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#TaxCrimes - Special committee calls for European financial police force

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tax evasion, corruption concept. ©AP Images/European Union-EPEuropean Parliament's special committee on tax crimes wants a global tax body to be established within the UN ©AP Images/European Union-EP

Parliament’s special tax committee on Wednesday (27 February) adopted a detailed road map towards fairer and more effective taxation, and tackling financial crimes.

The recommendations adopted by the Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) range from overhauling the system for dealing with financial crimes, tax evasion and tax avoidance, notably by thoroughly improving cooperation in all areas between the multitude of authorities involved, to setting up new bodies at the EU and global level.

The numerous findings and recommendations include:

  • Commission to immediately work on a proposal for a European financial police force;
  • an EU anti-money laundering watchdog should be set up;
  • a global tax body should be established within the UN;
  • great concern about member states’ general lack of political will in Council to tackle tax evasion/avoidance and financial crime;
  • seven EU countries (Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and The Netherlands) display traits of a tax haven and facilitate aggressive tax planning;
  • golden visas and passports are problematic and should be phased out;
  • the cum-ex fraud scheme clearly shows that the complexity of tax systems results in legal loopholes and that multilateral, not bilateral, tax treaties are the way forward;
  • countermeasures should be envisaged against the US if it does not ensure FATCA’s reciprocity;
  • the Council should properly assess the situation in Switzerland in order to ensure that no harmful tax regimes are introduced;
  • ‘tax good governance’ clauses should be systematically included in new EU agreements with non-EU countries;
  • whistleblowers and investigative journalists must be much better protected and the US reward system for whistleblowers could be replicated in the EU, and;
  • Malta and Slovakia must do everything they can to identify the instigators behind the murders of two investigative journalists.

The report was adopted with 34 votes to four with three abstentions. It will now be passed on to the plenary for approval during the second session of March (25 - 28) in Strasbourg (TBC).

The chair of the committee Petr Ježek (ALDE, CZ) said: “The considerable amount of work achieved by this committee over its twelve-month mandate has shed light on unprecedented issues affecting the banking and financial sectors. The investigations and hearings have helped us draft stronger recommendations, notably on the need to enforce EU AML/CFT legislation better, stricter banking supervision, and enhanced information exchange among FIUs and tax authorities. It is now crucial to maintain pressure for the implementation of our recommendations to the governments and the relevant actors.”

The co-rapporteur Luděk Niedermayer (EPP, CZ) said: “Recent money laundering cases have shown that we urgently need existing AML rules to be better enforced, dissuasive sanctions and a push for improved cooperation and coordination of relevant authorities within and between Member States as well as an active partnership with the private sector. The Committee calls on the EU to lead the global debate on finding a solution to taxing the digitalized economy and ensuring efficient, transparent and fair tax regimes, while maintaining fair and transparent tax competition.”

The co-rapporteur Jeppe Kofod (S&D, DK) said: “Europe has a serious money laundering and tax fraud problem. We have the world’s largest, richest and most integrated single market with free movement of capital, but little to no effective cross-border supervision and 28 differing national anti-money laundering and anti-tax fraud provisions. This creates a string of loopholes, which are far too easy for criminals to abuse to launder vast amounts of money as in the Danske Bank-scandal, or design highly profitable tax theft schemes like CumEx. We need tougher EU-level regulation, harsh sanctions on banks facilitating financial crimes, and a new European financial police within Europol.”

Background

Following continued revelations over the last five years (Luxleaks, the Panama Papers, Football leaks and the Paradise papers), the European Parliament decided to establish a Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3), on 1 March 2018.

The report adopted today concludes the committee’s year-long mandate, which saw it hold 18 hearings dealing with particular topics of interest, 10 exchange of views with finance ministers and European Commissioners, and four fact-finding missions – to the US, the Isle of Man, Denmark and Estonia, and Latvia.

Corporate tax rules

Gaps in the exchange of tax data in the EU may encourage tax avoidance and evasion

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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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Corporate tax rules

European Commission will appeal European court judgement in favour of #Apple

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The European Commission will appeal the European Court of Justice judgment which annulled their decision of August 2016 on Apple’s receipt of what they consider to be illegal state aid granted by Ireland in the form of selective tax breaks. 

The case turns on the critical question of the EU’s competency in tax matters that are usually jealously guarded by member states. The European Commission considers that in its judgment the General Court has made a number of errors of law.

The Commission reiterates that this is not a question of determining an EU countries tax policy, it is principally a question of selective advantage: “If member states give certain multinational companies tax advantages not available to their rivals, this harms fair competition in the European Union in breach of state aid rules.”

The Commission says that they have to use all tools at their disposal to ensure companies pay their fair share of tax. In her statement, Commissioner and now Executive Vice President Margrethe Vestager (pictured) makes a clear link between the Apple case and fair taxation in general, stating that the unfair system deprives national treasuries of revenue: “The public purse and citizens are deprived of funds for much-needed investments – the need for which is even more acute now to support Europe's economic recovery.”

