ActionAid

ActionAid submission to the European Commission consultation on the functioning of the administrative cooperation in the field of direct taxation 4 March 2019 Administrative cooperation between EU member states in the field of taxation is essential in order to improve tax collection and to ensure better coherence across different tax systems. The Directive clearly contributes to this, and its amendments are welcome expansions of the system on exchange of information. However, the Directive as it currently stands does not provide satisfactory tools to meet two of its key objectives, referred to in the first question, namely on increasing transparency in the tax planning of companies, and on reducing incentives for tax competition between EU Member States.

…transparency in the tax planning of companies, and on reducing incentives for tax competition between EU Member States. Both these objectives are priorities for civil society in Europe and in developing countries, and better tools and solutions need to be developed and adopted by the EU in order to achieve them. On transparency, while DAC4 significantly introduced automatic exchange of information on country-by- country reports, covering revenues, profits, taxes paid and accrued, accumulated earnings, number of employees and certain assets, by keeping the information limited to relevant tax authorities the EU missed the important chance to contribute to real transparency for EU citizens and for developing countries.

…the EU missed the important chance to contribute to real transparency for EU citizens and for developing countries. Public country-by-country reporting, with detailed financial information for all countries in which companies operate, is essential if the EU wants to increase transparency in companies’ tax planning globally and meet its commitment to policy coherence for development, as it is a known fact that tax authorities in developing countries do not have access to the same level of information as tax authorities in the EU do. In fact, there is new research with evidence that existing networks of exchange of information simply do not reach most developing countries.

…research with evidence that existing networks of exchange of information simply do not reach most developing countries. Moreover, civil society plays a key role, both in Europe as well as globally, when it comes to scrutiny of companies’ tax planning arrangements, yet the DAC fails to ensure that they too have access to country- by-country reports. This means that, as it stands, the DAC does not fulfil the objective of increasing transparency in the tax planning of companies, and particularly fails to do so on a global level. On tax competition, while the exchange of information on tax rulings and advance price agreements can be expected to somewhat reduce incentives for MS to offer favourable tax conditions not available to other payers, the DAC is limited to cross-border transactions and so does not capture other tax rulings that may benefit companies as a whole.

…limited to cross-border transactions and so does not capture other tax rulings that may benefit companies as a whole. In addition, as with the country-by-country reports, the fact that the data is not publicly available in itself is a limitation to the potential effects of the DAC in reaching its objectives. Speaking more broadly about the issue of harmful tax competition, the DAC does not provide appropriate tools to address the problems related to transfer pricing and to curb opportunities that MS have to offer other types of harmful incentives such as patent boxes. While we do not expect that such rules against tax competition could be introduced via DAC, we strongly believe that other legislative initiative(s) are needed.

…tax competition could be introduced via DAC, we strongly believe that other legislative initiative(s) are needed. More coordination between EU MS needs to take place in this area, and we believe the best way to stop harmful tax competition would be the introduction of unitary taxation, through the adoption of the CCCTB proposal, accompanied by a minimum effective tax rate. Ref. Ares(2019)6268011 - 10/10/2019

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