EN Official Journal of the European Union C 366/51

P8_TA(2015)0408

Tax rulings and other measures similar in nature or effect

European Parliament resolution of 25 November 2015 on tax rulings and other measures similar in nature or effect (2015/2066(INI))

(2017/C 366/06)

The European Parliament,

— having regard to Articles 4 and 13 of the Treaty on European Union (TEU),

— having regard to Articles 107, 108, 113, 115, 116, 175 and 208 of the Treaty on the Functioning of the European Union (TFEU),

— having regard to its decision of 12 February 2015 on setting up a special committee on tax rulings and other measures similar in nature or effect, its powers, numerical strength and term of office (1),

— having regard to the revelations of the International Consortium of Investigative Journalists (ICIJ) on tax rulings and other harmful practices in Luxembourg, which have become known as ‘LuxLeaks’,

— having regard to the outcome of the G7, G8 and G20 Summits on international tax issues, in particular the Elmau Summit of 7-8 June 2015, the Brisbane Summit of 15-16 November 2014, the St Petersburg Summit of 5-6 September 2013, the Lough Erne Summit of 17-18 June 2013 and the Pittsburgh Summit of 24-25 September 2009,

— having regard to the Organisation for Economic Cooperation and Development (OECD) Report ‘Harmful Tax Competition: An Emerging Global Issue’ of 1998,

— having regard to the OECD Report ‘Addressing Base Erosion and Profit Shifting’ (BEPS) of 2013, the OECD’s action plan on BEPS and its subsequent publications,

— having regard to the recent European Council conclusions on the Common Consolidated Corporate Tax Base (14 March 2013), on taxation (22 May 2013), on the automatic exchange of information (18 December 2014), on Base Erosion and Profit Shifting (BEPS), the automatic exchange of information at global level and harmful tax measures (18 December 2014) and on tax evasion (27 June 2014),

— having regard to the Economic and Financial Affairs Council (ECOFIN) conclusions and its report to the European Council on tax issues of 22 June 2015,

— having regard to the six-monthly reports from the Code of Conduct Group (Business Taxation) to the Council on the Code of Conduct,

— having regard to the Administrative Cooperation Directive (2), the Interest and Royalties Directive (3) and the latest Commission legislative proposals to amend them,

— having regard to Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (4) (the ‘Parent-Subsidiary Directive’), as last amended in 2015,

— having regard to Directive 2014/56/EU of the European Parliament and of the Council of 16 April 2014 amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts (5),

— having regard to Council Regulation (EC) No 659/1999 of 22 March 1999 laying down detailed rules for the application of Article 108 TFEU (6),

— having regard to Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation and taxation of insurance premiums (7),

— having regard to Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC (8),

— having regard to the Commission communication of 26 February 2007 to the Council, the European Parliament and the European Economic and Social Committee on the work of the EU Joint Transfer Pricing Forum in the field of dispute avoidance and resolution procedures and on Guidelines for Advance Pricing Agreements within the EU (COM(2007)0071),

— having regard to the Commission notice of 10 December 1998 on the application of the state aid rules to measures relating to direct business taxation (9),

— having regard to the Commission communication of 17 June 2015 entitled ‘A fair and efficient corporate tax system in the European Union: 5 key areas for action’ (COM(2015)0302),

— having regard to the Commission communication of 18 March 2015 on tax transparency to fight tax evasion and avoidance (COM(2015)0136),

— having regard to the Commission communication of 6 December 2012 entitled ‘An Action Plan to strengthen the fight against tax fraud and tax evasion’ (COM(2012)0722),

— having regard to the Commission recommendation of 6 December 2012 on aggressive tax planning (C(2012)8806),

— having regard to the Commission recommendation of 6 December 2012 regarding measures intended to encourage third countries to apply minimum standards of good governance in tax matters (C(2012)8805),

— having regard to the Commission communication of 27 June 2012 on concrete ways to reinforce the fight against tax fraud and tax evasion, including in relation to third countries (COM(2012)0351),

— having regard to the Commission’s proposal of 2011 for a Council directive on a Common Consolidated Corporate Tax Base (CCCTB) (COM(2011)0121), and to Parliament’s position of 19 April 2012 thereon (10),

— having regard to the Commission communication of 25 October 2011 on ‘A renewed EU strategy 2011-14 for Corporate Social Responsibility’ (COM(2011)0681),

— having regard to the resolution of the Council and the Representatives of the Governments of the Member States of 1 December 1997 on a code of conduct for business taxation (11) and to the regular Code of Conduct Group (Business Taxation) reports to the Council,

— having regard to the Recommendation of 30 April 2014 adopted by the Committee of Ministers of the Council of Europe on the protection of whistleblowers,

— having regard to the 1999 Simmons & Simmons report on administrative practices mentioned in paragraph 26 of the 1999 Code of Conduct Group report, the Primarolo report (SN 4901/99) and the update of this report in 2009,

— having regard to the amendments adopted by Parliament on 8 July 2015 to the proposal for a directive of the European Parliament and of the Council amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement and Directive 2013/34/EU as regards certain elements of the corporate governance statement (12),

— having regard to its resolution of 8 July 2015 on tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries (13),

— having regard to its resolution of 25 March 2015 on the Annual Tax Report (14),

— having regard to its resolution of 11 March 2015 on the Annual Report 2013 on the Protection of the EU’s Financial Interests — Fight against fraud (15),

— having regard to its resolution of 23 October 2013 on organised crime, corruption and money laundering (16),

— having regard to its resolution of 21 May 2013 on the fight against tax fraud, tax evasion and tax havens (17),

— having regard to its resolution of 19 April 2012 on the call for concrete ways to combat tax fraud and tax evasion (18),

— having regard to its resolution of 8 March 2011 on Tax and Development — Cooperating with Developing Countries on Promoting Good Governance in Tax Matters (19),

— having regard to its resolution of 10 February 2010 on promoting good governance in tax matters (20),

— having regard to the various parliamentary hearings and consecutive reports on the same topic held in national parliaments and in particular in the UK House of Commons, the US Senate and the French Assemblée nationale,

— having regard to Rule 52 of its Rules of Procedure,

— having regard to the report of the Special Committee on Tax Rulings and Other Measures Similar in Nature or Effect (A8-0317/2015),

LuxLeaks: facts and figures

A. whereas the LuxLeaks scandal, which erupted on 5 November 2014 thanks to the International Consortium of Investigative Journalists, with the release of some 28 000 pages of confidential documents setting out more than 500 private tax arrangements between the Luxembourg tax administration and more than 300 multinational corporations (MNCs) between 2002 and 2010, revealed the extent of the use of secret deals featuring complex financial structures designed to obtain drastic tax reductions; whereas in many cases Luxembourg subsidiaries handling hundreds of millions of euros in business maintain little presence and conduct little economic activity in Luxembourg;

B. whereas issues related to corporate tax base erosion and aggressive tax planning practices have been known and analysed at international level for several decades at least; whereas LuxLeaks brought public and media attention to those issues, disclosing questionable tax practices promoted by accountancy firms in one specific Member State; whereas the Commission’s investigations and the work carried out by Parliament through its special committee have shown that this is not the only case, but that taking tax measures to reduce some large corporations’ overall tax liabilities so as to artificially increase the national tax base at the expense of other countries, some of which are subject to austerity measures, is a practice that is widespread within Europe and beyond;

C. whereas such behaviours, often resulting in disconnection between where value is created and where profits are taxed, is not limited to tax rulings, but encompasses a wide range of harmful tax practices, which are implemented by national tax administrations within and outside the EU;

