Fair taxation is a priority for the European Parliament. Find out how it wants to tackle issues such as tax avoidance, tax fraud and more, Economy.
Tax policy, including the fight against tax fraud, has become a hot topic over the past decade due to journalistic investigations such as LuxLeaks, the Panama Papers, Football Leaks, Bahamas Leaks and the Paradise Papers, which revealed tax leaks and tax havens. They led to increasing unhappiness about damaging tax practices, particularly after the recession and the resulting budget constraints. Unpaid taxes result in smaller budgets both nationally and at EU level.
Tax policy has remained EU countries' own responsibility since the EU’s beginning, but the fight against tax fraud is shared by EU countries and the EU.
Taxation a priority for the European Parliament
Since September 2020, the Parliament has had a permanent sub-committee on tax matters. The committee was established to assist the economic and monetary affairs committee with taxation issues and deals with the fight against tax fraud, tax evasion and tax avoidance, as well as financial transparency in taxation.
During the 2014-19 parliamentary term, Parliament set up temporary special committees, including a special committee on financial crimes, tax evasion and tax avoidance and an inquiry committee Inquiry to investigate alleged contraventions and maladministration in the application of EU law in relation to money laundering, tax avoidance and tax evasion. These committees identified a number of flaws in tax provisions.
EU tax measures
Some of the main legislative proposals in recent years regarding tax relate to the exchange of information through the Directive on Administrative Cooperation, which has been amended many times to provide:
- Automatic exchange of information relating to financial accounts where a taxpayer is active in another country than the country of residence
- Exchange of tax rulings between member states to disclose to other EU countries and the European Commission, for example “tax planning schemes” offered to specific companies
- Country-by-country information provided by large multinational enterprises and shared between EU countries to prevent multinationals that are active in different countries from engaging in aggressive tax-planning practices not available for domestic companies
- Money laundering information
Other proposals relate to corporate taxation and tax avoidance for example:
- The common consolidated corporate tax base (CCCTB), which addresses the tax obstacles that arise from different national tax systems for companies that operate in the internal market in order to avoid the risks of double taxation or aggressive tax planning
- Corporate taxation of a significant digital presence to allow members states to tax profits made in their territory, even if a company is not physically present there
- A common system for a digital services tax, a tax on revenues stemming from for example the transmission of data collected about users on digital interfaces
In addition, there have been many proposals to update the VAT framework. The tax matters subcommittee is currently working on a report on how to create a new basis for taxing the profits of digital companies in countries where they operate, even when they do not have a physical presence.
The report will set out Parliament’s views ahead of the final global negotiations at the OECD, which are expected to be finalised by mid-2021. By June at the latest, the Commission is also expected to put forward a proposal on a digital levy as part of reforming the EU's system of own resources and financing the economic recovery after the Covid-19 pandemic.
About the infographics
Our infographic at the top shows the income from direct and indirect taxes for each EU country as well as total tax revenue as a percentage of the gross domestic product. The latter is divided between taxes on capital, consumption and labour. In addition, our map shows how wealthy countries are.
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Commission launches new learning portal for tax and customs professionals across the EU
The European Commission has launched a new EU learning portal offering tax and customs professionals across the EU an opportunity to build, upscale or share their knowledge on important topics in the field. Capitalising on the advantages of online learning, it aims to build common expertise and improve the skills of customs and tax professionals working in national administrations and authorities, businesses, academia and researchers in the field of tax and customs, with some specific content for staff of public administrations.
The new portal includes a combination of different learning formats – from self-paced learning and development to interactive exchanges of best practices - and should help to modernize customs and tax competencies in the EU by providing a new way for people working in the field to share experiences and knowledge. It can also help professionals to build common skillsets to address shared challenges, such as fraud, tax avoidance and digitalisation. Tax and customs play a vital role in our societies and in the functioning of the EU's Single Market by ensuring efficient revenue collection, contributing to the prosperity of businesses, supporting the safety and security of citizens, and by facilitating legitimate trade. Customs and tax professionals and their administrations and enterprises must be able to respond to and anticipate change to remain effective in a constantly evolving social, political and economic global context. More details and the new learning portal can be found here.
'Let's strike a deal on digital tax with the US now' says EPP
"We have to get the United States on board and strike an international tax deal with them as soon as possible. It is important, however, that the US Administration accepts that a common system is needed, where big US companies cannot opt out of whatever has been agreed internationally," said Andreas Schwab MEP, EPP Group negotiator on digital taxation, ahead of the adoption of the recommendations on digital taxation by the European Parliament’s Economic and Monetary Affairs Committee.
The United States has recently indicated that it is willing to drop the so-called ‘safe harbour’ rules, which - according to tax experts - would allow big US tech companies like Amazon, Alphabet’s Google and Facebook to opt-out. "The good news is, of course, that the US recently confirmed that we are again united across the Atlantic. We will fight for a solution at G20/OECD level, but if it doesn't seem possible to get a global solution, the EU should make a move on its own digital tax now. We need a minimum EU taxation without special national tax arrangements for digital companies that will profit from harmonised and fair digital taxation," Schwab added.
The EPP Group spokesman on Economic Affairs, Markus Ferber MEP, underlined that the European Parliament is ready to transpose an international solution as soon as possible into EU law. “The effective taxation of the digital economy is not only a question of fairness, but also a litmus test for multilateralism. A credible international solution is vastly superior to Europe going it alone. I call on the European Commission and member states to focus all their energy on finding an international solution to taxing the digital economy”, Ferber stated.
Gaps in the exchange of tax data in the EU may encourage tax avoidance and evasion
There is still insufficient sharing of tax information between EU member states to ensure fair and effective taxation throughout the Single Market, according to a new special report published on 26 January by the European Court of Auditors (ECA). The problems are not only with the EU’s legislative framework, but also with its implementation and monitoring. In particular, the auditors found that, often, the information exchanged is of limited quality or underused.
The ever growing number of cross-border transactions makes it difficult for member states to assess taxes due properly, and encourages tax avoidance and evasion. Revenues lost to corporate tax avoidance alone are estimated at between €50 billion and €70bn yearly in the EU, reaching some €190bn if special tax arrangements and tax collection inefficiencies are included.
Co-operation between member states is therefore essential to make sure taxes are collected in full and where they are due. “Tax fairness is crucial to the EU economy: it increases certainty for taxpayers, enhances investment and stimulates competition and innovation,” said Ildikó Gáll-Pelcz, the member of the European Court of Auditors responsible for the report. “Initiatives in recent years have given administrations unparalleled access to tax data. Yet, the information exchanged still needs to be used much more for the system to reach its full potential.”
The legislative framework the European Commission has established for the exchange of tax information is transparent and logical. But it suffers from several gaps, warn the auditors. Firstly, it remains incomplete with regard to stemming tax avoidance and evasion. Cryptocurrencies, but also other forms of income, for instance, are not subject to mandatory reporting, thus remaining largely untaxed. Secondly, the support provided to member states does not go far enough.
In particular, the Commission barely addresses the issue of poor data quality and does not assess how effective and deterrent the sanctions for non-compliance are. Finally, the Commission should provide more guidance to help member states, especially in the field of data analysis and use.
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