New moves to ensure fair, transparent corporate tax in Europe

Even when times are good, people are outraged when powerful, highly profitable corporations slash their tax bills by aggressively exploiting loopholes. And these are not the best of times. These are times of painful sacrifices, which have often hit the weakest in society hardest. In these times, such unfairness becomes intolerable.

The message to policymakers across Europe has been unequivocal: enough is enough. It is a message that the European Commission has heard loud and clear and is acting on decisively.

It is time to ensure fairness and transparency in corporate taxation in Europe. It is time to rebuild the link between where profits are really made and where tax is paid. It is time for everyone to pay their fair share.

A lot of progress has been made in recent years to close loopholes allowing individuals to evade taxes by shifting their money abroad. Most important is the move to abolish banking secrecy in Europe, through the automatic exchange of information between national tax authorities on accounts held by non-residents. Just yesterday, we initialled an agreement to ensure total transparency on bank accounts between the EU and Switzerland, a major step forward that many thought impossible just a few years ago.

But we have a lot further to go when it comes to tackling aggressive tax planning by multinationals. This is the reason why we are proposing that EU member states exchange automatically information on tax rulings issued to corporations by national authorities.

Tax rulings are not in themselves illegal. They are a useful taxation tool for providing the certainty that companies need to plan financially. The problem lies in their opacity and the discrimination they sometimes create within our single market. Too often, countries are unaware of decisions taken by tax authorities in other EU members, even though these can have a direct impact on their own fiscal revenues. In an EU single market that is about economic efficiency as well as social equity, this sort of unfair tax competition is unacceptable.

My colleague Margrethe Vestager has already opened four state aid investigations in relation to tax rulings in Ireland, Luxembourg and the Netherlands. She has also requested all member states to provide more information on their tax-ruling practices to determine whether they are distorting competition within the single market.

Tax rulings

With the automatic exchange of information, all EU member states will have to systematically share details with one another on all of their cross-border tax rulings, every three months. Unlike the current provisions for tax rulings – which clearly don’t work – there will be no escape clauses and no room for interpretation on these requirements.

The information that tax authorities must exchange will be predefined. It will be comprehensive enough to allow member states to assess whether a tax ruling is relevant to them. But it will also be simple enough to avoid unnecessary administrative burdens.

If, after this initial exchange, a country believes that it needs more information on a particular ruling, it can request more details. As a result, governments will be more aware of the effect of others’ rulings on their own revenues and will be better equipped to react.

Greater transparency will have a domino effect: it will lead to greater scrutiny and should deter governments from offering unreasonable tax rulings. It should also discourage companies from using rulings to shift profits and avoid taxes.

By ensuring more openness between EU countries and more co-operation between tax administrations, our proposal will radically improve transparency on tax rulings compared to the situation today. This, in turn, will move us closer to our goal of fairer taxation and fairer tax competition in Europe.

We have already begun reflecting on whether further transparency measures – such as public disclosure requirements for multinationals – could be feasible. This would require a well-informed decision founded on proper analysis and evidence, with sound objectives and clearly identified benefits. We are not there yet. And the commission will be treating this as an absolute priority.

Let's not forget that harmful tax competition goes beyond the EU's borders. Through the G20 and the OECD, we must also continue to push our international partners to go further and to match our own level of ambition.

Compliance costs

Before the summer, we will present a second package of measures on tax competition in the EU single market, including new ideas to revitalise the discussion on a common corporate tax base in Europe. This would cut compliance costs for companies and encourage cross-border investment.

When it comes to tax rulings, the ball is now in the court of the 28 member governments of the EU, which must all agree to our proposal before it can take effect. Europe’s voters will expect them to back this initiative and do so without delay. I am confident that they will all act responsibly.

Pierre Moscovici is European commissioner for economic and financial affairs, taxation and customs