Corporations use loopholes to avoid paying taxes, for example by shifting profits to EU countries with lower taxes. New EU rules would put an end to this.
On 15 March, MEPs voted in favour of plans to establish a common consolidated corporate tax base, which is a common set of rules that companies operating in the EU could use to calculate their taxable profits instead of having to follow different rules for each EU country they are located in. They voted on two pieces of legislation that will make it harder for companies to shift profits to those EU countries where corporate taxes are lower.
French EPP member Alain Lamassoure, who wrote the report on the common consolidated corporate tax base, welcomed a recent initiative by the European Commission to name EU countries involved in aggressive tax planning, including Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands."[With the new legislation] any attempt to set up aggressive tax planning schemes, artificially drawing fiscal revenues towards some member states, at the expense of others, will become obsolete,” said Lammasoure.
Dutch S&D member Paul Tang, who wrote the report on the common corporate tax base, said: “National and EU leaders are beginning to understand that the current systems are outdated and leave citizens and small companies worse off. The momentum is there, we keep up the pressure."
The new tax rules being proposed
The European Commission proposes to introduce a common consolidated corporate tax base in two phases.
The first phase sees the introduction of a common corporate tax base, which is one set of rules to calculate companies' taxable profits in all EU countries. At the moment companies operating in different EU countries calculate subsidiaries' profits according to different tax codes.
This will be followed by the introduction of a common consolidated corporate tax base in phase two. This would allow companies to add profits and losses of all their subsidiaries in the EU and come up with a net profit figure to be taxed.
Profits would be taxed in the EU countries the company operates subsidiaries. Profit sharing would be calculated according to a formula, taking into account the buildings, machinery, number of employees and sales company has in different EU countries.
Parliament played its part in refining the formula. “Parliament introduced a new factor, based on data collection, in the formula which determines how corporate fiscal revenues are distributed among member states," said Lamassoure.
Taxing digital giants
MEPs also looked at how major digital players should be taxed. Personal data is an intangible but highly valuable asset mined by firms such as Facebook, Amazon and Google to create their wealth, but it is currently not considered when calculating their tax liabilities.
“We need a digital tax as soon as possible," said Tang. "Our research showed that the tax revenue loss from Google and Facebook is around €5.1 billion, in three years’ time. So it’s time to change the rules so we can play a fair game again.”
When it comes to tax matters, Parliament has a consultative role in the legislative process. EU laws are adopted with unanimity by member states in the Council.
One of Parliament’s priorities is the fight against tax avoidance and tax fraud. On 1 March, MEPs established a special committee to investigate wrongdoing in the field of taxation.