GUE/NGL Amendments to the TAX3 draft report

Last Monday 17 December, GUE/NGL tabled 164 amendments to the TAX3 draft report.

As we have mentioned on a previous post and by GUE/NGL shadow MEP in the TAX3 Committee, Miguel Urban Crespo (Podemos), during the consideration of the draft report, we think that the draft report is nicely organized and has some good contents, but is worryingly biased towards: the OECD; legitimising the use of the arm’s length which has proven to not be efficient from the point of view of legally reducing tax avoidance opportunities -and has actually legalized tax evasion in practice-; and towards defending the taxing rights of developed countries against the interests and needs of developing countries; among other things.

Moreover, we think that the free movement of capital, the promotion of investments at any costs fostering tax competition, and the drafting of legislation to facilitate both, are at the core of the problem of tax evasion and tax avoidance, and make this problem structural. In this sense trying to legitimise tax avoidance by calling it aggressive tax planning is also a problem.

We have also noted that the TAX3 draft report is not at all critic towards the EU list of non-cooperative jurisdictions, which has been denounced by several organizations -as well as by GUE/NGL– for its lack of transparency initially, and afterwards for the weakness of the methodology which seems to be resulting in an empting of the list. In addition, the list does not address the problem of no steps having been taken to try to change the business model of EU Member States identified by the Commission itself for the “tax planning” opportunities they provide, and thus eradicate EU tax havens.

We have also made a point in our amendments of the need for EU jurisdictions to introduce withholding taxes on interests and royalties in intra-EU transactions if there is evidence that the company is not paying taxes in another Member State, as this would be enabled by the Interest and Royalty Directive; and to legislate suing the stronger CFC rules rather than the weakest alternative in the ATAD.

Regarding the taxation of the digital economy, we have highlighted that the problem affects the whole economy as it relates to the digitalization of the economy and not only to digital businesses; and that this economic reality should be acknowledged when drafting legislation in order to reach a more efficient taxation.

In this respect, we have also taken in Rita de la Feria’s observations on tax fraud and the rule of law, noting that efficiency considerations need to be taken when drafting legislation, and not only in the enforcement stage, otherwise there is a serious risk of undermining the credibility of the tax system. And that in this sense, tax amnesties, which have become popular in the context of austerity policies, are also part of the problem.

We have also included some amendments aimed at recognising the inequality of the taxation system with women, and the need to address the relationship between money laundering and women’s rights.

Money laundering within the EU is also a problem. In this sense, EU member States should be peer reviewed as any other FATF Member is; and Switzerland should be blacklisted, as it does not comply with FATF recommendations.

The fact that the US has not entered into the Common Reporting Standards (CRS), and continues to force FATCA into the rest of the world, when it has been proven to be an insufficient system was also addressed by GUE/NGL MEPs.

Finally, we have incorporated amendments that take into consideration the recommendations of GUE/NGL studies into the Big4, by Richard Murphy and Saila Stausholm; the CCCTB, by Alex Cobham, Petr Janský, Chris Jones and Yama Temouri; Apple, by Emma Clancy and Martin Brehm Christensen; EU tax treaties, by Martin Hearson; and into free trade agreements, by Magdalena Rua, Martin Burgos and Verónica Grondona.

Read the complete TAX3-GUENGL amendments, and a shortlist underneath:

Am 4.  Stresses that capitalistic globalisation and the free movement of capital created the perfect conditions for the design of base erosion and profit shifting schemes and, at the same time, enshrined a structural bias in policymaking to the benefit of capital owners and multinational enterprises (MNEs), which has served to promote divergences and asymmetries between countries and social classes; emphasises, furthermore, that the free movement of capital, the deregulation and liberalisation of the financial and banking system, and the increasing tax competition among Member States – all promoted by EU institutions and legislation with the support of the European right wing and social democracy –are at the root of the rise of tax evasion and tax avoidance schemes and scandals;

Am 5.  Recalls the position of the European Parliament in the interim report on MFF, urging for a genuine fight against tax evasion and avoidance, with the introduction of dissuasive sanctions, for offshore territories and for the enablers or promoters of such activities, particularly and as a first step those operating on the European mainland; believes that Member States should cooperate by establishing a coordinated system for monitoring capital movements in order to fight tax evasion, tax avoidance and money laundering;

