GUE/NGL analysis of final vote on PANA recommendation

MEPs voted on the final recommendation of the Panama Papers inquiry committee on Wednesday 13 December 2017 in Strasbourg.

The ‘European Parliament recommendation of 13 December 2017 to the Council and the Commission following the inquiry into money laundering, tax avoidance and tax evasion’ was adopted by 492 votes in favour, with 50 votes against and 126 abstentions. The majority of GUE/NGL MEPs abstained due to the fact that many of the progressive provisions included in the PANA inquiry’s recommendation adopted at committee level in October were removed by amendments and deletions in the final vote by the full plenary of the European Parliament.

Key provisions that were included in the committee report but REJECTED by plenary:

  • Notes with concern that the EU Treaties and legislation such as the Parent-Subsidiary and Interest and Royalties Directives create a problematic asymmetry by giving priority to the free movement of capital and business establishment over fair and effective taxation; notes that this is exemplified by judgments by the Court of Justice of the European Union which have prevented Member States from applying robust defence measures (e.g. controlled foreign corporation – CFC – rules or exit taxation) against aggressive tax planning on the grounds of the fundamental freedoms of the internal market ; notes that this type of integration enshrines a structural bias to the benefit of investors and corporations operating across borders; calls, in this context, for a wider review of EU legislation and the application and interpretation of the fundamental freedoms of the internal market with a view to systematically preventing instances of double non-taxation and harmful tax competition which arise as unintended consequences of the facilitation of intra-Union capital movement;
  • Calls for concerted action on the part of Member States against low or non-taxation of outbound payments in order to combat base erosion and profit shifting (BEPS) effectively and systematically; reiterates its position that more action is needed than is provided for in the Anti-Tax Avoidance Package (ATAP) and that such action should be binding; calls, therefore, for the introduction of a harmonised withholding tax by Member States on all interest payments and on dividend, licence and royalty fees to low-tax third countries, irrespective of whether these countries are on the EU’s list of non-cooperative tax jurisdictions; underlines that such a general withholding tax system based on the credit method has the advantage of preventing double non-taxation and BEPS without creating instances of double taxation and without relying on a selective blacklisting approach which would entail significant diplomatic challenges; calls on the Member States to agree on strong, comprehensive and enforceable CFC rules and to discard rules which are limited to vaguely defined arrangements which are not genuine, the burden of proof for which is placed on the tax authorities;
  • Stresses that, for unitary taxation to work as a means to end profit-shifting, it needs to be global, and that implementing the CCCTB at EU level runs the risk of creating a situation in which current losses from Member States to the rest of world could be locked in, as could the exploitation of the rest of the world by some Member States; notes that an EU-only approach could eliminate the incentives to shift profit within the EU, but open the door to further incentives and opportunities to shift profit out of the EU;
  • Calls on the Commission to exclude the possibility of creating shell companies, so-called ‘letterbox companies’, which play a crucial role in the creation of the corporate structures used for tax evasion and forum shopping; calls on the Commission, therefore, to withdraw the proposal of the directive on single-member private limited liability companies (Societas Unius Personae, or SUP), which enables letterbox companies to register online without verifying the identity of the company founder; calls on the Commission, furthermore, to ensure that any comparable proposal on online registration for companies excludes all possibility of creating letterbox companies; reminds the Commission to present a proposal for a 14th Company Law Directive, which would set out clear rules for the cross-border transfer of a company’s seat in order to prevent any misuse or the creation of letterbox companies by cross-border conversions, mergers or divisions; calls, in this context, inter alia, for an obligation for each legal entity to pay an adequate fee annually and to file a report with information on its activities and beneficiaries;
  • Calls for the EU to use the appropriate means to set up sound cooperation and exchange of information for tax purposes among Member States’ beneficial ownership, land and commercial registers – which should centralise public information – and the creation of an EU register that would allow for better coordination at EU and international level;
  • Calls on the Commission to present a legislative proposal in 2018 to prohibit the self-regulation of obliged entities in accordance with the AMLD;
  • Notes that professional networks subject to these arrangements should be required to file full country-by-country reports, adapted to meet the particular needs of the sector, on public record;
  • Calls for the establishment of an independent EU body to engage in information-gathering, and act in an advisory capacity and as a referral point, with offices in Member States, which would be in a position to receive reports of irregularities, in order to help internal and external whistle-blowers in using the right channels to disclose their information, while respecting confidentiality and offering the requisite support and advice;
  • Calls for the establishment of a special unit with a reporting hotline as well as dedicated facilities within the European Parliament, and within the national parliaments of the Member States, for receiving information from whistle-blowers until an independent EU body has been established;