D. whereas subjecting these practices to public scrutiny is part of democratic control; whereas, given their negative impact on society as a whole, they can only persist as long as they remain undisclosed, or are tolerated; whereas investigative journalists, the non-governmental sector and the academic community have been instrumental in exposing cases of tax avoidance and informing the public thereof; whereas, as long as they cannot be prevented, their disclosure should not depend on the courage and ethical sense of individual whistleblowers, but rather be part of more systematic reporting and information-exchange mechanisms;

Member States’ approach to corporate taxation

E. whereas corporate income tax revenue for the 28 Member States of the Union amounts to an average 2,6 % of GDP in 2012 (21);

F. whereas, according to the Treaty, direct taxation is mainly a competence of the Member States; whereas, to the extent that the EU has competence in taxation, the exercise of that competence is usually subject to the unanimity requirement within the Council; whereas this has resulted in no significant decisions being taken yet at EU level in the area of corporate taxation, despite recent developments in EU integration in connection with the internal market and other areas covered by the EU Treaties, such as international trade agreements, the single currency, economic and fiscal governance and anti-money-laundering principles and legislation; whereas the Member States must comply with European competition law and ensure that their tax legislation is compatible with the principles of the internal market and does not create distortion of competition; whereas, by giving each Member State a veto right, the unanimity rule within the Council reduces the incentive to move from the status quo towards a more cooperative solution; whereas, unless he procedure laid down in Article 116 TFEU is used, Treaty change would be required to change the unanimity requirement in matters of direct taxation;

G. whereas the current situation of each Member State having a veto right implies that all Member States have to act decisively and cooperatively in tackling the pan-European problem of tax evasion and avoidance;

H. whereas, with some laudable exceptions, national political representatives have not been sufficiently forthcoming up until now in addressing the problem of tax avoidance, including tax rulings;

I. whereas in the European internal market capital flows freely and large companies report their activities on a consolidated basis but tax is collected nationally by tax authorities exchanging very little information among them;

J. whereas, in a completed internal market, no artificial distortion should affect investment decisions and business location; whereas, however, globalisation, digitalisation and free movement of capital create the conditions for more intense tax competition between Member States, and with third countries, in order to attract investment and businesses; whereas it is important to keep and attract companies in Europe, but this should not take the form of potentially harmful tax schemes which are aimed at fostering investment and attracting additional economic activity in the first place, reacting to similar measures launched in neighbouring countries, or are intended to correct what are regarded as pre-existing imbalances between the Member States in terms of relative wealth, size or peripheral location; whereas, incidentally, in some jurisdictions there seems to be a correlation between attractive corporate tax systems and a high level of national wealth; whereas the optimal design for tax systems depends on numerous factors and therefore differs from one country to another; whereas harmful tax competition between Member States limits the potential of the single market;

K. whereas, instead of merely concentrating on the promotion of an attractive business climate with, for example, good infrastructure and a high-quality workforce, including through productivity-enhancing expenditure, and of ensuring the stability and predictability of the tax system, countries, in their role as players in the tax competition game, use their national legislation in conjunction with their tax treaty networks to promote themselves as countries to invest in, as hubs through which to channel financial flows or in which to book profits, thereby attracting businesses or letterbox companies at the expense of partner countries and creating unfair practices between them; whereas, taken in isolation, each country has a clear interest in adopting ‘free rider’ behaviour, i.e. in being the first to design and implement specific tax schemes and provisions to attract tax base, and the last to participate in any cooperative and coordinated action to tackle tax avoidance;

L. whereas tax competition exists between Member States; whereas the principle of sincere cooperation between the Union Member States is outlined in Article 4 TEU; whereas Member States should fully apply the principle of sincere cooperation in matters of tax competition;

M. whereas some Member States adopt an ambivalent position regarding tax avoidance, complaining on the one hand about their national tax base erosion while at the same time being responsible for the design of the current national and international tax systems which made it possible, and still impeding any development of their tax systems towards a more coordinated solution; whereas, in a framework of full capital mobility within the EU and with the Commission’s stated aim of introducing a Capital Markets Union, the interdependence and mutual effects of national tax systems and revenue should be fully taken into account, bearing in mind the extensive positive and negative cross-border spillovers from individual Member States’ tax decisions, since one country’s tax incentive is another’s base erosion;

N. whereas we are observing a paradox whereby free competition between Member States in tax matters has resulted in anti-competitive behaviours and distortions of competition;

O. whereas the introduction of the European single market has proved highly beneficial to national economies, making them more competitive and attractive in a globalised economy, and whereas tax convergence between Member States will ultimately have the same effect;

P. whereas the legislator and often insufficiently resourced tax administrations cannot anticipate, but only react, sometimes with great delay, to the innovative tax avoidance schemes which are designed and promoted by some tax advisers, in particular from very large accountancy firms, by lawyers and by intermediary companies; whereas, in particular, experience shows that EU bodies which should prevent the introduction of new harmful tax measures (such as the Code of Conduct Group set up by Member States in 1998 or the Commission, as guardian of the Treaties) have proved incapable of countering these undesirable developments, sometimes reacting in an ineffective way or on the basis of too a limited mandate, and that many new and often aggressive tax avoidance measures or agreements, such as patent boxes, have been introduced in the EU; whereas MNCs are relying, in the EU and worldwide, on the expertise of a well-organised and skilled sector of tax advisers, as well as banks and other financial service providers, for the development of their tax avoidance schemes; whereas this sector is at the same time represented in bodies advising governments and public institutions on tax matters, such as, for instance, the EU Platform for Tax Good Governance; whereas there are concerns over the conflicts of interest that might arise from the provision by the same firms of advice to both public authorities and private MNCs;

Q. whereas all tax planning should take place within the boundaries of the law and the applicable treaties; whereas, consequently, the most appropriate answer to aggressive tax planning is good legislation and international coordination as to desired outcomes;

R. whereas implementation of legislation is decisive for the achievement of the intended objectives; whereas such implementation is matter for national administrations which have often few incentives to cooperate with each other at European level; whereas this situation adds to and worsens the divergences already arising from differences in legislations across the Union;

S. whereas the Troika of institutions (European Commission, European Central Bank and the International Monetary Fund) overseeing financial and fiscal adjustment programs in Member States such as Portugal and Greece did not attempt to prevent tax amnesties, tax rulings, tax benefits and tax exemption schemes which were and are unfairly discriminatory, favouring tax dodging corporations and individuals, causing high bleeding of State revenues and increasing the burden on already overtaxed small and medium-sized enterprises (SMEs) and citizens;

T. whereas the investigation and prosecution of tax crimes and money laundering, often involving financial operations and legal persons in several jurisdictions, is extremely challenging; whereas Member States’ personnel in charge of investigating and conducting judicial prosecutions against offenders of tax crimes and other financial crimes are often under-trained and under-equipped;

U. whereas policies of austerity and budget containment in the past few years have significantly reduced the tax administrations’ ability to investigate tax crimes and harmful tax practices; whereas these cuts were particularly harmful in countries under programs of financial assistance led by the Troika, where the increase of state revenues was achieved at the expense of overtaxed SMEs and citizens, while big corporations and wealthy tax dodgers often benefitted from tax amnesties, tax rulings and other tax exemptions and benefit schemes, as was the case in Portugal and Greece;

Tax rulings and harmful tax practices

V. whereas tax rulings cover a wide range of practices in Member States, ranging from ad-hoc policy to a clearly framed application of the law, in terms of possible scope and topics covered, binding nature, frequency of use, publicity, length and payment of fees; whereas there is no commonly agreed definition of tax rulings at international level except for the Commission’s reference to them as ‘any communication or any other instrument or action with similar effects, by or on behalf of the Member State regarding the interpretation or application of tax laws’;

