EU countries lose €27 billion in tax revenues to the UK, Luxembourg, the Netherlands and Switzerland

Marc Rutte, Dutch Prime Minister

The Tax Justice Network (TJN) have just released a report showing that EU member states are losing around €27 billion in tax revenues to what it describes as an ‘axis of avoidance’ due to profit shifting into the Netherlands, Luxembourg (EU members), the UK and its network of dependent territories (EU transitional) and Switzerland (EFTA member). The overwhelming majority of tax losses are suffered by other EU member states. EU Reporter interviewed Alex Cobham, the Chief Executive of the ‘Tax Justice Network’ (TJN).

Cobham says the report's findings raises the question, why doesn't the EU take action now against its own tax havens? To some extent, he says this is due to lobbying by major multinational companies and their advisors, including the 'Big Four' accounting firms. Countries like Ireland, Luxembourg and the Netherlands are also partly reliant on these models to raise revenue. In addition, there is resistance from some very powerful companies, particularly in some key member states like Germany where there is a strong tradition of commercial confidentiality.

'Axis of avoidance' Tax Justice Network

Cobham says there are three main areas where things could be improved pretty quickly, if there was political will. He says that the ECOFIN Council made up of EU finance ministers are close to agreement on requiring multinationals to publish the country-by-country reporting data that they already provide privately to tax authorities. This shows data for each country of operation, employment and sales, but also of the profits that they declare and the tax they pay. Once that information is in the public domain, it's immediately clear at the level of individual companies and more open to scrutiny.  

Cobham says that the proposal for a common consolidated corporate tax base (CCTB) needs to be supported since it is 'just too easy' to shift profits and to manipulate prices. Another measure that would require a high degree of solidarity among EU member states would be an agreement to set a common minimum tax rate of around 25 or 30%, which would remove the incentive for profit-shifting. He said these three measures were all within reach of EU policy-makers.

In the summer, we will propose a tax package: three initiatives building on the @EU_Commission’s fair tax agenda to help EU countries and businesses to overcome the #coronavirus crisis. @PaoloGentiloni #StrongerTogether #EUsolidarity pic.twitter.com/Qqz88Ik2YL

— EU Tax & Customs ?? (@EU_Taxud) April 29, 2020

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Yesterday, the European Commissioner for the Economy, Paolo Gentiloni tweeted that in the summer, the EU will propose a tax package consisting of three initiatives and building on the previous Commission’s fair tax agenda. This is labeled as part of the work to help EU countries and businesses overcome the current crisis, though many of the proposals were outlined before the current crisis. There will be an action plan to fight tax fraud, a communication on good tax governance, and something on administrative cooperation in taxation.

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