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THE FIGHT AGAINST TAX EVASION AND AVOIDANCE: TOWARDS A HARMONISATION OF CORPORATE INCOME TAXES WITHIN THE EU
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Member State with the intention of diverting
the natural flow of foreign investment away
from other EU countries. EU action is also justi-
fied whenever national tax systems or regimes
distort the functioning of the Single European
Market. Some examples of community action in
the area of taxation include the dismantling of
tax barriers to cross-border trade (double taxa-
tion), the elimination of unfair tax competition
between Member States and the promotion of
cooperation between national tax agencies in
anti-fraud initiatives.
The 2009 sovereign debt crisis has impelled
Member States to march shoulder-to-shoulder
(albeit at a less than desirable pace) in the direc-
tion of EU economic governance. Although fiscal
affairs have been part of this forward agenda, the
emphasis to date has been on budgetary issues
rather than on taxation. However, there has been
a shift towards a balance between these two as-
pects of fiscal affairs over the past few months,
undoubtedly due in grand part to the growing
number of global initiatives related to taxation.
It has become patent at G20 meetings and
other international forums that national tax sys-
tems have not kept step with the realities of the
digital era and globalization. At a time when
large corporations design their tax strategies
and tax planning at a global level, tax laws con-
tinue to be formulated at the national level in a
piecemeal fashion that does not take into ac-
count how the tax rules in one country interact
with those in another. It makes no sense to con-
tinue considering subsidiaries located in another
country as independent companies (according
to the principle of separate entities) at a time
when large corporations devise “big picture”
marketing and tax strategies that take into ac-
count their global operations as whole.
There are instances in which countries inten-
tionally seek to undermine the tax bases of others,
a practice that does nothing but provoke a
“race to the bottom” in which all countries feel
pressured to offer more and more concessions
in order to attract direct foreign investment.
This rush to compete has opened up opportuni-
ties for a significant number of transnational
corporations to minimise their tax burden.
In July 2013
6
the G20 adopted the BEPS ac-
tion plan developed by the OECD to close these
loopholes and rein in the artificial tax structures
created by MNCs to avoid paying taxes. The
plan, which is based on the premise that multi-
national companies should pay taxes in the
countries in which they carry out business ac-
tivities and create value, identifies a series of
areas in which there are higher risks of interna-
tional tax evasion and outlines 15 actions to be
taken to improve the situation.
In September 2014 the OECD released seven
“deliverables” corresponding to a number of
the fifteen actions proposed for the action plan
7
presented in September 2014. These docu-
ments drew upon input received during a series
of public consultations between the OECD and
a range of stakeholders. The second phase of
the work is now underway and final recommen-
dations are expected to be approved by the
OECD in December 2015.
8
Given the depth and scope of the work un-
dertaken, it is yet to be seen if such ambitious
time frames can actually be met. Furthermore,
6
The OCDE is expected to finish the plan by the end of
2015.
7
The seven deliverables
(intermediate drafts and draft
rules) presented by the OECD covered the following topics:
the digital economy, hybrid mismatch arrangements, harm-
ful tax practices, treaty abuse, transfer pricing of intangi-
bles, and country-by-country reporting
.
8
Although the deadline for the completion of the majority
of the actions proposed is September 2015, the multilat-
eral treaty is not expected to be completed until December
2015.