W. whereas tax rulings are not intrinsically problematic since they can, as is their original purpose, provide legal certainty for the taxpayer and reduce the financial risk for honest firms in cases where the tax laws or their particular application in certain circumstances are unclear or subject to diverging interpretations, in particular with regard to complex transactions, and thereby avoid future disputes between the taxpayer and the tax authority;

X. whereas the practice of rulings developed, in the framework of a closer and more cooperative relationship between tax administrations and taxpayers, as a tool to tackle the increasing complexity of the tax treatment of certain transactions in an increasingly complex, global and digitalised economy; whereas — despite Member States’ asserting that rulings are not discretionary, but merely a tool to clarify existing tax legislation, while keeping them secret — its special committee’s work has confirmed that tax rulings can be issued without any legal framework through informal or discretionary arrangements, that support tax-driven structures which rely on tax planning tools typically used by MNCs to reduce their tax contribution; whereas this seems to be an issue particularly — although not exclusively — with rulings related to pricing of intra-company transfers (so-called Advance Pricing Agreements); whereas, in providing legal certainty only to some selected actors, they might create inequality between companies to which they have been granted and companies in the same sector which have no access to them;

Y. whereas neither the OECD nor the European Commission have called for an end to the practice of tax rulings as such;

Z. whereas advanced tax rulings are not supposed to affect in any way the tax treatment of any transaction, nor benefit one taxpayer over another, but rather should have, everything being equal, the same effect as the ex post application of the underlying tax provisions; whereas, accordingly, the focus of this report is not strictly limited to tax rulings but includes, in line with the mandate given to its special committee (TAXE), any tax measure similar in nature or in effect, under the generic term of ‘harmful tax practices’, i.e. measures aimed at attracting non-resident firms or transactions at the expense of other tax jurisdictions in which these transactions should normally be taxed and/or measures aimed at privileging only some companies, thus distorting competition;

AA. whereas harmful tax practices can, to some extent, be connected to one or several of the following undesirable effects: lack of transparency, arbitrary discrimination, distortions of competition and an uneven playing field within and outside the internal market, an impact on the integrity of the single market, and on the fairness, stability and legitimacy of the tax system, more taxation on less mobile economic factors, increased economic inequalities, unfair competition between states, tax base erosion, social dissatisfaction, mistrust and a democratic deficit;

AB. whereas it should be acknowledged that, while SMEs remain the driving force of the economy and of employment in Europe, multinational companies also play a key role in generating investment, economic growth and jobs; whereas paying their fair share of tax in the countries where the actual economic activity and value creation takes place remains a key contribution by those companies to the welfare and sustainability of European societies;

The work of the Special Committee

AC. whereas its competent special committee, constituted on 26 February 2015, held 14 meetings, during which it heard Commission President Jean-Claude Juncker, Competition Commissioner Margrethe Vestager, Economic and Financial Affairs, Taxation and Customs Commissioner Pierre Moscovici, the President-in-office of the Council Pierre Gramegna, the Ministers of Finance of France, Michel Sapin, Germany, Wolfgang Schäuble, Italy, Pier Carlo Padoan, and Spain, Luis de Guindos, OECD representatives, as well as whistleblowers, investigative journalists, experts, academics, representatives of MNCs, professional associations, trade unions, non-governmental organisations and members of EU national parliaments (see Annex 1); whereas delegations from the TAXE Committee visited Switzerland, to look into specific aspects of the third-country dimension of its mandate, and the following Member States, to conduct fact-finding missions: Belgium, Luxembourg, Ireland, the Netherlands and the United Kingdom; whereas meetings with Government representatives of Gibraltar and Bermuda were also organised; whereas all these activities, while yielding diverse and invaluable insights into the tax systems and practices across the EU, did not clarify all pertinent questions, including remaining inconsistencies in the statements made by Commission President Jean-Claude Juncker with respect to the long-time secret page of the Krecké report;

AD. whereas some of the committee’s work was hindered by the fact that a number of the Member States and the Council did not reply in due time (see Annex 2) and, in the end, did not forward all the documents requested or simply made courtesy replies that hardly touched upon the substance of the requests made; whereas out of 17 MNCs invited, only four agreed to appear before the committee in June and July 2015 at the first invitation; whereas a further 11 MNCs agreed to appear before the committee only after the report was voted in the TAXE Committee and after repeated invitations, such that a new extraordinary meeting had to be convened shortly before the vote in plenary (see Annex 3); whereas the Commission did not fully cooperate either and send all room documents and informal meeting notes from the Code of Conduct meetings, only offering, because of some Member States’ intransigence, a limited consultation procedure; whereas the committee’s term of office therefore had to be extended;

AE. whereas a number of state aid investigations by the Commission, in relation to transfer pricing arrangements, validated by tax rulings and other measures similar in nature or effect which affect the taxable profit allocated to certain MNC subsidiaries, were still in progress at the time of the adoption of this report;

Overview of corporate tax practices in the Member States

1. Recalls that the models of corporate taxation existing in industrialised countries were designed in the first half of the 20th century, a period in which cross-border activity was limited; notes that globalisation and digitalisation of the economy have radically altered the global value chain and the way markets operate and that most large companies now have a transnational structure which necessitates to go beyond national tax rules; stresses that national and international rules in the field of taxation have not kept pace with the evolution of the business environment;

2. Stresses the need to formulate a balanced and fair tax policy as an integral part of structural reform in the Member States;

3. Notes that, while compliance with various tax systems has become increasingly complex for firms operating across borders, globalisation and digitalisation have made it easier for them to organise their activities through off-shore financial centres and to create sophisticated structures in order to reduce their global tax contribution; is concerned that, owing to the economic and debt crisis and to budget consolidation, most Member States have significantly reduced their tax administration staff; stresses that national tax administrations should have sufficient resources, including human resources, to operate effectively in the prevention and detection of, and the fight against, aggressive tax planning, tax evasion and tax avoidance, which generate substantial erosion of their tax base, and ensure better and fairer tax collection and the credibility of the tax system; notes that studies have shown that skilled staff in tax administrations bring in significantly more revenue to the state than related expenditures, as the effectiveness of tax administrations has a direct positive impact on tax revenues;

4. Stresses the difference between, on the one hand, harmful practices of certain tax and national administrations allowing MNCs to shift profits in order to avoid taxation on the territories where profits were generated and, on the other hand, governments’ competition in attracting foreign direct investment (FDI) or keeping economic activities within the country in full compliance with the EU legislation;

5. Stresses that the Treaty, in line with the subsidiarity principle, allows Member States to determine their own corporate tax rates and tax base until stronger tax convergence measures have been agreed in line with the Treaty; stresses also, however, that the over-complex rules of national tax systems, together with the differences between these systems, create loopholes that are used by MNCs for aggressive tax planning purposes, thus leading to base erosion, profit shifting, a race to the bottom and, ultimately, a suboptimal economic outcome; underlines the fact that this kind of tax avoidance is a negative-sum game for all national budgets taken together, as the increases in tax revenues resulting from harmful practices in one Member State (thanks to derogations, specific deductions or loopholes) do not compensate for the reductions in tax revenues in others; points out that only a more coordinated, joint approach by Member States, which should result in a common framework within which Member States set their tax rates, can prevent further base erosion, harmful tax competition and a tax rate race to the bottom;

6. Recalls that some Member States have formally higher company taxes than others, but, in reality, owing to deductions and loopholes which favour domestic business, rates are substantially lower, making the effective tax rate lower than in Member States with a formally low rate;

7. Points to the fact that lower company tax in some Member States can provide for a relative higher tax income than what higher tax rates provide for;