Key provisions that were included in the committee report and MAINTAINED by plenary:

  • Recommends that such a [bank] account register should record and publish statistics on transactions with tax havens and high-risk countries, both within and outside the EU, and disaggregate the information on transactions with related parties those with non-related parties, and by Member State;
  • Calls for enhanced public commercial and public beneficial ownership registries and public country-by-country reporting, in order to overcome the limitations imposed by the exchange of information under the OECD’s ‘Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS’ of June 2017, which gives countries the choice of selecting partners, permitting, in practice, bilateralism;
  • Stresses that it is vital for the exercise of democratic control over the executive for Parliament to be empowered with powers of inquiry that match those of the national parliaments of the EU Member States; believes that, in order to exercise this role of democratic oversight, Parliament must have the power to summon and compel witnesses to appear and to compel the production of documents; believes that, in order for these rights to be exercised, the Member States must agree to implement sanctions against individuals for failure to appear or to produce documents in line with national law governing national parliamentary inquiries; reiterates its support for the position outlined in its 2012 proposal on this issue;
  • Resolves to establish a permanent committee of inquiry, on the model of the US Congress;
  • Calls for more efficient, dissuasive and proportionate sanctions at both EU and Member State level against banks and intermediaries that are knowingly, wilfully and systematically involved in illegal tax or money laundering schemes; stresses that the sanctions should be targeted towards the companies themselves as well as the management-level employees and board members responsible for the schemes; stresses that substantial penalties are essential and believes that the use of a public shaming regime for confirmed cases could discourage intermediaries from circumventing their obligations and encourage compliance;
  • Regrets that the EU list of non-cooperative tax jurisdictions approved and published by the Council focuses only on jurisdictions outside the EU, omitting countries within the EU that have played a systematic role in promoting and enabling harmful tax practices and that do not meet the fair taxation criterion; emphasises that at least four Member States would be included on the list if screened according to the same EU criteria, as demonstrated in a simulation carried out by Oxfam; is concerned that the a priori exclusion of EU countries from scrutiny affects the legitimacy, credibility and effectiveness of the entire process; (Amended from original text in committee report)
  • Notes that, according to the most recent Organisation for Economic Cooperation and Development (OECD) data on foreign direct investment, Luxembourg and the Netherlands combined have more inward investment than the US, the vast majority of which is in special-purpose entities with no substantial economic activity, and Ireland has more inward investment than either Germany or France; points out that, according to its National Statistics Office, foreign investment in Malta amounts to 1 474 % of the size of its economy; notes that, according to research carried out by the University of Amsterdam, 23 % of all corporate investments that ended up in tax havens passed through the Netherlands; believes that these data are a clear indication that some Member States are facilitating excessive profit-shifting activities at the expense of other Member States; (Included by amendments)
  • Considers that the EU should make it illegal to maintain commercial relations with legal structures established in tax havens if the ultimate beneficiary cannot be identified;
  • Calls on the Commission to compile a list of the harmful regimes on which the Code of Conduct Group has not been able to agree to take action to date and to publish this list; calls on the Commission to assess, by 2020, the impact of the nexus approach for compliant patent box regimes and to quantify, if possible, their impact on innovation and loss of tax collection;
  • Calls on the Member States to identify and stop all use of any form of tax amnesties that could lead to money laundering and tax evasion or that could prevent national authorities from using the data provided to pursue financial crime investigations;
  • Calls for an identification of beneficial ownership that includes all natural persons who ultimately own or control a legal entity, other than a company listed on a regulated market that is subject to disclosure requirements consistent with Union law or subject to equivalent international standards which ensure adequate transparency of ownership information, through direct or indirect ownership of at least one share or equivalent minimum unit of interest in that entity, including through bearer shareholdings, or through control via other means;
  • Insists that appointments to managerial positions in FIUs need to be independent and free from political bias, based on professional qualifications and that the selection process be transparent and supervised; stresses the need for common rules on the independence of the institutions in charge of enforcing rules on tax fraud and money laundering, as well as the need for the full independence of law enforcement bodies in the follow-up of FIU reports;
  • Points out that professional secrecy cannot be used for the purposes of protection, the covering up of illegal practices or violating the spirit of the law; urges that the client-attorney privilege principle should not impede adequate STRs or the reporting of other potentially illegal activities without prejudice to the rights guaranteed by the Charter of Fundamental Rights of the European Union and the general principles of criminal law; calls on the Member States to issue guidance on the interpretation and application of the legal privilege principle for professionals and to introduce a clear demarcation line between traditional judicial advice and lawyers acting as financial operators;
  • Notes that the EU’s existing definition of the control required to create a group of companies should be applied to accountancy firms that are members of a network of firms associated by legally enforceable contractual arrangements that provide for the sharing of a name or marketing, professional standards, clients, support services, finance or professional indemnity insurance arrangements, as anticipated by Directive 2013/34/EU on annual financial statements;
  • Calls for standardised, regularly updated, publicly accessible and interconnected beneficial ownership registers at EU level, on all parties of commercial and non-commercial trusts, fiduciaries, foundations and similar legal arrangements to form the basis of a global register;
  • Regrets that the current OECD tax committee is not sufficiently inclusive; recalls its position regarding the creation of a global body within the UN framework, well-equipped and with sufficient additional resources to ensure that all countries can participate on an equal footing in the formulation and reform of global tax policies;
  • Regrets that, in order not to be branded as non-cooperative jurisdictions, developing countries must pay to be considered as participants in the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes, where countries are subject to an evaluation of their practices against benchmarks they have not been full participants in determining;
  • Notes that in several recent committees of inquiry and special committees (including PANA), the Commission and Council in some cases failed to provide the documents requested and in other cases only provided the requested documents after long delays; calls for the introduction of an accountability mechanism in order to ensure the immediate and guaranteed transfer of documents to Parliament that the committee of inquiry or special committee requests and is entitled to have access to;

