Richard Cornelisse

The European Parliament – tax avoidance and tax evasion as challenges for governance

In Audit Defense, Belastingontduiking, BEPS, Business Strategy, CCCTB, EU development, Indirect Tax Strategic Plan, Processes and Controls, SAFT, State Aid, tax avoidance, tax rulings, tax transparency on 01/08/2015 at 10:04 pm

The European Parliament adopted by 50 votes to 57, with 23 abstentions, a resolution on tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries.

Parliament recalled that tax evasion and avoidance have been identified as major obstacles to the mobilisation of domestic revenue for development by all major international texts and conferences on financing for development. It called on the Commission promptly to put forward an ambitious action plan, in the form of a communication, to support developing countries fighting tax evasion and tax avoidance.

Members insisted that effective mobilisation of domestic resources and a strengthening of tax systems will be an indispensable factor in achieving the post-2015 framework that will replace the Millennium Development Goals (MDGs). It expressed as well concerns about the level of corruption and non-transparent public administration that hinder tax revenues from being invested in state-building, public services or public infrastructure.

According to Parliament, tax resources remain low as a proportion of GDP in most developing countries, making them particularly vulnerable to the tax evasion and avoidance activities of individual taxpayers and companies. This represents a considerable financial loss for developing countries which needs to be addressed.

Action plan to combat tax avoidance and tax evasion in developing countries: the Commission is urged to take concrete and effective measures to support developing countries and regional tax administration frameworks, such as the African Tax Administration Forum and the Inter-American Centre of Tax Administrations, in the fight against tax evasion and tax avoidance, in developing fair, well-balanced, efficient and transparent tax policies.

Parliament asked the Commission to give good governance in tax matters, and fair, well-balanced, efficient and transparent tax collection, a high place on the agenda in its policy dialogue (political, development and trade), and in all development cooperation agreements, with partner countries. It also called for information on beneficial ownership of companies, trusts and other institutions to be made publicly available in open-data formats in order to prevent anonymous shell companies and comparable legal entities from being used to launder money, finance illegal or terrorist activities, conceal the identity of corrupt and criminal individuals, and hide the theft of public funds and profits from illegal traffic and illegal tax evasion.

It believes, furthermore, that all countries should at minimum adopt and fully implement the Financial Action Task Force’s (FAFT) anti-money laundering recommendations.

Publication of tax information: Parliament invited the European Union and its Member States to enforce the principle that listed or unlisted multinational companies of all countries and sectors, and especially those companies extracting natural resources, must adopt country-by-country reporting (CBCR) as a standard, requiring them to publish, as part of their annual reporting and on a country-by-country basis for each territory in which they operate, the names of all subsidiaries and their respective financial performance, relevant tax information, assets and number of employees, and to ensure that this information is made publicly available, while minimising administrative burdens by excluding micro-enterprises. The Commission is called upon to put forward a legislative proposal to amend the Accounting Directive accordingly.

Parliament recalled that public transparency is a vital step towards fixing the current tax system and building public trust. It underlined that tax exemptions and advantages granted to foreign investors through bilateral tax treaties provide MNCs with an unfair competitive advantage relative to domestic firms, especially SMEs. It also called for the fiscal conditions and regulations under which extractive industries operate to be revised.

Parliament called for the establishment, by the end of 2015, of an internationally agreed definition of tax havens, of penalties for operators making use of them and of a blacklist of countries, including those in the EU, that do not combat tax evasion or that accept it. It called on the EU to support the economic reconversion of those developing countries that serve as tax havens.

It also urged:

  • Member States with dependencies and territories that are not part of the Union to work with the administrations of these areas towards the adoption of the principles of tax transparency and to ensure that none serve as tax havens;
  • that, when negotiating tax and investment treaties with developing countries, income or profits resulting from cross-border activities should be taxed in the source country where value is extracted or created;
  • that impact assessments of European tax policies on developing countries be conducted (Parliament welcomed the Commission’s revised Action Plan on tax evasion and tax avoidance, to be presented in 2015);
  • the Member States to agree swiftly on a Common Consolidated Corporate Tax Base;
  • for sanctions to be considered both for non-cooperative jurisdictions and for financial institutions that operate within tax havens;
  • the Commission and the Council, and on partner governments, to ensure that tax incentives do not constitute additional options for tax avoidance;
  • the EIB and the EBRD, and on Member States’ development finance institutions, to monitor and ensure that companies or other legal entities that receive support do not participate in tax evasion and avoidance.

2015/2058(INI) – 08/07/2015 Text adopted by Parliament, single reading.

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