8. Notes that, according to the Commission (22), statutory corporate income tax rates in the EU fell by 12 percentage points, from 35 % to 23 %, between 1995 and 2014; stresses that this decrease in tax rates is accompanied by a broadening of the tax base to mitigate revenue losses and that the relatively stable revenue stemming from corporate taxation in the same timeframe can also be explained by a substantial ‘incorporation’ trend, i.e. a shift from certain legal forms of doing business, such as (sole) proprietorship, to corporation status, which results in a similar shift from a personal to a corporate tax base;

9. Notes that most Member States spend large amounts on tax incentives meant to give SMEs a competitive advantage but that, according to the Commission (23), these attempts are undermined by the effect of international tax planning in three out of four Member States surveyed in a recent study; notes that such effects put SMEs at a competitive disadvantage despite the large costs associated with tax expenditures to support these and that such results undermine the intention of national policy makers;

10. Highlights the growing gap between statutory and effective tax rates, in particular for firms operating at global level, which reflects at least in part various derogations and exemptions from the general tax regime, whether intended by the legislator to reach specific objectives or resulting from aggressive tax planning, i.e. from creating purely artificial arrangements for taxation purposes only;

11. Emphasises that mismatches between tax systems at a global level contribute to significant tax base erosion and tax evasion, but that action at EU level only will not deal with these issues;

12. Notes the great diversity of the 28 tax systems in the EU, as regards both the definition of the tax base and the level of the tax rate, which is even greater if one takes into account those special jurisdictions with autonomous tax systems that are connected to EU Member States (overseas territories and Crown dependencies); deplores the fact that basic notions and elements, such as the balance between source and residence taxation, permanent establishment and taxable entities, economic substance and anti-abuse rules, the definition of interest and royalties, the treatment of intangibles, the treatment of debt and equity, let alone what can or cannot be deducted from the tax base, are currently not subject to any joint definition or guidelines in the EU, leaving Member States with uncoordinated tax systems; stresses that it is necessary to harmonise these definitions;

13. Stresses that national preferential regimes and mismatches between the different tax systems within the single market create opportunities for tax avoidance; notes that these undesirable effects are further aggravated by the interaction with a great number of bilateral tax treaties between Member States and third countries, and insufficient anti-abuse provisions therein;

14. Notes that this uncoordinated tax framework within the EU also suffers from a blatant lack of cooperation between Member States; stresses, in this connection, that Member States do not necessarily take into consideration the impact of their tax measures on other Member States, not only when they design their tax measures but also when they share information on the implementation of such measures, leading to a de facto beggar-thy-neighbour policy in tax matters, which is contrary to the very foundations of the European project; points out that an automatic, systematic and efficient exchange of information between Member States would make it possible to take account of the tax treatment of specific income flows or transactions in other Member States; stresses that this also contributes to creating an unacceptable situation in which the profits generated by MNCs in a Member State are often taxed at very low rates or not at all in the EU;

15. Believes that fiscal policy and competition policy should be seen as two sides of the same coin in the internal market and calls on the Commission to reassess and enhance available instruments and resources for competition policy and state aid;

16. Emphasises that convergence between national tax systems in the EU has been very limited despite an unprecedented deepening of the EU integration process over the last 30 years, particularly in connection with the single market and the Economic and Monetary Union; deplores the fact that coordination of national tax systems lags far behind when compared with coordination efforts in other areas at EU level, in particular in the framework of the European Semester, although, apart from the relevance of measures on the expenditure side, a significant part of the policy mix to ensure fiscal consolidation concerns the revenue side; takes the view that this aspect should have been mentioned in the Five Presidents’ report on ‘Completing Europe’s Economic and Monetary Union’ of June 2015;

17. Stresses that the lack of political will to bring about convergence between national fiscal policies induces Member States to opt for a bilateral approach, whereas a common approach would be more effective; recalls the option of working towards fiscal convergence using enhanced cooperation; welcomes, in this light, the desire of certain Member States to institute a financial transaction tax;

Aggressive tax planning instruments and their impact

18. Stresses that tax avoidance by some MNCs can result in close-to-zero effective tax rates for the profits generated in European jurisdictions, highlighting the fact that such MNCs, while benefiting from various public goods and services where they operate, do not pay their fair share, thereby contributing to national tax base erosion and greater inequalities; stresses also that the possibility to shift profits is only available to companies undertaking cross-border activities which penalises competitors only active in one country;

19. Notes with great concern that corporate tax avoidance has a direct impact on national budgets and on the breakdown of the tax effort between categories of taxpayers as well as between economic factors (to the benefit of the most mobile factors such as capital in the form of FDI); deplores the fact that, in addition to competition distortions and an uneven playing field, this results in an extremely worrying situation where, in a context of intense fiscal consolidation and structural reform efforts, some of those taxpayers with the highest ability to pay contribute significantly less than those most affected by the economic, financial and debt crisis, such as ordinary citizens and firms not using aggressive tax planning, which often belong to the SME category and are often unable to compete with MNCs because of this comparative tax disadvantage; stresses that this situation risks feeding democratic mistrust and affecting overall tax compliance, particularly in those countries subject to adjustment programmes; deplores the fact that whistleblowers, who provide national authorities, in the public interest, with crucial information about misconduct, wrongdoing, fraud or illegal activities or practices, can be subject to legal prosecution, as well as to personal and economic repercussions; notes with great concern that even journalists uncovering illegal or illegitimate practices have at times faced similar consequences;

20. Notes that research by the IMF (24) covering 51 countries concludes that profit shifting between tax jurisdictions results in an average revenue loss of about 5 % of current corporate income tax revenue — but of almost 13 % in non-OECD countries; notes also that, according to the Commission, econometric evidence shows that FDI’s sensitivity to corporate taxation has increased over time; underlines the fact that, according to a study, an estimated EUR 1 trillion of potential tax revenue is lost each year through the combined effect of tax fraud, tax evasion, including the shadow economy, and tax avoidance in the EU (25), and that estimates point to yearly losses to national budgets of around EUR 50-70 billion as a result of tax avoidance, but that these revenue losses across the EU could in reality amount to around EUR 160-190 billion if special tax arrangements, inefficiencies in collection and other such activities were taken into account (26); whereas the UN Commission for Trade and Development has calculated that developing countries lose around USD 100 billion per year in revenues through tax avoidance by MNCs; stresses that these figures should be considered with caution and may underestimate the actual losses to national budgets, given the limited transparency and different accounting and conceptual frameworks around the globe, which affect the availability of comparable and meaningful data and the reliability of any estimate;

21. Notes that tax planning strategies can be based on the structuring of corporations, financing arrangements for their branches or transfer pricing disconnected from real economic activities, allowing artificial shifting of profit across jurisdictions with the objective of reducing the global tax contribution of companies; notes with great concern that a growing number of letterbox companies are used in the EU but are companies only in name and are used exclusively for tax evasion purposes; notes the specific example of McDonalds, whose tax practices were shown in a report by a coalition of trade unions to have cost European countries over EUR one billion in lost taxes between 2009 and 2013 (27);

22. Takes the view that national preferential regimes and the poor level of coordination or convergence between the Member States’ tax systems, despite the effective economic interconnections and interplay within the internal market, result in a number of mismatches that allow aggressive tax planning, double deductions and double non-taxation, for instance through one or a combination of the following practices: abusive transfer pricing, locating deductions in high-tax jurisdictions, passing on funds raised by loans through conduit companies, risk transfer, hybrid financial products, exploiting mismatches, tax arbitrage, royalty agreements, treaty shopping, and locating asset sales in low-tax jurisdictions;

