NEWS

By Joe Kirwin

July 6 — European Union nations were well aware that Luxembourg and other countries provided favorable tax rulings during the past decade but opted not to confront them in the interest of protecting their own harmful tax breaks for multinational companies.

A report from EU Parliament TAXE Committee members probing a special tax breaks from Luxembourg found that some EU member countries engaged in “systematic obstruction” of the panel in its efforts to uncover the details behind the “LuxLeaks” scandal.

“Documents we have finally been able to review in recent months show that member states were aware that general tax rulings were being offered to multinational companies such as in Luxembourg, and there was a decision not to challenge them,” said TAXE Committee Chairman Alain Lamassoure, a French member of Parliament from the center-right European People Party political group, at a July 6 news conference.

The International Consortium of Investigative Journalists, a group that includes reporters and editors from more than 80 countries, in 2014 revealed more than 28,000 pages of leaked documents that showed international corporations effectively lowered their tax bills to less than 1 percent of profit in Luxembourg through the arrangements (170 TMIN, 12/23/14).

The report also came as the European Parliament General Assembly overwhelmingly approved a TAXE Committee report calling for comprehensive EU tax changes, including a new EU common tax base, public country-by-country tax and profit reporting and a code of conduct for banks and tax advisers.

Code of Conduct Group Documents

Lamassoure, a former French finance minister, also said conclusions drawn by him as well as fellow parliamentarians Michael Theurer and Jeppe Kofod—both co-authors of the TAXE Committee LuxLeaks report—were based on documents from the EU Code of Conduct Group for Business Taxation comprised of finance ministers from the 28 EU member countries as well as the European Commission.

“After nearly a year of stonewalling or providing access on terms that it made it difficult to do our work, we were finally able to review documents that it made it clear that tax rulings were accepted as the national prerogative of governments even if they amounted to harmful tax competition or tax dumping,” Theurer, a German parliamentarian from the centrist Liberal Democrat political group, said at the news conference.

LuxLeaks Probe Not Finished

All three parliament members made it clear the LuxLeaks probe isn't finished even if the mandate of the TAXE Committee will expire in August. They said the work will be pursued as part of new European Parliament Panama Paper inquiry committee due to begin its work in the coming months and that will extend for a year. The European Parliament TAXE Committee was launched in the beginning of 2015 and its mission was extended after six months at the end of 2015 (121 TMIN, 6/23/16).

“We believe the precedent we set by finally gaining access to Code of Conduct group documents kept secret by member states will serve us well with the work of the Panama Paper inquiry committee,” Kofod, a Social Democrat from Denmark, said. “Because there was systematic obstruction by some EU member states in the Code of Conduct group, there is unfinished business with the TAXE committee and the LuxLeaks scandal and we intend to pursue it. ”

The mandate for the European Parliament Panama Paper inquiry committee calls for the panel to probe how EU member states and the European Commission failed to implement EU laws that could have prevented companies and individuals from setting up shell companies based in tax havens.

Meanwhile, the European Parliament Committee for Economic and Monetary and Affairs as well as the Panama Paper panel will monitor whether the European Commission and EU member states adopt measures called for in the TAXE Committee report approved in the European Parliament plenary by a vote of 514-68, with 125 abstentions.

“We are setting clear demands for increased accountability, effective deterrents in the form of markedly increased sanctions for tax havens, banks, tax advisers and companies and we are calling for increased European and international cooperation on this hugely problematic issue,” said Kofod.

The TAXE Committee is formally the European Parliament's Special Committee on Tax Rulings and Other Measures Similar in Nature or Effect.

Transfer Pricing, Patent Box Changes

The European Parliament TAXE Committee report also called for:

•  a minimum tax rate across Europe to be added to the EU Interest and Royalties Directive, as well as the EU Parent-Subsidiary Directive;
•  a regulatory framework for patent box regimes that goes beyond the OECD BEPS reform;
•  better transfer pricing guidelines;
•  increased whistle-blower protections;
•  a European Commission CCCTB proposal by the end of 2016;
•  an EU-wide withholding tax to be collected by member states so profits made in the EU are taxed at least once before leaving the bloc;
•  a code of conduct for banks, tax advisers as well as tax lawyers and accountants;
•  a new EU Tax Policy Coherence and Coordination Center to be created within the European Commission;
•  a global register of all assets held by individuals, companies as well as trusts and foundations that EU tax authorities could access;
•  EU Parliament oversight of the Code of Conduct Group for Business Taxation;
•  EU-U.S. cooperation to ensure that actions agreed to under the OECD's project to combat tax base erosion and profit shifting (BEPS) reforms are implemented;
•  renegotiation of EU country bilateral tax treaties to include anti-abuse provisions, redistribution of taxing rights between source and resident countries reflective of economic substance and a updated permanent establishment definition; and
•  that provisions in all trade treaties insist on good governance when it comes to taxation and implementation of the OECD BEPS actions.

Some Opposition

Despite the large majority in favor of the report, some opponents insisted many of the measures go beyond international agreements such as the OECD BEPS changes.

“We in the United Kingdom have voted to leave the European Union but we do want to have a strong trading partner in the EU,” said Steven Woolfe, a member of the U.K. Independence Party, at a July 5 debate on the European Parliament report. “That is why I am opposed and will vote against. Measures in this report, if implemented, will do serious economic harm to the EU and make it less competitive in the global economy.”

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

To contact the editor on this story: Rita McWilliams at rmcwilliams@bna.com

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