Am 10. Notes that tax competition, with its detrimental effects, is not only allowed but encouraged by the European Commission, excluding only ‘special deals’ which are treated as State Aid, in an attempt to attract foreign investment even when the effectiveness of this strategy has been greatly questioned;

Am 15. Understands then that there is no practical difference between tax avoidance, tax planning and aggressive tax planning; and that tax planning can also be considered systemic tax avoidance;

Am 18. Regrets that 7 EU Member States have been identified for their tax avoidance by the European Commission in the European Semester, namely, Ireland, The Netherlands, Cyprus, Malta, Belgium, Hungary and Luxembourg, and that little measures have been taken by such Member States to modify their legislation in order to make it less attractive for tax evasion and avoidance;

Am 21. Calls on the Commission to list the EU jurisdictions identified for providing opportunities for aggressive tax planning as tax havens and prepare a proposal on deterrent actions to be applied against such Member States;

Am 26. Notes however, that any debate concerning minimum taxation should make reference to minimum effective taxation, measured by the total income taxes paid by a corporation over its total profits, including in this measurement tax breaks to the base (that is, the income on which taxes are charged), as effective rates can often be much lower, and in many cases half, of the statutory rate;

Am 32. Regrets, that within the EU, no withholding taxes are levied on payments between related parties even when the other party is not effectively subject to tax on the income deriving from those payments in that other Member State. Notes however, that recital 3 of the interest and royalty directive clearly states that “It is necessary to ensure that interest and royalty payments are subject to tax once in a Member State”. Therefore, the EU directive on interest and royalty payments does not forbid source taxation of all earnings produced by an enterprise, whether declared as profit or transferred to another enterprise domestic or abroad as payment for interest or license fees;

Am 35. Regrets that the current OECD tax committee cannot be nor is sufficiently inclusive, as it is not the United Nations; the OECD is integrated only by 34 countries that tend to be industrialized ones, is not democratically governed and its decisions on recommendations are not guided by democratic rules

Am 39. Calls on the Commission to review ATAD I in order to eliminate the 2 alternatives for implementing CFC rules and leave only the stronger, most efficient one in Article 7(2)(a): to tax interest, royalties and other relevant types of income of all low-tax foreign subsidiaries, as the second option (to tax income of low-tax subsidiaries arising from non-genuine arrangements which have been put in place for the essential purpose of obtaining a tax advantage)is very weak and open to abuse, because it only protects against profit-shifting out of the home country and requires the tax authority to analyse many individual transactions of low-tax subsidiaries;

Am 42. Notes that as has been highlighted repeatedly by numerous experts and publications, the use of the ‘independent entity concept’ or ‘arm’s length principle’ recommended by the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations of 1979, 1995, 2010 and 2017, is at the core of the problem of tax evasion, tax avoidance and double non-taxation;

AM 52. Notes that digitalisation affects the whole economy with many firms using multi-channel models; thus, instead of creating special regimes for digital businesses, international tax rules should be reformed, based on a principle of neutrality between different business models, both digital and non-digital, and regardless of the extent or form of digitalisation, including multi-channel models, recognising the economic reality businesses operate in today;

Am 60. Regrets the fact that the current framework for tackling profit shifting between related parties through transfer pricing is based on the ‘arm’s length’ principle, a principle that grants a higher regard to the contractual arrangement among related parties than to the economic reality of the transactions taking place between one party and another one subject to it; deplores that the generalization of the ‘arm’s length principle’ has resulted in the ‘legalization’ of tax avoidance through transfer pricing; notes that in this context, the only effective solution within the European Union to tackle the tax evasion and tax avoidance of multinational companies has been through the identification of abuses to State aid rules;

Am 80. Regrets that tax fraud has become a crime whose effects are to be managed, rather than a crime to be suppressed; calls on the Commission and the EU Member States to have policy design as a guiding principle, and for such policy design to be driven by efficiency considerations; notes that when efficiency is focused only in the enforcement, but not in the policy design, the credibility of the tax system is undermined, representing a serious risk to the rule of law;

84 b.    Calls on the Member States to eliminate gender gaps in wealth across the EU in terms of financial assets, property ownership, business assets, insurance entitlements, pension savings and stock options; notes that the reduction in capital gains and property taxes primarily benefits men, as they are more likely to control such resources;

Am 92. Regrets the fact that EU Member States have prioritized short-term revenue benefits over the elimination of tax fraud by providing tax amnesties;