23. Stresses that, during its fact-finding missions in five Member States and Switzerland, its special committee observed that a number of national tax measures, often used in combination by MNCs, had the potential to be harmful tax practices, in particular the following, which should only be considered as a non-exhaustive list: — abusive use of tax rulings or settlement agreements to go beyond simple clarification of the existing legislation and get preferential tax treatment, — diverging definitions of permanent establishment and tax residence, — little or no consideration for economic substance which allows the creation of special purpose entities (e.g. letterbox companies, shell companies…) with a lower tax treatment, — deduction of notional interests (enabling companies to deduct from their taxable income a fictitious interest calculated on the basis of their shareholders’ equity), — excess profit ruling practices (through which a company may obtain written confirmation from the tax administration that its taxable income does not include those profits that would not have been realised in a ‘stand-alone’ situation), — unclear or uncoordinated transfer pricing provisions, — a number of preferential regimes, in particular in relation to intangibles (patent, knowledge or IP boxes), — refund or exemption of withholding tax on interest, dividends and royalties through bilateral tax treaties and/or as laid down in national legislation, — differences in legal designations between Member States (hybrid entities or hybrid loans, where interest expenses change to exempted dividends), — in the case of Switzerland, special tax regimes at cantonal level for foreign-controlled companies which are not granted to nationally controlled companies (so-called ring-fencing regimes), — a lack of effective General or Specific Anti-Abuse Rules or a weak enforcement or interpretation of such rules, — and structures that can obscure the beneficial owner of assets and may not be subject to information exchange regimes, such as trusts and so-called ‘freeports’;

24. Takes note that, according to the Commission (28), 72 % of profit shifting takes place in the EU through the channels of transfer pricing and location of intellectual property;

25. Stresses that a number of Member States have in recent years developed specific corporate tax reduction schemes to attract companies’ mobile intangible assets, such as income resulting from intellectual property; notes the variety in the tax rate reductions and allowances and in the scope of the schemes proposed (innovation boxes, intellectual property boxes, knowledge boxes, patent boxes, etc.); stresses that, in some Member States, taxpayers do not need to produce intellectual property themselves and/or within the country in order to access tax benefits, but merely to acquire it through a company which has its residence within the jurisdiction; stresses, therefore, that any fiscal benefits for R&D must be linked to real expenditures in the said jurisdiction;

26. Stresses furthermore that the costs of research and development can be already claimed against tax under the national tax systems even without patent boxes, and that patent boxes thus contribute to tax avoidance in a way that runs counter to the system;

27. Considers such schemes to be examples of harmful tax competition between states, because while their connection with and impact on the real economy is, in most cases, non-existent, they have the effect of reducing the tax revenue of other countries, including Member States; notes that in a review of R&D tax incentives the Commission (29) finds that ‘Patent boxes seem more likely to relocate corporate income than to stimulate innovation’;

28. Stresses that, in an economic environment characterised by more intangible assets, transfer pricing is often affected by the lack of comparable transactions and benchmarks, which makes the sound application of the arm’s length principle, according to which the pricing of transactions between entities belonging to the same corporate group should be valued in the same way as between independent entities, a challenging exercise;

29. Notes that the existing guidelines for transfer pricing leave MNCs a significant margin of discretion in the choice and implementation of evaluation methods; stresses that the lack of any effective common standard for transfer pricing and the various derogations, exceptions and alternatives provided for are being exploited by MNCs, in contradiction with the spirit of those guidelines, to calibrate their taxable profits by jurisdiction and reduce their overall tax liability through, for instance, abusive cost-plus, arbitrary setting of profit margins or the questionable exclusion of certain expenditure from their calculation; stresses that the best way to address the issue of transfer pricing at EU level is through common tax base consolidation, which does away with the need for these prices;

30. Underlines the fact that transfer pricing files submitted by MNCs or their representatives cannot be properly monitored by tax administrations, which are often not sufficiently equipped and staffed to critically and thoroughly examine those analyses and their outcome or impact;

31. Deplores the fact that, in an economic context where 60 % of world trade is intra-group (30), guidelines for the application of this purely economic concept are fragmented at national level and therefore subject to inconsistencies between Member States and legal disputes;

32. Underlines, moreover, the fact that, despite the significant number of legal disputes in the EU stemming from differing interpretations of the same transfer pricing principles, no efficient dispute resolution mechanism is in place at European level; notes that the settlement of cases put forward to the EU arbitration convention on transfer pricing can take up to eight years, contributing to legal uncertainty for companies and tax administrations;

33. Stresses the crucial role of large accounting firms, including the ‘Big Four’, in the design and marketing of rulings and tax avoidance schemes that exploit mismatches between national legislations; stresses that those firms, which seem to derive a considerable amount of their revenue from tax services, to dominate most Member States’ auditing markets and to prevail in global tax advising services, constitute a narrow oligopoly; considers that such a situation cannot continue without damaging the functioning of the single market in the fields of activity of the ‘Big Four’; draws attention to the conflict of interest resulting from the juxtaposition, within the same firms, of tax advice and consulting activities intended, on the one hand, for tax administrations and, on the other, for MNCs’ tax planning services, which exploit the weaknesses of national tax laws; takes the view that good practices in this respect must be promoted and that existing codes of conduct should be improved; questions, nevertheless, the effectiveness of corporate codes of conduct and corporate social responsibility policies in tackling this issue; underlines the fact that tax rulings have become, in the EU and worldwide, a common business practice, not only in order to obtain legal certainty or advantageous tax deals, but also in cases where legislative provisions do not allow any room for interpretation; is concerned by estimations from the tax advice industry that a mere 50 % chance of being lawful is sufficient for a tax planning scheme to be recommended to clients (31);

34. Calls on tax authorities to improve and diversify their sources of know-how and to substantially improve the process of impact assessment in order to reduce the risks of unexpected consequences of new tax measures; reminds Member States that not only differences between tax systems, but also excessively high complexity of national tax systems and low stability, with too frequent changes, are important contributors to the creation of tax gaps, unfairness of tax systems and low credibility of tax policy; underlines in this respect the obstacle that tax fragmentation poses for the creation of a European Capital Market Union;

State of play and assessment of EU, international and national actions

35. Recognises that, following the economic crisis and, in addition, the LuxLeaks scandal, addressing aggressive tax planning by MNCs has been high on the political agenda of Member States, the EU, the OECD and the G20, but regrets that, so far, with exemption of G20 sponsored BEPS project of OECD that has just been completed and is not implemented by countries yet, no significant progress has been made in practical terms;

36. Notes, against this background, that many Member States have introduced or intend to adopt measures to tackle tax avoidance, in particular in connection with the limitation of the deductibility of interests, anti-abuse rules, a better definition of the notion of permanent establishment (including the development of economic substance tests to determine the taxable presence of firms more effectively), the possible exclusion of misbehaving firms from public tenders, or the publication of tax planning schemes that can be instrumental in regaining credibility of the tax system and in reducing the time gap between the establishment of specific schemes and the adoption of corrective action, including at legislative level;

37. Is concerned, nonetheless, that in the absence of a cooperative approach, unilateral measures taken by Member States against tax base erosion may contribute to increasing complexity, generating new mismatches and, as a result, more opportunities for tax avoidance within the internal market; stresses that any divergent implementation by Member States of international or EU guidelines can have the same effect;

38. Welcomes the various initiatives and legislative proposals by the Commission over the last 20 years, including the most recent, aimed at moving towards stronger coordination of Member States’ corporate tax systems with a view to reinforcing the internal market, addressing double taxation or double non-taxation issues and preserving the right of Member States to tax effectively; deplores, nevertheless, the fact that, to date, only a small number of these have been adopted by the Council, due to the unanimity requirement and the fact that certain Member States persist in considering that they have more to gain individually from loopholes in the uncoordinated tax system than they would collectively in a coordinated one;

