EU Moves to Stop Corporate Tax Avoidance

Finance ministers call for minimum EU tax rate

Finance ministers from the eurozone’s biggest economies voiced support in a special Parliament hearing on Tuesday night for a minimum tax rate across the bloc.

Speaking in front of a Parliament committee on corporate tax evasion, formed in response to the so-called Luxleaks revelations, finance ministers from Germany, France, Italy and Spain said better cooperation between national tax authorities along with a minimum tax rate, would help combat aggressive tax planning by multinational corporations.

“There have to be certain minimum rates of taxation,” German Finance Minister Wolfgang Schäuble told the committee.

The Organization for Economic Cooperation and Development has zeroed in on corporate tax evasion, what it calls Base Erosion and Profit Shifting, as an important issue for the EU to address. The discrepancy between different member state’s tax codes has allowed some corporations to dodge paying taxes in the bloc, according to an OECD report released in 2013.

Companies like HSBC, Heinz, Disney and Ikea all benefited from the special deals in Luxembourg that minimized the tax they paid in the EU, while European Commission President Jean-Claude Juncker was the country’s finance minister and premier. Juncker appeared before the committee last week and denied having any role in Luxembourg’s sweetheart deals and corporation-friendly tax loopholes.

“We have to ensure that any type of profit is taxed at least once within the European Union,” Michel Sapin, France’s finance minister, told the group.

One member of the committee raised the idea of a European tax authority to the ministers, an idea that didn’t gain much traction. “I’m very pro-European, but I think there are other steps we have to take in the short term,” said Luis de Guindos, the Spanish finance minister, who pushed the view that member states in the eurozone should simply cooperate better.

“Some time you try to do too much to improve a situation that is working okay. I think it’s important for us to … really push the automatic exchange of information.”

The Commission in June proposed new corporate tax rules it said would make it tougher for multinational companies to take advantage of legal loopholes. Among them was an automatic exchange of information between member states regarding special tax rulings like the ones in Luxembourg.

De Guindos said Spain has stepped up its ability to compare notes on tax filings with its neighbors in the EU. Germany and the Netherlands passed an agreement in July to increase spontaneous exchanges of tax information in order to target tax avoidance.

Pierre Gramegna, the finance minister from Luxembourg, answered questions from the committee at the start of the session because his country holds the rotating presidency of the EU — “A strange coincidence of history,” the committee’s chairman Alain Lamassoure said about the timing — and not because his country’s tax rates were the catalyst for the hearings. The Luxleaks scandal revealed 500 private tax arrangements between Luxembourg and multinational corporations between 2002 and 2010

“Luxembourg has undergone major changes in the last 20 months,” Gramegna assured the committee, which holds its next scheduled meeting in mid-October. “We have done lots of reforms, we have changed our laws on the exchange of information on-demand where we were not compliant… We have abolished bank secrecy, and I would like to underline that I take this subject extremely seriously.”

“You should not look at the past to judge the present,” Gramegna said.