Fair taxation

Vestager also says that the EU needs to continue its efforts to put in place the right legislation to address loopholes and ensure transparency, and touches on the wider issue of a level-playing field for businesses: “There's more work ahead – including to make sure that all businesses, including digital ones, pay their fair share of tax where it is rightfully due.”

Ireland contends that no state aid was granted to Apple

Ireland’s Minister for Finance and Chair of the Eurogroup, Paschal Donohoe noted the Commission statement and said: “Ireland has always contended, that no State aid was given and that the Irish branches of the relevant Apple companies paid the full amount of tax due in accordance with the law. An appeal to the CJEU must be on a point, or points, of law.”

“Ireland has always been clear that the correct amount of Irish tax was paid and that Ireland provided no state aid to Apple. Ireland appealed the Commission Decision on that basis and the judgement from the General Court of the European Union vindicates this stance.”

Donohoe estimates that the appeal process could take up to two years to complete. In the meantime funds in Escrow will only be released when there has been a final determination in the European Courts on the validity of the Commission’s Decision.

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#TaxJustice - Paul Tang elected as chairperson of the new subcommittee on tax matters

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Paul Tang was elected by acclamation on Wednesday (23 September) to be the chairman of Parliament’s newly created subcommittee on tax matters (FISC).

Tang (S&D, NL) was elected at the opening of the subcommittee’s constitutive meeting on Wednesday morning.

After his election, Tang said: ‘‘The European Parliament’s efforts in fighting for tax justice have today reached the next level with the launch of the new subcommittee on tax matters. I am proud to have been elected as its first Chairperson and will do my utmost to put tax justice at the top of the House’s agenda.

“Each year an estimated EUR 1 trillion in tax revenue is lost to tax dodging. This incomprehensible sum of money is unjustly diverted away from essential investments in education, healthcare, critical infrastructure, law and order, and so many other areas crucial for a society to thrive. Especially in the context of the covid19-crisis, these foregone revenues are no longer acceptable. Moreover, tax competition and tax evasion have led to a growing gap between the world’s wealthiest and the rest. And history shows us that when inequalities spiral out of control, resentment and social instability follow.

“We need to end current levels of tax dodging to shape society according to the wishes of our citizens and regain public trust in our democracies. That includes actively opposing tax havens within the European Union. We also need to make taxation a force for the transition towards a sustainable European economy. By making polluters pay for the damage they do to our society, we can pave the way for the European Green Deal to become a reality.

“The subcommittee will provide a permanent forum within which to address the complex topic of taxation. We will shed light on the practices that cannot bear the light of day, put pressure on those not implementing agreed legislation and push for a fair and sustainable European tax system.

“We can change the status quo. It will be a tough fight to ensure that huge corporations and high-fortune individuals contribute more fairly to the society and systems they themselves ultimately depend on. But it is a fight the subcommittee is ready to take on.’’

The subcommittee’s MEPs also elected the four Vice-Chairs who, together with Paul Tang, will form the subcommittee’s Bureau. These are:

- First Vice Chairman: Markus Ferber (EPP, DE)

- Second Vice Chairman: Martin Hlavacek (Renew, CZ)

- Third Vice Chairwoman: Kira Marie Peter-Hansen(Greens, DK)

- Fourth Vice Chairman: Othmar Karas(EPP, AT)

The first regular meeting of the subcommittee will be today (24 September) (from 10h15 to 11h15) during which MEPs will quiz Commissioner Paolo Gentiloni, who is responsible for taxation.

You can follow all news related to the subcommittee by signing up to its Twitter account, @EP_Taxation.

Background

Paul Tang started advocating for tax reforms as member of the Dutch parliament starting in 2007, and throughout the financial crisis.

Upon his election to the European Parliament in 2014, he continued his focus on tax justice. He was rapporteur on the Digital Services Tax and the Common Corporate Tax Base for which he toured Member State capitals to discuss necessary tax reforms. In 2019 Paul Tang was the driving force behind the European Parliament's designation of Cyprus, Ireland, Luxembourg, Malta and the Netherlands as corporate tax havens as part of the EP's special committee's (TAX3) report.

The subcommittee on tax matters was given the green light by the plenary in June. It will be composed of 30 members and its mandate instructs it to deal primarily with the fight against tax fraud, tax evasion and tax avoidance, as well as financial transparency for taxation purposes.  Before the establishment of the subcommittee, the EP had a number of special committees looking into specific aspects of tax evasion and avoidance, moneylaundering, and other financial crimes.

There are currently two other subcommittees, that of Human Rights and that of Security and Defence, both under the EP’s Foreign Affairs Committee.

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