A new Parliament committee on financial crimes and tax fraud will also look at how digital companies should be taxed. Find out more about the committee in our interview with its chair.
Over the last few years the Parliament has done a lot to work towards a fair and transparent tax system. It set up two special committees to look into tax rulings as well as an inquiry committee to investigate the revelations contained in the Panama Papers. All of these committees produced a report with recommendations.
The new special tax committee, which will be active until March 2019, will build on their work. It will focus on financial crimes, tax evasion and tax avoidance, but also explore new issues in the area of taxation, such as how to tax digital companies and the issues of member states selling citizenship. In addition it will research the tax fraud uncovered by the Paradise Papers.
We talked about the tasks ahead with committee chair Petr Ježek, a Czech member of the ALDE group.
What does the EU still need to work on?
It’s an ongoing process. The previous committee came up with recommendations and this committee will look at how they are being addressed or implemented.
We will also look into how to tax the digital economy. The current law doesn’t enable the digital economy to be taxed at the level at which it should be. The tax rates for digital companies are a fraction of what normal companies pay. Some American digital companies make more than half of their revenues outside the US, but are almost exclusively taxed there.
Whistleblowers and investigative journalism play a crucial role in exposing tax fraud and financial crimes. What more can the EU do to protect whistleblowers so that they continue to come forward?
The European Commission recently published a draft directive on the protection of whistleblowers. There are various measures to consider, like financial compensation and legal safeguards, for example when they lose their jobs because of the whistleblowing. More effort is required to explore the issue, partly because the situation is different in every member state.
How can we make sure people have faith in our financial and tax systems?
If citizens have the feeling that certain individuals and companies can avoid taxation, it undermines confidence in the whole financial system and perhaps even governance as a whole. On the other hand, if we do things right on taxation, making it fairer and more just, this could help to bridge the gap with those who feel left behind by globalisation.
A striking example would be what is happening with big multinationals. They should not be able to sell their products, be it cars or data, in one EU country and be taxed mainly in another or outside the EU. That doesn’t make sense, but globalisation and new technologies enable that. This should be fixed.
There are legislative proposals that are now with the member states and the Council. It’s up to them whether they will back a common consolidated corporate tax base. There are still countries that profit from awkward tax schemes and they tend to block proposals, but I would hope that sooner or later pressure from other member states, the Parliament and especially citizens, will make it possible to adopt new rules.