Fighting tax evasion by firms to achieve sustainable corporate and societal environments: An issue not only for the EU internally but for development cooperation too
By Klaus Heeger, Secretary General, and Hendrik Meerkamp, Policy Adviser, European Confederation of Independent Trade Unions (CESI)
From the moment the ‘LuxLeaks scandal’ gained the attention of the media last year, the continued prevalence of tax evasion and dubious tax avoidance schemes by big transnational firms such as McDonald’s or Amazon has triggered a veritable anti-tax fraud politicking in the EU. The European Parliament set up a special inquiry committee and holds hearings every other week in order to gain an overview of the problem at hand. Moreover, the European Commission, having recently concluded a new tax transparency agreement with Switzerland, just yesterday (Wednesday 17 June) published a long-awaited (albeit disappointing) action plan to strengthen tax transparency and implement new measures against corporate tax avoidance in Europe.
Breaking new ground
The high importance of the subject on political agendas has led to some initial results: Just recently, Amazon tried to calm the waves by announcing that it will pay taxes in the future on profits made in France, Germany, Italy and Spain in the countries where they were made, rather than in Luxembourg. Soon, more companies will need to cave in to public and political pressures and follow Amazon. It seems likely that the EU’s Council of Ministers will also end up openly committing to the fight against opaque and creative abuses of European tax systems by large multinationals.
In this debate, it should be stressed that not only tax avoidance but also tax evasion by transnational companies happens outside the EU in developing countries, too. And, importantly, while this is often regarded by European publics as a problem of unethical behaviour and unfair personal financial gain, in developing countries it frequently leads to consequences that are a lot more far-reaching: It can put entire public finances at risk. The tax-to-GDP ratio, an indicator of how effectively taxes are collected, is below 20% in several developing counties. In the EU Member States, it is typically between 30-40%. 15% is considered necessary for a country to finance its basic functioning and services.
Much more can be done
In this context – and especially against the backdrop of the European Year of Development 2015 – it must be an absolute priority for the EU to not restrict its action to strengthening corporate tax transparency and fairness (and therefore tax justice for societies at large) within its borders and vis-à-vis some external tax havens. It must, rather, use the experience it has – and currently gains – in order to help developing countries much more systematically in their efforts to efficiently collect taxes, especially corporate taxes. Such action would help alleviate public finances, ensure fairer distributions of wealth in the societies and ensure that businesses (can) operate on a fair, sustainable and transparent level-playing field. It would, moreover, be a crucial supplement to the EU’s current development cooperation activities.
Recently, a start was made: The European Parliament is currently working on an own-initiative report on ‘Tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries’. The indicative plenary voting date is July 6. Afterwards, it will be time for the Commission to come forward with an action plan to help boost weak administrative capacities of developing countries to deal with the complexity of imposing taxes on transnational companies, the lack of sufficient tax collection infrastructures, and the drain of skilled personnel away from tax administrations. At the same time, it will be equally important to help foster a perception among businesses and citizens that paying taxes is ‘a good thing’ and helps countries, economies, and societies function.
CESI represents trade unions of tax administration officials from several European countries and is a member of the European Commission’s advisory Platform for Tax Good Governance. CESI has stressed for a long time that if dubious tax practices by transnational companies are to be eliminated for the benefit of sustainable business and societal environments, national tax administrations in Europe and beyond need to be strengthened and better equipped to efficiently and effectively perform their function: Collecting due taxes.
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