An alternative solution for EU austerity: tackling corporate tax avoidance
The austerity programmes applied to some of the European countries that were most affected by the economic crisis has left severe social consequences in the society. Unemployment, emigration, lower consumption, fewer start-ups and SMEs, reduction of jobs quality, precariousness, domestic violence, students drop-out, just to mention a few. NGOs and social institutions have been dealing to them and the scenario is not good. Such problems will be definitely inlaid for at least the following ten years. Nevertheless, this scenario is not the same for all and Ireland is an example of a clear development. It was reported this week a constant growth of the Irish GPD at 5,8% and with perspectives to increase up to 7% (1) that gives us a good perspective for the future.
However, the trauma of an austerity programme should be seen as a political measure not to repeat. As Portuguese, I am a direct testimony of the consequences suffered by the population, which have not yet been overcomed.
At the same time, the current times may, in some way, represent a deeper revolution of the economic model that is needed and should be review by our governments.
Therefore, we could have an alternative to these economic and financial programmes which is in fact what the national governments should be tackling more actively than they really do. The European Commission, in particular, with the work developed by the Commissioner Margrethe Vestager and her team, is a successful reaction to the status quo that reveals a deep investigation and strong job against one of the worst practices taken by multinationals.
At the same time, it must be remarked the importance of the special committee on Tax Rulings of the European Parliament and the work developed by the Portuguese S&D member Elisa Ferreira to reveal the deals that have been made during the recent years. I must congratulate the decision to pursue the special committee until at least June 2016, in special, with a call for mandatory country-by-country reporting of profits and taxes by multinationals.
No other parliament has done so much efforts towards ensuring large companies to pay the right amount of tax and towards more tax transparency then the European Parliament. We would need, therefore, to have more support from all on this sense, so that the efforts are not in vain and will be able to accomplish a concrete purpose.
At the same time, it must be remarked the importance of the special committee on Tax Rulings of the European Parliament and the work developed by the Portuguese S&D member Elisa Ferreira to reveal the deals that have been made during the recent years. I must congratulate the decision to pursue the special committee until at least June 2016, in special, with a call for mandatory country-by-country reporting of profits and taxes by multinationals.
No other parliament has done so much efforts towards ensuring large companies to pay the right amount of tax and towards more tax transparency then the European Parliament. We would need, therefore, to have more support from all on this sense, so that the efforts are not in vain and will be able to accomplish a concrete purpose.
As fiscal national authorities usually chase the SMEs and citizens to pay their taxes and tackle tax avoidance, on the contrary, tax evasion represents an enormous lost to the European economy, calculated in one trillion €uros a year in lost tax revenue.
The Luxleaks scandal has brought to light a reality that we have known for many years. As it is known, the International Consortium of Investigative Journalists (ICIJ) revealed more than one year ago that nearly 340 multinationals secured secret deals from Luxembourg that allowed them to reduce significantly their global tax bills. While subsidiaries and companies representing hundreds of millions of euros in business, they maintain little presence and economic activity in Luxembourg and enjoyed effective tax rates of less than 1% on the profits created in Luxembourg.
But let's be clear about it, Luxembourg is not the only EU country to put the tax deals into practice. Why has it take so long to actually take proper measures?
The advantageous tax schemes given to multinationals represents a clear arrangement between the national authorities (not to say governments) and the companies. While some EU governments have been obliged to have significant cut on public spending, others have offered multinationals deals to reduce tax burden. This represents a clear disadvantage to the European economy while preventing countries to receive a potential tax revenue.
Besides tax avoidance, we cannot forget the illegal state aids that (even with a long history of European norms on competition) keep to occur and disrespect the common values of the EU on solidarity, justice and equality, that should prevail between the Member States. One of the explanations is that the European market has been dealing with a strong competition from other parts of the world, in a combat to get more companies in its territory. At the same time, there is also a competition between the European countries which is clear due to the lack of a tax harmonisation. The differences on salaries and infrastructures clearly attract multinationals to either leave the European Union territory or to choose between the country that will propose them the best deal. Once we cannot deal with the economic differences between the Member States, a solution cannot either been accomplished.
Another proposal made by the special committee is on creating a fair tax payer label to assess tax behaviour on the framework of public procurement. Governments and public authorities would then assess more easily the companies reporting and paying its taxes to the authorities, while ranking those that have been practising better compliance. Those who do not respect the rules, would not be able to contract with the public sector. It represents a compromise to the public authorities, to avoid corruption and promote the respect of their own obligations (3).
My conclusions on this topic goes on the sense that, we have applied severe measures to tackle the economic and financial problems of our internal market, while there were other issues that needed to be tackled with major priority. Let's hope and work towards that tax avoidance can be better investigated, by providing support to the right channels and organisations that are actually working on it.
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