GUE/NGL amendments to the draft recommendation that were ADOPTED by plenary:

  • Notes with concern the lack of ambitious and concrete measures to fight against tax havens; draws attention, in this connection, to the fact that increasing transparency alone will not be sufficient to deal with this problem; stresses, therefore, that it is a matter of urgency to push for international cooperation and a multilateral approach in which developed and developing countries must be involved;
  • Calls on the Member States and the EU institutions to support and promote an intergovernmental summit at UN level with a view to defining a road map and Joint Action Plan to put an end to tax havens;
  • Calls for sanctions also to be applied to companies, banks, accountancy and law firms, and tax advisers proven to have been involved in illegal, harmful or wrongful activities with non-cooperative jurisdictions or proven to have facilitated illegal, harmful or wrongful corporate tax arrangements involving legal vehicles in those jurisdictions;
  • Urges the Commission and all the Member States to ensure an end to the practice of corporate tax inversion, whereby a multinational corporation is acquired by a smaller company located in a tax haven and adopts the latter’s legal domicile, so as to ‘relocate’ its headquarters and reduce the combined firm’s overall tax burden, a process that is followed by ‘earnings stripping’ through tax-deductible payments to the tax haven (in the form of loans, royalties and services, for example) that have as an objective the avoidance of taxes on the domestic profits of that multinational corporation;

GUE/NGL amendments to the draft recommendation that were REJECTED by plenary:

  • Considers that all of the leaks so far, including Panama Papers, Paradise Papers and other scandals, have highlighted the failure of the prevailing economic system and its inability to tackle and prevent tax havens, tax evasion and tax avoidance;
  • 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;
  • Considers that tax havens, tax evasion and tax avoidance have been contributing to the rise in inequalities, by depriving countries of the revenue needed to provide public, quality and free education and healthcare services, social security, and affordable housing and transportation, and to build essential infrastructure for achieving social development and economic growth;
  • Believes that the Commission and the Member States should take into consideration the International Consortium of Investigate Journalists’ (ICIJ) Panama Papers findings and the observations of the UN special rapporteurs and different experts regarding the effects of tax evasion, tax avoidance and money laundering on women’s rights, as tax evasion and tax avoidance impact on gender inequality by limiting the available resources for policies aimed at reducing the gender gap and increasing equality at national and international level1, and money laundering impacts on gender inequality by concealing the origin of assets obtained via human trafficking;
  • Affirms that the tax bill recently passed in the United States will bring a new round of tax competition, and a further shift away from the recommendations of the Independent Commission for the Reform of International Corporate Taxation (ICRICT);
  • Recommends the suspension of third-country equivalence regimes in financial services with the listed non-cooperative tax jurisdictions, and the cancellation of double tax agreements;
  • Stresses the urgent need for a common list of high-risk countries in terms of money laundering which includes EU cases;
  • Calls for public country-by-country reporting by multinational enterprises (MNEs) to be universal and to include, at the very least, the countries in which companies operate, the name(s) under which they operate in those countries, their financial performance in each country, their tax liabilities for each country, their revenue, employees, wage levels and costs, the net book value of fixed assets for each country, and gross and net assets for each country;
  • Notes that C(C)CTB impact assessments have been carried out on the basis of incomplete data at a time when tax administrations will soon have access to more precise and complete information following the Member States’ implementation of country-by-country reporting, and that going ahead without proper analysis would be deeply irresponsible; stresses, moreover, that an impact assessment based on high-quality data would allow for a more informed decision to be made between different possible apportionment formulas, as some studies have shown that an alternative based only on revenues and employees should be evaluated;
  • Notes with concern that loss consolidation would result in significant declines in corporate tax bases across the EU and would probably have no comparable benefit, particularly if there were no switch to global unitary taxation at the same time;
  • Believes that, as regards proceeding with the CCTB and CCCTB proposals, if aggregation were to take place without considering the differences between Member States’ accounting rules the inconsistencies in the EU tax base might end up being exploited by those seeking to secure advantage from regulatory arbitrage; takes the view that, for this reason, ‘consolidated tax base’ should mean the consolidated net taxable revenue of the corporate group members, as calculated on a consistent accounting basis applicable to all group members in accordance with Directive 2016/xx/EU;
  • Notes that any breach of the AMLD should be sanctioned and that serious, repeated and systematic breaches should entail heavy sanctions, such as the withdrawal of business licences, as has been the position of Parliament in the revision of the 4AMLD;
  • Notes that networks of professional service firms should be required to apply for a single licence to provide audit and taxation services 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 should be reported, whether sold in or outside the EU by a network member;
  • Notes that all audit firms should be required to be entirely separate from those selling any other service;
  • Calls for the EU to consider that residence taxation imposed on capital-importing countries (i.e. developing countries) when applying the OECD’s Model Tax Convention is generally to the detriment of tax collection in those countries;
  • Recalls the importance of devising instruments to ban any form of retaliation, whether in the form of active dismissal or passive measures, and to ensure that such retaliation is punished accordingly; urges the Member States to refrain from criminalising the actions of whistle-blowers in disclosing information on unlawful or wrongful acts or acts that undermine or endanger the public interest;
  • Stresses that Oxfam has recently published a list classifying four Member States as tax havens, while no Member States appear on the Council’s list of tax havens; calls on the Council to reconsider its criteria and establish a list of EU jurisdictions considered non-cooperative for tax purposes; calls on the Member States to adhere to the principles of tax justice and to support all necessary steps towards the prevention of tax avoidance and tax evasion in their territories.