European countries will share details of tax agreements signed with corporations under new proposals released today, months after an ICIJ collaboration revealed secret deals signed in Luxembourg that allowed some of the world’s biggest companies to pay less than 1% in tax.
Following its release in November 2014, the ICIJ collaboration, known as “LuxLeaks,” led to calls for reform and forced a parliamentary vote on whether or not the then newly-elected European Commission president Jean-Claude Juncker should continue as leader. Juncker was Prime Minister of Luxembourg during the period that the deals were signed.
The leaked documents reviewed by ICIJ journalists included over 500 private tax rulings – sometimes known as “comfort letters” – that Luxembourg signed with corporations seeking favorable tax treatment. ICIJ journalists revealed such deals signed with companies including Ikea, Koch Industries, Pepsi and Skype.
In the technical analysis accompanying the new rules released on 18 March, the European Commission acknowledged that LuxLeaks was a major factor in the Commission’s decision to act on corporate tax avoidance.
“Where in the past unilateral tax rulings appear to have been accepted as a characteristic of tax competition, not least the LuxLeaks have made public that the lack of transparency in this area foster aggressive tax planning on a grand scale,” said the Commission document.
“The economic crisis and the LuxLeaks discussions have prepared the ground for a fundamental change in positions of Member States.”
The central plank of the Commission’s tax package requires countries to automatically share tax rulings signed between the national tax authority and a corporation. If another country believes that its own tax base will be harmed or that the corporation is unfairly benefiting from the ruling, it can ask for more information. The Commission is already investigating at least four tax rulings that are suspected of unfairly helping companies reduce their tax burden.
Today’s package is the Commission’s opening salvo this year on corporate tax avoidance and will be followed by a detailed policy in the middle of this year.
Tax commissioner Pierre Moscovici called for EU Member States to “open up and work together” as he announced a series of tax transparency initiatives planned by the Commission.
“Tolerance has reached rock-bottom for companies that avoid paying their fair share of taxes, and for the regimes that enable them to do this. We have to rebuild the link between where companies really make their profits and where they are taxed,” he said.
While the European Commission presented the package as an “ambitious agenda to tackle corporate tax avoidance,” members of civil society expressed disappointment.
“Though this tax transparency package is supposed to be a response to the Luxembourg Leaks, it’s only addressing a fraction of the problem,” said Koen Roovers, EU Advocate for the Financial Transparency Coalition.
“The European Commission’s new measures to combat secret tax deals made between multinational companies and governments cannot be called tax transparency, as they fail to give citizens access to any information,” said the Financial Transparency Coalition in the same press release.