39. Welcomes the publication of a new set of fiscal policies and calls on the Commission to seek to ensure a fair tax system based on the principle of taxation in the Member State where profits are generated, thus avoiding internal market distortion and unfair competition;

40. Stresses that the Code of Conduct Group on Business Taxation (the ‘Group’), set up in 1998 by Member States, made it possible in the late 1990s and the early 2000s to eliminate what constituted the most harmful individual tax practices at the time through the double-track soft law approach of ‘rolling back’ existing tax measures that constituted harmful tax competition and refraining from introducing any such measures in the future (‘standstill’);

41. Deplores the fact that the Group’s work seems to have lost momentum; notes that some of the more than 100 measures which have been rolled back as a result of its activity have been replaced in Member States by tax measures with similar harmful effects; notes that tax authorities have countered the Group’s recommendations by creating new structures with the same harmful effects as those rolled back by the Group; deplores the fact that past attempts to strengthen its governance and mandate, and to adjust and broaden the working methods and criteria set in the Code, with the aim of combating new forms of harmful tax practices within the current economic environment, have not been successful; supports the Commission’s latest proposals on this matter, as set out in its action plan of 17 June 2015 for fair and efficient corporate taxation in the EU;

42. Deplores the fact that, despite ambitious objectives which have been proclaimed since 1997, tax competition has persisted between Member States, arising less from differences in tax rates than from the heterogeneity of national rules for establishing what constitutes taxable profits, invariably illustrated for several decades by the disparities between the nominal and the actual corporate tax rates applied by the Member States;

43. Deplores also the fact that the Group’s original status and governance arrangements left too much room for political negotiations and compromises in seeking to reach ‘broad consensus’ (i.e. quasi-unanimity effectively, with the possibility to express disagreement in footnotes) on the assessment of harmful practices, thus affecting the reliability and completeness of its work and sometimes leading to the deliberate non-publication or the non-following up of reports, such as the 1999 report by Simmons & Simmons on administrative practices; considers it regrettable that the rollback of existing measures suffered from political delays and, in some cases, allowed the inclusion of new beneficiaries after the deadline, which is also related to the Group’s very weak accountability and monitoring mechanisms;

44. Stresses more fundamentally that the Code’s case-by-case approach, while having resulted in Member States now competing more with general measures, does not address the systemic weaknesses of a fragmented corporate tax framework in the EU, which requires a more substantial overhaul;

45. Notes also the efforts made through the creation of the Platform for Tax Good Governance, which brings various stakeholders around the same table with the aim of creating consensus around the issue of tax avoidance, in particular in an international context, and the Joint Transfer Pricing Forum, which issues a number of guidelines on the technical issues surrounding transfer pricing; stresses that, to date, these bodies have contributed to making limited corrections to the corporate tax framework; regrets that the guidelines issued by the Joint Transfer Pricing Forum so far have not sufficiently tackled the issue of tax avoidance; deplores the fact that the composition of the Joint Transfer Pricing Forum, despite a recent update of its membership, is still unbalanced; objects, moreover, to the fact that tax experts contribute to the work on guidelines on transfer pricing while, at the same time, they may be advising their clients on aggressive tax planning strategies based on transfer pricing, and thus be in a position of conflict of interest;

46. Stresses that EU legislation (the Parent-Subsidiary, Interest and Royalties, Mergers and Administrative Cooperation Directives) though covering limited aspects linked to corporate taxation, has been able to tackle specific issues faced by Member States and firms operating in several countries; highlights the fact that these measures, originally designed to eliminate double taxation, have some unintended counter-productive effects on tax avoidance and sometimes lead to double non-taxation; welcomes the recent adoption by the Council of amendments to the Parent-Subsidiary Directive aimed at introducing a general anti-abuse clause and tackling hybrid loan mismatches, which will be entering into force at the end of 2015, expecting that this will help remove some of the opportunities for tax avoidance in the EU;

47. Recalls the provisions of Council Directive 2011/16/EU on administrative cooperation aimed at implementing the exchange of all relevant financial information; takes the view that an automatic, immediate and comprehensive exchange, and efficient processing, of tax information would have a strong deterrent effect against tax evasion and the introduction of harmful tax practices and would allow Member States and the Commission to have all the relevant information at their disposal in order to react to them;

48. Deplores the fact that the current legislative and monitoring framework for the exchange of information about tax measures is not effective, given that evidence has demonstrated that the existing requirements for spontaneous or on-demand exchanges of information are not being complied with; deplores the fact that practically no Member State exchanges any information which may have an effect on partner countries of the EU; regrets the lack of coordination between the Commission and the competent authorities of the Member States;

49. Regrets that tax information is hardly ever exchanged spontaneously between Member States; welcomes automatic exchange of information that is no longer based on reciprocity; draws attention to the structural design problems of a system based on discretion as to what should be communicated or not and accompanied by weak monitoring systems, which make any violation of the exchange information requirement very difficult to identify;

50. Welcomes the Commission’s commitment to promoting the automatic exchange of tax information as the future European and international standard for transparency; urges it, as a first step, to fulfil its duty as guardian of the Treaties and take all the necessary action to ensure that existing EU law and the principle of loyal cooperation between Member States laid down in the Treaties are duly complied with; welcomes the proposal by the expert group on automatic exchange of financial account information to look at possibilities to support developing countries with automatic information exchange by granting non-reciprocal exchange agreements;

51. Notes that state aid rules and sanctions are useful as a means of addressing the most abusive and distortive harmful tax practices and can have a significant deterrent effect;

52. Welcomes the Commission’s Tax Transparency Package on automatic exchange of information between Member States on their tax rulings, of March 2015, and the action plan for a fair and efficient corporate tax system in the EU of June 2015; stresses, however, that these texts can only be seen as first steps in the right direction and that a consistent framework of legislative provisions and administrative coordination is needed as a matter of urgency, including for the benefit of SMEs and those MNCs that are helping to create genuine economic growth and are paying their fair share of taxes within the internal market;

53. Welcomes the recent agreement on the OECD BEPS action plan which, following successive calls for action at the G7 and G20 summits, attempts to address the individual issues affecting the functioning of the international corporate tax system by putting forward global and systematic action to tackle them; regrets the late and unequal inclusion of developing countries in the OECD BEPS process, in which they should have participated fairly; also regrets that some outcomes of the BEPS action plan do not go further in areas such as harmful tax regimes, digital economy and transparency;

54. Notes that, following a systematic analysis of the ‘pressure points’ of the international tax system, the BEPS action plan was delineated into 15 action points, of which seven were endorsed by the G20 in November 2014, and the others delivered upon in October 2015; stresses that, against the background of an evolving business environment, those actions seek to address transparency issues, e.g. by issuing guidelines on country-by-country reporting, the lack of substance in certain tax avoidance arrangements and greater consistency in international rules;

55. Warns, nevertheless, against compromises which could fall short of the initial ambitions or lead to diverging interpretations at national level; stresses, moreover, that until now, there has been hardly any effective monitoring of the implementation of OECD guidelines in the countries which endorsed them, and that even the best designed solutions cannot be effective if they are not monitored and implemented appropriately;

56. Stresses the complementary nature of EU and OECD activity in this field; takes the view that, given its degree of integration, the EU must go further than the BEPS proposals in terms of coordination and convergence aimed at avoiding all forms of harmful tax competition within the internal market; is convinced that, while ensuring that its competitiveness is not adversely affected, the EU could put in place more effective tools to ensure fair tax competition and the right of Member States to operate effective taxation on profits generated in their territories;

