliament's special committee on tax rulings. This article explains why TAXE was created and shares with you highlights from the public sessions of 11 May and 1 June 2015, at which testimony, mainly by whistleblowers and journalists, was heard.
TAXE’s chairperson asked the rapporteurs to provide an interim report before the summer recess. The first vote on TAXE's conclusions and recommendations is expected in early November. We will be sure to keep you informed of further developments in future issues of Brussels to the Point.
The origins of TAXE
On 6 November 2014, the International Consortium of Investigative Journalists published information about 548 agreements which the Luxembourg tax authorities had concluded with over 300 multinationals. The public was shocked. The ensuing scandal is known as LuxLeaks. Antoine Deltour, a former Big 4 auditor, and Edouard Perrin, a French journalist, were key players in the scandal and were charged by the Luxembourg authorities with theft of sensitive information and the disclosure of trade secrets.
Immediately after the leak, the European Commissioner for Competition, Margrethe Vestager, issued a statement on an investigation to be launched into Luxembourg's tax ruling practices. One month later, on 17 December 2014, the Commission extended the scope of its inquiry to the tax rulings of all member states, after having noted that a number of member states (in particular Belgium, Ireland, Luxembourg and the Netherlands) appear to allow multinationals to take advantage of their tax systems in order to reduce their tax burden.
On 3 February 2015, the Commission opened an in-depth investigation into a Belgian tax provision which allows group companies to substantially reduce their corporate tax liability in Belgium using so-called "excess profit" rulings. In essence, the rulings allow multinationals in Belgium to reduce their corporate tax liability by "excess profits" allegedly resulting from being part of a multinational group.
TAXE - the European Parliament's special committee on tax rulings
On 12 February 2015, the European Parliament decided to conduct its own inquiry and to set up a special committee on tax rulings and other measures similar in nature and effect, in order to be able to fully understand the scope of tax rulings and to make recommendations for the future. TAXE investigates ruling practices dating back to 1991 and wishes to review how the European Commission treats state aid in member states and how transparent member states are about tax rulings. It also seeks to assess the negative impact of aggressive tax planning on public finances. From March to July 2015, the members of TAXE are travelling around Europe, speaking with national tax authorities and legislatures and holding public hearings.
We have selected two sessions which, in our opinion, are the most interesting from a tax standpoint, i.e. the hearings of 11 May and 1 June 2015.
The main topic of the public hearing of 11 May 2015 was tax rulings and harmful tax practices. On this occasion, a panel discussion with the International Consortium of Investigative Journalists (including the Belgian journalist Lars Bové) and a panel discussion with experts were held. During the hearing, the journalists emphasised several points: (i) sources as well as whistleblowers who disclose facts for the common good should be protected (testimony was heard that being a whistleblower is a "bad career move"); (ii) tax planning activities by multinationals are often not illegal, merely the result of taking advantage of loopholes in national tax legislation; and (iii) as transparency is essential, all parties should work together in order to disclose systemic shortfalls, rather than individual cases. The experts cautioned TAXE to distinguish legal from illegal practices and advised paying more attention to potential solutions, i.e. a common consolidated tax base (apportionment of EU group profits between the member states based on the place where the profit is actually made) or a shift to consumption taxes, such as VAT. Another key element in the discussion was transparency and the provision of information to the general public in order to foster genuine public debate.
The main topic of the public hearing of 1 June 2015 was the international dimension of tax rulings and other measures. The key speakers were former Commissioner for Customs, Taxation and the Internal Market Mario Monti and Antoine Deltour, the whistleblower whose actions gave rise to the LuxLeaks scandal. Monti’s testimony was interesting in that he explained how, notwithstanding the unanimity required to make changes to tax law, results were obtained with respect to certain aspects of the 1997 Tax Package (namely, interest on savings, the Interest and Royalties Directive, and a code of conduct for business taxation). Discussions relating to the common corporate tax base did not result in final decisions, however. Deltour, for his part, mainly emphasized his own difficulties (loss of employment and prosecution by the Luxembourg authorities) and urged for greater protection for whistleblowers. Tove Maria Ryding, Tax Coordinator for the European Network on Debt and Development (EURODAD), was less optimistic than Monti and questioned the advisability of Luxembourg's former prime minister, Jean-Claude Juncker, leading the European Commission's response to these tax practices. She also stated that the OECD's base erosion and profit-shifting (BEPS) measures are not far-reaching enough and do not sufficiently involve third countries and developing countries suffering from tax base erosion.
A major complaint voiced by MEPs was that representatives of multinationals mostly rejected or did not answer the invitation to testify. In order to encourage multinationals to come forward, the European Parliament decided to start a name-and-shame campaign and thus made public the identity of those invited to testify in a press release of 9 June.
Firstly, TAXE will continue its activities (e.g. on 18 June, a visit to the UK is scheduled, and four other hearings will be held before mid-July). The first interim report should be issued in late June. In the fall, TAXE should agree on the recommendations to be made. Secondly, the European Commission has proposed a package of tax transparency measures providing for mandatory and automatic exchange of information in the field of taxation, mainly with respect to transfer pricing agreements and tax rulings between administrations (to be stored in a central directory). Please note that the Belgian finance minister, Johan Van Overtveldt, has already announced that tax rulings issued as from 1 January 2015 will automatically be made public and exchanged with other tax authorities.