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The week of 6th of November 2017 saw a new global tax scandal revealed by the International Consortium of Journalists (ICIJ). The work of the consortium in partnership with national editors revealed that some 350 billion euros are lost to States annually On the European level this comes be 120 billion euros per year.
The revealed mechanisms are sometimes illegal but most of the time flirt with the limits of legality. Moreover, it is an axe of defence of the individuals and multinationals involved: “It’s legal”. Two answers. As Eva Joly, MEP, points out, if these arrangements are legal, then there is a problem and therefore the legislation must be amended[1]. Tax avoidance, if made legal, cannot be justified at a time when Europeans have been put to the test in order to reduce the deficits and the debt of the States. Also, why argue that the montages are legal when the main interest of offshore is to hide names behind complex fixtures? To avoid being subjected to the popular opinion? AEDH asks the question and wonders what reasons push the ultra-rich and multinationals to hide in tax havens.
But the Paradise Papers emphasize above all that the laws are no longer suitable for a time when the economy is globalized and where it has become easy for the richest to avoid the payment of the tax which is a cornerstone of our model of civilization[2]. What’s more, they show that Europe is not outdone regarding tax optimization. Let’s do a brief tour of the continent.
In the Netherlands in 2015, Nike was able to save € 850 million thanks to sophisticated editing[3]. Whirlpool has created a system of subsidiaries without offices or employees to avoid tax. And in Europe, for tax optimization, the firm that relocates because of “competitiveness problem” sets up this process in Luxembourg[4]. Apple has avoided taxes thanks to the Irish tax system, which has since been reformed by new legislation but will come into force in… 2020, enough time for Apple to find a new base in the person of Jersey[5]. Moreover, territories with close ties to the British crown are not outdone The Isle of Man, a British dependency, allows private jet buyers to avoid paying 20% VAT on the purchase while still being able to grant flight authorizations for the European Union[6]. This should encourage Brexit negotiators to address these tax avoidance issues: while many UK dependencies are affected by these leaks, the agreement with the UK about its leaving of the EU cannot permit a tax heaven for European firms remains at the very door of the European Union. Anklet’s not forget Malta and Cyprus, which allow the waiving of the payment of VAT with no difficulty.
The Commission has taken the initiative of relaunching and speeding up the debate on the adoption of a blacklist of countries considered as tax havens. AEDH supports the process of establishing a more extensive list than that of the OECD which contains only one country and which consequently and obviously does not represent the reality of the offshore world the Paradise Papers reveals.
While this list is a step forward in the fight against tax avoidance, there is still a long way to go at the European level to put an end to these phenomena.
The AEDH calls on the states to follow the recommendations of the reports drawn up by the European Parliament’s TAXE 1[7], TAXE 2[8] and Panama Papers[9] which propose the creation of the Common Consolidated Corporate Tax Base (CCCTB)[10] at the European level as well as a new definition of permanent establishment that would no longer consider subsidiaries as separate institutions and also take digital issues into account[11]. AEDH reminds that the Union and the States cannot have legislations, definitions and concepts that are not adapted to the globalized system and the digital world that is developing every day.
One of the most important steps for the Union will be to break the unanimity lock in the Council, which prevents the tax reforms, whose adoption Luxembourg, the Netherlands, Ireland, Cyprus and Malta systematically oppose. AEDH recalls that Article 116 of the Treaty on the Functioning of the European Union makes it possible to break the lock of unanimity on these issues and consequently to set up the proposals of the reports TAXE 1, TAXE 2 and Panama Papers, soon to be voted. The article states that ’in the event that the Commission finds that a disparity between the laws, regulations and administrative provisions of the Member States distorts the conditions of competition on the internal market and, as a result, distorts which must be eliminated, it enters into consultation with the Member States concerned. If this consultation does not lead to an agreement eliminating the distortion in question, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall adopt the necessary directives to this end. Any other useful measures provided for in the Treaties may be adopted.”
The use of this article would also allow the European Union to show that in addition to establishing a blacklist, it solves the problems of tax avoidance within the EU.
The Union must be consistent in its action and cannot call on Europeans to make ever greater efforts even though tax justice, and therefore social justice, does not exist. As the economist Gabriel Zucman recalls, “tax evasion is not only unfair, but it also increases inequality”[12]. While the practices highlighted by the Paradise Papers are legal, they are contrary to any public morality. In reality, it is our civilizational model that is challenged by practices that allow the richest to avoid payment of taxes and the middle and popular classes to pay their share and cover the unpaid arrears of the richest.
AEDH calls on the European Union to take steps to put an end to the tax avoidance that exists and which each year constitutes an organized hold-up of the educational, health and social systems of the Member States of the European Union. It is no longer tolerable for wealthy individuals and multinationals to benefit from the attractiveness of the world’s largest market, its advantages, its services, its specialists and its labour force without paying a logical and necessary counterpart for the proper functioning of this market, of these services and training systems which make it possible to obtain a highly qualified workforce and, in a general way, States that allow these large, multinational companies to prosper in Europe.
[1] Interview of Eva Joly made by AEDH available on: http://www.aedh.eu/IMG/pdf/interview_Eva_Joly_EN_V1.pdf
[2] Ibidem
[3] POUCHARD, Alexandre, « ‘Paradise Papers ’: Apple, Nike, Whirlpool … Leurs trucs et astuces pour échapper à l’impôt », Le Monde, 7th November 2017, disponible sur : http://www.lemonde.fr/paradise-papers/article/2017/11/07/apple-nike-whirlpool-les-trucs-et-astuces-des-multinationales-pour-echapper-a-l-impot_5211398_5209585.html
[4] Ibidem
[5] Ibidem
[6] Le Monde, « ‘Paradise Papers ’: L’île de Man, Paradis des jets privés exemptés de TVA », 7 November 2017.
[7]Report TAXE 1: http://www.europarl.europa.eu/sides/getDoc.do ?pubRef=-//EP//NONSGML+TA+P7-TA-2013-0205+0+DOC+PDF+V0//EN
[8] Report TAXE 2: Rapport Taxe 2 disponible sur: http://www.europarl.europa.eu/sides/getDoc.do ?pubRef=-//EP//NONSGML+TA+P8-TA-2016-0310+0+DOC+PDF+V0//EN
[9] The Panama Papers’ report will be voted in the European Parliament
[10] The Common Consolidated Corporate Tax Base (CCCTB) is a unique set of rules for determining the taxable income of a company within the EU. With the CCCTB, companies operating cross-border will have to comply with a single European system to determine their taxable income, rather than the different national regimes in which the activity is carried out. Groups subject to the CCCTB would have the opportunity to complete only one consolidated tax return for all their activities within the EU. The consolidated taxable income of the group would be allocated to each of its constituent companies by application of a simple formula. This will allow each Member State to subject the profits of resident companies of that State to its own rate.
[11] Interview of Eva Joly made by AEDH available on: http://www.aedh.eu/IMG/pdf/interview_Eva_Joly_EN_V1.pdf
[12] ZUCMAN, Gabriel, « l’évasion fiscale est non seulement injuste, mais elle augmente aussi les inégalités », Le Monde, 7th November 2017.