Commission state aid investigations: overview and results

57. Stresses that, within the internal market, new entrants and firms, including SMEs, that do not use aggressive tax practices are penalised as compared with MNCs, which are able to shift profits or implement other forms of aggressive tax planning through a variety of decisions and instruments, available to them only by virtue of their size and their ability to arrange business internationally; notes with concern that, all other things being equal, the resulting lower tax liabilities leave MNCs with a higher post-tax profit and thereby create an uneven playing field with their competitors on the single market who do not have recourse to aggressive tax planning and keep the connection between where they generate profit and their place of taxation; points out that this distortion of a level playing field in favour of multinationals contradicts the fundamental principle of the single market;

58. Stresses that the OECD (32) points to the use by some MNCs of strategies that allow them to pay as little as 5 % in corporate taxes when smaller businesses are paying up to 30 %, and is deeply concerned that, according to some studies (33), the corporate tax contribution of cross-border companies is up to 30 % lower, on average, than that of domestic companies operating in only one country; finds it unacceptable that, as a result of those strategies, some MNCs can pay a very low effective corporate tax rate while some SMEs have to pay their full share of tax;

59. Stresses that this distortion of economic operators’ decisions, taken on the basis of expected post-tax returns, results in a sub-optimal allocation of resources within the EU and tends to lower the level of competition, thereby affecting growth and employment;

60. Underlines the fact that some harmful tax practices may fall within the scope of tax-related state aid rules, in particular in so far as that they can, in the same way, grant ‘selective’ advantage and entail distortions of competition within the internal market; notes that, in the past, the State Aid and Code of Conduct Group processes have mutually supported each other, notably in 1999 and in the first half of the 2000s; stresses that the enforcement of EU competition rules has added legal pressure as a complement to the soft-law decision-making process in the Group, partially compensating for the lack of any other effective tool to remedy the issue of tax avoidance at EU level;

61. Acknowledges the important developments that have taken place in the last 20 years with respect to the Commission’s analytical framework for tax-related state aid, which have made it possible to move towards more clarity in the definition and analysis of state aid through tax measures, as well as more systematic action against such measures; notes, in particular, the Commission’s 1998 guidelines on the application of state aid rules to measures relating to direct business taxation, the 2004 report thereon and various important case law decisions in the 2000s; welcomes, within the State Aid Modernisation process promoted by the Commission, the launch in 2014 of a public consultation on draft guidelines aimed at clarifying the notion of state aid pursuant to Article 107 TFEU, which includes elements on tax-related state aid and, in particular, tax rulings;

62. Notes that, in recent decades, an increasingly settled European Court of Justice (ECJ) case law has emerged on the application of state aid law to the Member States’ tax measures, most recently in the Gibraltar case in 2011 (34);

63. Notes that the ECJ stressed the principle of ‘substance over form’ and hence that the economic impact of a measure is the reference criterion for its evaluation;

64. Notes, therefore, that the ECJ has derived from the ban on state aid far-reaching requirements for the Member States’ legislative responsibility in tax matters;

65. Notes that the concept of ‘nature and general scheme of the national system’ is a central reference in assessing whether direct or indirect tax measures are selective or not, and thus compatible or not with the internal market, and that any state aid should be assessed in relation to the pre-existing equilibrium; stresses that, as the EU benchmark for assessing potential distortions is the national system of reference (35), not all distortions of competition and harmful tax practices within the internal market can be covered by current competition rules; notes, therefore, that the full enforcement of these rules alone would not enable the issue of corporate tax avoidance in the EU to be solved;

66. Notes that, according to the data provided to its competent special committee (36) by the Commission, only 65 tax-related state aid cases have, since 1991, been formally examined by the Commission, of which 7 were tax rulings and only 10 originated in formal notifications by Member States;

67. Stresses that the Commission only handled a small number of cases in the field of tax-related state aid in the second half of the 2000s, and that recent state aid proceedings include: — the initiation, in June 2013, of an inquiry into tax rulings practices in seven Member states, extended to all Member States in December 2014, — the opening, in October 2013, of an investigation on whether Gibraltar’s corporate tax regime favours certain companies, which in October 2014 was extended to also examine tax rulings in the said territory, — in parallel, the initiation of a separate inquiry on intellectual property taxation regimes (‘patent boxes’), — the opening, in June 2014, of formal investigations into three cases: Apple in Ireland, Fiat Finance and Trade in Luxembourg and Starbucks in the Netherlands, concluded in October 2015, followed, in October 2014, by Amazon in Luxembourg, — the opening, in February 2015, of a formal investigation into a tax scheme in Belgium (excess profit ruling system);

68. Stresses that ongoing and completed Commission investigations and the cases revealed by LuxLeaks indicate that some Member States fell short of their legal obligation (37) to communicate all potential state aid files to the Commission;

69. Stresses that these investigations shed light on only a very limited sample of some typical practices which affect the taxable profit allocated to some MNCs’ subsidiaries through transfer pricing; is concerned that the current resources of the Commission’s competent services may limit its ability to handle a significantly larger number of cases and to carry out systematic checks in order to ascertain whether further practices, other than those based on transfer pricing, in the area of corporate taxation might be in conflict with state aid law;

70. Strongly supports the Commission in its approach, which consists in taking the time needed to consider ongoing cases thoroughly and with all due diligence; believes that the outcome of the investigations will contribute to establishing more precise and effective guidelines on tax-related state aids and transfer pricing and to compelling Member States to adjust their practices accordingly; invites the Commission, nevertheless, to conclude these ongoing tax-related state aid investigations as soon as it is practically possible without prejudice to their quality and credibility and awaits their results with great interest; invites the Commission to report regularly to the European Parliament on these investigations; calls on the Commission to request the recovery of every euro missing in the event of confirmation of illegal state aid in the ongoing investigations;

71. Stresses that ongoing investigations could lead, in the event of infringement of EU rules, to the recovery, by the Member State which approved the tax measure concerned, of the amount corresponding to the illegal State aid granted to the beneficiary undertakings; stresses that, although this may have a significant negative effect on that specific Member State’s reputation, it constitutes de facto a reward for non-compliance, which is unlikely to discourage Member States, in case of doubt, from engaging in illegal state aid practices and granting abusive tax benefits but, instead, relieves them of their responsibility to comply with EU state aid rules and does not mitigate the financial loss to the budgets of the Member States affected; in more general terms, considers that state aid rules should provide for sanctions that constitute an effective deterrent against illegal state aid;

72. Points also to the possibility, in the event of abusive transfer pricing between cross-border subsidiaries, that not only the Member State at the origin of the advantageous tax treatment sees its tax revenues adjusted (recovery of aid) but that the same happens to other countries in which the transaction took place (ex post adjustment of transfer pricing and thus of taxable income); stresses that, in some cases, this could lead to double taxation;

73. Recalls that tax rulings should be aimed at providing legal certainty and create legitimate expectations for their beneficiaries; stresses, against a background where national rulings can be challenged by state aid rules at EU level, that a risk exists of mass notifications of individual rulings requests from Member States for advance clearance by the Commission with a view to avoiding legal uncertainties for tax administrations and undertakings; stresses that an increased capacity within the Commission and improved processes for transmitting information are the appropriate ways to handle an increased flow of notifications as well as the greater transparency required from Member States in tax matters;

Third countries

74. Is concerned that the negative spillover effects of harmful tax practices by some MNCs seem to be far more significant on developing countries than on developed countries (38), as the former derive a greater proportion of their revenue from corporate tax and have weaker public finance systems, regulatory environments and administrative capacity to ensure tax compliance and tackle these harmful tax practices; notes that the IMF (39) suggests that developing countries lose in relative terms three times as much revenue to aggressive tax planning as developed countries; stresses that Article 208 of the Lisbon Treaty obligates Member States to adjust their policies to support development in developing countries; points out that comprehensive ex post spillover analyses of Member States’ tax practices, the findings of which should be made public, would help guide policy-making to ensure that such practices do not erode the tax base of other Member States or third countries;

