EU Lawmakers Label Trump Tax Plan a ‘Race to the Bottom’

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By Joe Kirwin

U.S. President Donald Trump’s plans to slash corporate taxes by more than half will accelerate a “race to the bottom” and undermine global efforts to combat corporate tax evasion by multinationals, according to a second political group in the European Parliament.

The Socialists and Democrats, made up of 190 European Parliament lawmakers, insisted the Trump tax reform, announced April 26, threatens the current work in the Organization for Economic Cooperation and Development and the Group of Twenty to establish a fair and efficient tax system that puts an end to base erosion and profit shifting by companies.

“Lowering the corporate tax rate to 15 percent and moving toward a territorial taxation system would encourage a race-to-the-bottom in corporate tax rates and thereby largely favor the big multinational enterprises by imposing unsustainable competitive disadvantages on the rest of the international business sector,” the Socialist and Democrat political group said in a statement.

“The announced proposal risks to undermine the ongoing reform efforts, in which the EU plays a leading role,” the EU lawmakers said.

Answer in CCCTB

Paul Tang—who heads the Group of the Progressive Alliance of Socialists and Democrats and leads the European Parliament negotiations on the pending EU Common Corporate Tax Base (CCTB) proposal—accused the Trump administration of pursuing a “beggar-they-neighbor policy similar to those in the 1930s.” He added that it could trigger a “competitive devaluation of exchange rates.”

The Dutch parliamentarian said the EU’s answer to the “shameful” Trump administration proposal should be approval of the pending CCTB-CCCTB proposal.

The European Commission proposed in October 2016 a plan to revive the EU’s hopes on a common consolidated corporate tax base when it called for a two-step approach that would begin with an agreement on a CCTB before moving onto a law that would allow for cross-border consolidation of profits.

“The CCCTB is the opportunity to level the playing field between large corporates and the small firms, but is also an opportunity to set global standards right,” Tang said.

EC Diplomacy

The European Commission was more measured in its response. “As a very influential economic power, the U.S. must play a central role in the fight against tax avoidance, just as the EU is doing,” it told Bloomberg BNA April 27 in an emailed statement. “The U.S. supported the international work at the OECD and G-20 to increase tax transparency and tackle base erosion and profit shifting (BEPS) and we trust that it will remain fully committed to this agenda.”

Sven Giegold, a European Green Party member and leading tax expert in the European Parliament, told Bloomberg BNA in a April 27 telephone interview that the Trump tax plan further cemented the U.S. as a tax haven. He added the German government must put the issue on the agenda during its current term as holder of the G-20 presidency.

Missing Border Tax

Giegold also lamented the failure by the Trump administration to include a border tax in the reform plan because he said the levy had the potential, if properly implemented, to resolve conflicts between the EU’s value-added tax scheme and the U.S. sales tax system as well as other international tax disputes.

“Unilaterally introduced, the border tax would have a protectionist effect because imports would be significantly more expensive,” Giegold said. “However this form of tax would have a major impact and would therefore probably be copied internationally.”

Concerning the Trump administration’s tax reform plan to allow multinational companies to repatriate trillions of dollars of profit held outside the U.S. in order to avoid a corporate tax rate of 35 percent, Giegold said this “creates a tax avoidance general amnesty with a one-off tax on gains collected in tax havens.

“And thus this creates additional incentives for aggressive tax planning,” Giegold said.

The European Green Party insists the U.S. has become an international tax haven because, among other things, it has not committed to implement the OECD Common Reporting Standard and various U.S. states, including Delaware, Nevada and South Dakota, have laws that allow companies to hide beneficial owners.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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