Am 96. Calls on the Commission and the Member States to report on the effects money laundering on women’s rights, as money laundering impacts on gender inequality by concealing the origin of assets obtained via human trafficking, in which women and girls amount to 70%of the victims, as reported by FATF,UNODC,among others;

Am 102. Notes that EU Member States are not treated in the same way as third countries, when they should be according to the Financial Action Task Force, and that this represents a problem when aiming at having common standards in respect of AML; calls for Member States to be peer reviewed in the same way third countries are in FATF; calls the Commission, as a founding member in 1989 of the Financial Action Task Force, to be peer reviewed by FATF as well

Am 103. Is concerned with allegations noting that competent authorities in Switzerland are not functioning and the doubts regarding the reliability of the information shared by the Swiss FIUs; notes that this is a clear violation of FATF’s recommendations 40 and 9; calls for an evaluation to be made of Switzerland’s compliance of FATF regulations; calls for Switzerland to be on the EU list of third country jurisdictions which have strategic deficiencies in their anti-money laundering and in countering terrorist financing;

AM 110. Calls on the Commission and EU Member States to demand that the US enters into the CRS instead of following with the exchange of information under FATCA;

Am 113. Regrets that given that 2 out of the 3 criteria used by the Council refer to the OECD, the blacklist process seems more an extortive means of getting developing countries to implement standards that they have not participated in setting; than a serious effort to tackle tax evasion and tax avoidance;

Am 116. Calls on the Council to provide clear information on the specific criteria used to clear 20 jurisdictions from the 92 that were originally assessed, as at the moment only the names of such jurisdictions and the letters of comfort are available, but those do not allow for a clear understanding on why jurisdictions that are such relevant trade partners of the EU, such as the US who was identified to have a lack of transparency and preferential Corporate Income Tax regimes, were so rapidly cleared and not listed;

Am 118. Notes that as of December 2018 there are only 5 countries remaining in the list; is concerned by what seems to soon end up in an empty listing process similar to that of the OECD which resulted in only Trinidad and Tobago remaining in the list; calls for the European Commission and the Council of the European Union to work on a more serious, and objective methodology,which does not rely in commitments but rather on an assessment of the effects of effectively implemented legislation;

Am 125. Regrets that the G20/OECD’s inclusive framework is stopping a discussion on international taxation that should take place in the context of the United Nations; calls on Member States to support a reform of the United Nations tax committee to turn it into a UN tax body; and ensure that the such body has sufficient resources to ensure all countries can participate on an equal footing;

Am 133. Calls on the Commission to include in its free trade and association agreements provisions on public country by country reporting of corporate tax, the establishment of public registers of beneficial owners, and the establishment of public commercial registers;

Am 139. Notes that tax treaties place too much emphasis on the taxing rights of the countries of residence of multinational companies, imposing too many restrictions on the countries that are the source of those companies’ income, often developing countries;

Am 150. Calls for the Commission to present a proposal whereby the networks of professional service firms (e.g. accountancy firms, tax and legal advisors) to be required to apply for a single license to provide audit, taxation services or legal advice of any sort in the Member States, and that all abusive tax schemes promoted by the firm that have an impact on the tax revenue of a Member State be reported, whether sold in or outside the EU by a network member;

AM 160. Deplores that Swiss libel laws are used to silence critics in Switzerland and worldwide because the burden of proof lays on the defendant not the plaintiff; that this not only affects journalists and whistle-blowers, but also reporting entities in the European Union and obliged persons under the beneficial owner register; as in case of having the obligation of reporting a beneficial owner which is Swiss, then the reporting person may end up being sued in Switzerland for libel and slander, being such criminal offences;

GUE/NGL MEPs tabling most of the amendments were: GUE/NGL’s TAX3 shadow, Miguel Urban Crespo (Podemos), together with the rest of the GUE/NGL TAX3 MEPs, Marisa Matias (Bloco de Esquerda), Martin Schirdewan (DIE LINKE), Matt Carthy (Sinn Féin), Paloma López Bermejo (Izquierda Unida), Miguel Viegas (PCP), Emmanunel Maurel (La France Insoumise) and the GUE/NGL TAX3 working group MEPs, Patrick Le Hyaric (Front de Gauche), Marie-Pierre Vieu (Front de Gauche), Stelios Kouloglou (SYRIZA).