The volume of tax evasion and tax avoidance by companies is enormous in the world and in the European Union. Moreover, according to almost all experts in the field, including those of the international institutions dealing with the subject (IMF, OECD, G20) the problem is increasing. According to the IMF, tax evasion costs governments some USD 3 trillion a year. The European Parliament estimates that in the EU it is as high as EUR 825 billion per year.
The campaign of ÖGB and AK aims at the following objectives: a minimum effective corporate tax rate on a global scale; common guidelines stated by the OECD for determining minimum tax rates; and the implementation of the "Public Country by Country Reporting" so corporate taxation becomes transparent. This is a fundamental campaign, which is being conducted at the right time and should be extended to other countries.
It is in line with the main policy proposal of the EESC opinion ECO/510: a European social and political pact to effectively combat tax fraud, evasion and avoidance and money laundering. This pact should involve the European institutions, national governments but also the social partners and civil society organisations. On tax avoidance, opinion ECO/510 states: "Tax avoidance does not always involve a violation of the letter of the law, but it certainly does of the spirit. Tax havens receive around USD 600 billion a year due to corporate tax avoidance. The EU loses between EUR 160 and 190 billion per year. Tax avoidance through six Member States results in tax revenue losses of EUR 42.8 billion for the other twenty-two.”
The practice of tax avoidance is often linked to crimes such as tax evasion and money laundering. Despite the commitment of the European Commission (EC) and the European Parliament (EP) to combat tax crime and tax avoidance, as shown by the numerous directives promoted (many of them in force) and the parliamentary resolutions and initiatives adopted, the results of the fight against such crimes and malpractices are very small. Europol estimates that the percentage of "illegal assets recovered" as a result of administrative, police and judicial action is only 1.1% of the total. Moreover, tax avoidance in the EU is facilitated, if not encouraged, by the unfair tax competition, or tax dumping, practised by some Member States. These bad political practices, which should be unacceptable in the EU, are made possible by the lack of tax harmonisation in the Union, which in turn is helped by the fact that decisions on taxation must be taken in the European Council by unanimity of the Member States.
The involvement of some Member States in tax avoidance practices was set out in two emblematic articles published in the IMF magazine, Finance and Development: 40% of Foreign Direct Investment (FDI) goes to ghost companies, that is to say companies with no economic activity whatsoever. In 2019, this percentage amounted to USD 15 billion. Of this amount, 85% goes to 13 countries or jurisdictions. Six of them are EU members: Luxembourg, the Netherlands, Ireland, Malta and Cyprus. Three are UK dependent jurisdictions: Virgin Islands, Cayman Islands and Bermuda (the other four are: Mauritius, Hong Kong SAR, Singapore and Switzerland). It is striking that 7.5 billion - 50% of the total - is transferred to shell companies based in just two countries: Luxembourg and the Netherlands.
The lack of tax harmonisation between EU Member States in corporate taxation, which underpins the tax avoidance practices of large multinational companies, affects both the common definition of the tax base and the nominal and effective minimum tax rate. This situation has been aggravated by the growing impact on production and distribution processes in the digital economy.
The EC has been incorporating some of the measures that the OECD, at the request of the G20, has recommended through the FATF against tax avoidance: BEPS, sometimes going a little further. And it is waiting to see if there can be a general consensus on those relating to the taxation of companies in the digital economy. In 2016 the EC proposed two key directives to combat tax avoidance: on the corporate tax base (CCTB) and the relaunch of the common consolidated corporate tax base (CCCTB) (after 4 years stalled in the Council). Then, in 2018, the EC presented two other proposals for directives: one relating to the taxation of companies with a significant digital presence and another on a tax on the revenues of large digital companies. All four proposals for directives are blocked in the Council by Member States that promote tax dumping. This is one of the reasons why, in 2019, the EC proposed that tax decisions be taken by qualified majority instead of unanimously as is the case today. It goes without saying that the previous proposal runs the risk of being equally blocked by the same political actors who are blocking the other four.
EC activism against tax crime and tax avoidance has seen two new initiatives in 2020: the new package against money laundering and financing of terrorism (May 2020, the sixth with this content) and the July 2020 package against tax fraud, good tax governance and for fair and simple taxation. The Commission's initiatives are joined by those of the European Parliament. Among the latest and most prominent: the EP resolution of 26 March 2019 on financial crimes, tax evasion and tax avoidance and the very recent recreation of the Special Committee on Tax Matters.
The financial flows of tax and economic crimes and those of tax avoidance converge in tax havens, whether final or intermediate. Some are promoted by large companies with the consent of certain States. Others are promoted by criminal economy organisations (drug, arms, human, animal and other trafficking mafias and promoters of other crimes), by those parts of politicians, financiers, businessmen and large fortunes who practice economic and fiscal corruption. In all circumstances and at all times it is necessary to make every political, administrative, judicial and police effort to put an end to this situation, which is unacceptable from any democratic, political and moral point of view and radically incompatible with the values and principles of the EU and the rule of law. But in the tragic times we are living through, with the extremely serious consequences of the Covid-19 pandemic falling on our economies and our societies, on European and world citizenship, when States need many more resources to combat the pandemic and its consequences, the commitment must be even greater and the priority to combat economic and fiscal crime and tax evasion must become absolute.
Text by EESC Member Javier Doz Orrit