Luxembourg key to EU debate on multinational tax systems

A “very interesting political situation” can be expected in the autumn when a number of different strands of the ongoing European, and global, debate on what to do about aggressive tax planning by multinationals, come together, one of the players involved said during a recent visit to Dublin.

Two years ago the G20 asked the Organisation for Economic Co-operation and Development for proposals on how to tackle the issue. The process that was set in train as a result – the so-called Base Erosion and Profit Shifting (Beps) project – is set to conclude this autumn/winter.

Meanwhile the European Commission is examining how it might address unfair tax competition in the multinational sector and looks set to produce its proposals later this month.

And the European Parliament’s special committee on tax rulings, which came to Dublin last week, plans to have its suggestions ready for throwing into the ring around October.

All of this is happening against a backdrop where Luxembourg will be taking over the six-month presidency of the EU from July 1st, and where Jean-Claude Juncker, the man who presided over the small duchy when it was developing its powerful niche role in attracting multinational tax planning, is the president of the European Commission.

Proposals

“The Luxembourg government will be obliged to make proposals on the issue,” according to the special committee’s chairman,

Alain Lamassoure

. The pressure will be on Luxembourg to make the issue a priority one and to address the adoption of the commission’s proposals, he said.

That proposal is likely to centre on some type of common consolidated corporate tax base (CCCTB) model, an idea that has long been resisted by Dublin as it is seen as a threat to a cornerstone of our industrial policy.

According to Lamassoure, it was the Lux Leaks revelations last year, which The Irish Times contributed to along with other media partners and the International Consortium of Investigative Journalists, that acted as a "trigger" and revived interest in agreeing an EU policy to address the issue.

“It opened a window for some of us who have been working for 20 years on the topic,” he said.

In the run-up to the introduction of the euro, he and others were concerned that unfair competition in the area of tax and multinationals, was a remaining issue to be dealt with within the EU.

Work began on a common definition of what was a company’s taxable profits and a code of conduct group was established to examine harmful tax competition in the business sector.

A lot of harmful practices were removed, he said, and agreement on a common base was close when there was the 2004 “big bang” expansion of the EU towards the east, taking in a number of former Soviet bloc nations.

Global crisis

Work began again, and again the process was nearing an end when

Lehman Brothers

bank failed in the US, and the resulting global financial crisis again put the project back. “Then Lux Leaks broke out. Lux Leaks has been a huge advantage.”

According to Lamassoure, the revelations caused “outrage” throughout the EU and among its 500 million citizens. “It happened at a time when individual taxpayers were being crushed by the burden of taxation, and multinationals were paying nothing.”

The controversy broke out just as Juncker was taking on his new role.

Now Juncker, Lamassoure said, wants to be in the “forefront” of the drive to address tax fairness.

It seems an unlikely thing to say, given how Luxembourg developed during his time as its most powerful political figure, but Lamassoure said that issue is now one that all politicians know they cannot ignore. Everyone knows they have to act, but no one wants to act first and in a way that puts them at a disadvantage, he said.

Minister for Finance, Michael Noonan, made it clear during the committee's visit that the tax rate is not up for discussion, and Lamassoure said he has no problem with that. Tax competition, he said, is a fact of life. But it must be fair and transparent.

The Beps project is aiming at a regime that would better align taxation with substance, a general drift that might work to Ireland’s advantage given how so many multinationals have substantial and well-staffed operations here.

The same can hardly be said for places such as Jersey, Guernsey, Bermuda and the Cayman Islands, (representatives of which are scheduled to meet with Lamassoure’s committee over the next few weeks).

Likewise, of course, Luxembourg. The autumn should be very interesting indeed.