The EU must lead the world on tackling corporate tax avoidance
FOR IMMEDIATE RELEASE
The European Parliament should vote on Thursday (15 March) in favour of the European Commission’s proposal for a Common Corporate Tax Base (“CCTB”) and a common consolidated corporate tax base (“CCCTB”).
ICRICT welcomes this initiative as a key step towards curbing multinational tax avoidance.
ICRICT Chair Jose Antonio Ocampo, a former Undersecretary-General of the United Nations, said:
“This is a critical reform for the EU and the world at large. It will curb tax avoidance by multinationals and their power to play EU member states against each other”.
“Multinationals should be taxed as single firms and global profits allocated across countries on the basis of key objective indicators, like people, sales and resources used. This will eliminate tax avoidance by multinationals. This proposal, albeit at regional level, goes in this direction and should therefore be supported.”
“This proposal shows that regional cooperation in the fight against tax avoidance is possible. Latin American countries should engage in regional cooperation to develop similar reforms which will put an end to tax avoidance by multinationals”.
Kim Henares, ICRICT Commissioner and former head of the tax revenue authority of Philippines, said:
“This proposal will put an end to unfair practice where multinationals make a huge profit in countries they pay little to no taxes to. We expect these corporations to at least contribute to building and developing the nations they made huge profits from”
“International cooperation is key if we want to raise sustainable amounts of revenues to continue funding growth and investments for our people and country, and regional proposal like the EU CCCTB shows that countries can cooperate in the fight against tax avoidance”
Eva Joly, ICRICT Commissioner and member of the European Parliament, said:
“This proposal provides a common and fair and above all transparent system to allocate profits of multinationals and will significantly reduce tax avoidance, in particular with regards to transfer pricing mechanisms”.
“The proposal also introduces the notion of 'virtual permanent establishment', thereby addressing in a comprehensive way the issue of digital taxation”.
“States must reject the artifice that a corporation’s subsidiaries and branches are separate entities entitled to separate treatment under tax law, and instead recognize that multinational corporations act as single firms conducting business activities across international borders. If it were the case, there would be no need from the multinational corporations to seek tax havens, inside the European Union or outside”.
Ifueko Okauru, ICRICT commissioner and former head of the tax revenue authority of Nigeria, said:
“Neighbouring countries should not compete with each other to attract investments by offering tax holidays and special tax deals. African countries should consider what can be done at a regional level to reduce corporate tax avoidance and aggressively monitor such proposals”.
ICRICT is a non-profit group of economists, tax experts and former senior officials which works to promote debate on reform of international corporate taxation, in the global public interest. Our latest report, “A roadmap to improve the the rules for taxing multinationals” is here.
- EU countries are estimated to lose €50-70 billion a year in revenues to tax avoidance by multinationals. Including losses due to other problems, such as special low-tax regimes, this could rise to €160-190 billion a year. Tax avoidance is made easier by dysfunctional global tax rules which treat the subsidiaries of multinationals in different countries as separate entities for tax purposes, rather than taxing each multinational as a whole.
- The Commission’s proposal for a Common Consolidated Corporate Tax Base will counter this problem by adding together the profits of each multinational in all the EU countries where it is active, then sharing out these profits to be taxed by these countries according to a formula which reflects its real economic activities.
- This system will eliminate mismatches between countries’ tax systems and the need for “transfer pricing” of transactions between different parts of the same multinationals, both of which are commonly exploited to avoid tax. This will reduce tax competition within the EU and encourage investment through by creating fair and predictable rules and a level playing field for companies.
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