75. Stresses that, at the same time, the few ‘winners’ of global tax competition, which are those countries with very attractive corporate tax policies inside and outside the EU, present some disproportionate economic fundamentals as compared with their size and real economic activity, especially when looking at, for instance, the number of resident companies per inhabitant, the amount of foreign profits booked, FDI or outgoing financial flows as compared to GDP, etc.; notes that this demonstrates the artificial nature of their tax base and incoming financial flows and the disconnection allowed under the current tax systems between where value is generated and where taxation is operated;

76. Stresses that tax competition is far from being limited to the Member States, including their dependent or associated territories, and that most practices under consideration have an international dimension, through the shifting of profits to low- or no-tax or secrecy jurisdictions where, often, no substantial economic activity takes place; deplores the lack of a coordinated approach on the part of the Member States vis-à-vis all those jurisdictions, not only in terms of joint action or reaction against their harmful practices, but also, despite the Commission’s efforts, regarding their identification and the relevant criteria; strongly supports, therefore, the Commission’s 2012 proposal, which includes substantial criteria for ensuring fair competition in addition to transparency and the exchange of information, as well as the recent publication, in the Commission’s tax package of 17 June 2015, of a list of non-cooperative tax jurisdictions, established following a ‘common denominator’ approach on the basis of lists existing at national level; stresses that the establishment of such a list is a prerequisite for taking appropriate action against such jurisdictions; believes that this list should be the first iteration of a process that results in a rigorous, objective definition of ‘tax havens’ which can then inform future lists, established on the basis of clear criteria that should be known in advance; encourages the Commission to assess whether European jurisdictions comply with these criteria;

77. Stresses that the OECD’s work in this regard achieved some significant results in terms of transparency and the exchange of information; welcomes in particular the signing, by close to 100 countries as of June 2015, of the OECD Multilateral Convention of Administrative Assistance in Tax Matters (the ‘Joint Convention’), which provides for administrative cooperation between states in the assessment and collection of taxes, in particular with a view to combating tax avoidance and evasion;

78. Stresses, however, that the OECD’s work on its former list of uncooperative tax havens was based on a political process which led to arbitrary compromises already when setting the criteria for the lists, such as the requirement to conclude tax agreements with 12 other countries, and resulted in no jurisdiction being listed as an uncooperative tax haven; stresses that its current approach is still based on criteria which refer to tax transparency and the exchange of information, and are not comprehensive enough to address the harmfulness of certain tax practices; notes that, whatever its merits, this limits the relevance of the OECD’s approach to identifying those tax jurisdictions which are pillars of tax avoidance practices and harmful tax competition worldwide; stresses, in particular, that this approach does not refer to any qualitative indicators for an objective assessment of compliance with good governance practices or consider quantitative data such as book profits, incoming and outgoing financial flows and their (dis)connection from the economic reality in a given jurisdiction;

79. Underlines, moreover, the fact that these lists can be used at national level to implement national protection and anti-avoidance rules vis-à-vis third countries (such as a limitation on benefits, the application of a principal purpose test, rules on controlled foreign corporations, etc.), and that the limitations of such lists can therefore also limit the scope and effectiveness of national measures aimed at tackling harmful tax practices;

80. Is convinced that ensuring fair competition in the internal market and protecting Member States’ tax bases depends very much on addressing the weakest link regarding interactions with low- or no-tax and secrecy jurisdictions, bearing in mind that tax rates are the competence of Member States, since the existence of a tax gateway (e.g. no withholding tax) to third countries, irrespective of their tax practices, considerably increases tax avoidance opportunities within the EU;

81. Stresses that a coordinated approach by Member States vis-à-vis both developing and developed countries could prove much more effective in tackling harmful tax practices and promoting greater reciprocity in tax matters;

82. Stresses that, in response to pressure from both the EU and the G20 on the issue of tax transparency, and in the context of the financial, economic and debt crisis, some third countries have finally signed tax information exchange agreements (TIEAs) with the EU, which should improve cooperation with those countries; points out that, in the case of Switzerland, an agreement was signed in May 2015, after a long ‘transitional’ period during which this important commercial partner of the EU benefited from privileged access to the single market, but, at the same time, did not cooperate in other areas, in particular taxation;

83. Notes that, despite ongoing negotiations, progress remains slow for signing similar cooperation agreements with San Marino, Monaco, Liechtenstein and Andorra; regrets that the Commission does not have a similar European mandate to negotiate automatic information exchange agreements with overseas territories currently covered by the EU Savings Tax Directive;

84. Notes with concern that many developing countries find themselves particularly vulnerable to tax avoidance activities by MNCs, and that the main cause of missed revenue for developing countries’ national budgets lies in the transfer pricing practices of MNCs (40); stresses, furthermore, that these countries find themselves in a very weak bargaining position in relation to certain MNCs or foreign direct investors ‘shopping around’ the world in search of tax subsidies and exemptions; denounces the fact that annual losses suffered by national budgets in tax revenues are estimated to range between around EUR 91 (41) and EUR 125 billion (42);

85. Reminds Member States that they are bound under the Lisbon Treaty by the principle of policy coherence for development and must ensure that their tax policies do not undermine the EU objectives on development; encourages the Member States to conduct spillover analyses of their tax policies and their impacts on developing countries, as suggested by the IMF;

Conclusions and recommendations

86. Concludes, looking back to the mandate which it conferred on its special committee, and despite the various limitations and obstacles encountered during its fact-finding missions as well as by other EU institutions, some Member States and MNCs: — without prejudice to the outcome of the Commission’s ongoing state aid investigations, the information gathered indicates that, in several cases, Member States did not comply with Article 107(1) TFEU, since they introduced tax rulings and other measures similar in nature or effect which, by favouring certain undertakings, have distorted competition within the internal market, — some Member States did not fully enforce Article 108 TFEU since they failed to formally notify the Commission of all their plans to grant tax-related aid, thereby also infringing the corresponding provisions of Council Regulation (EC) No 659/1999; stresses that, as a result, the Commission could not keep under constant review all systems of aid, as provided for in Article 108 TFEU, since it did not have access to all the relevant information, at least before 2010, which is the period not covered by its ongoing investigations, — Member States did not comply with the obligations set out in Council Directives 77/799/EEC and 2011/16/EU since they did not and continue not to spontaneously exchange tax information, even in cases where there were clear grounds, despite the margin of discretion left by those directives, for expecting that there may be tax losses in other Member States, or that tax savings may result from artificial transfers of profits within groups, — some Member States did not comply with the principle of sincere cooperation enshrined in Article 4(3) TEU, since they did not take all appropriate measures, general or particular, to ensure the fulfilment of their obligations, — an analysis of individual cases of breaches in community law concerning the aforementioned paragraphs was not possible owing to a lack of detailed information provided by Member States, the Council and the Commission, — finally, the Commission did not fulfil its role of guardian of the Treaties, as established in Article 17(1) TEU, by not acting in this matter and taking all necessary steps to ensure that they comply with their obligations, in particular those set out in Council Directives 77/799/EEC and 2011/16/EU, despite evidence to the contrary; the Commission has breached its obligations under Article 108 of the Lisbon Treaty on the functioning of the internal market by not launching state aid investigations in the past;

87. Condemns the fact that several tax documents from the Code of Conduct group meetings that were requested have not been disclosed at all or have only been partially disclosed to the committee, although some of them have already been provided to individual citizens who requested them through the access to documents procedure, thus leading to the European Parliament being less well informed than European citizens about the position of the Member States on tax matters; deplores, in addition, the fact that the Commission has only released less than 5 % of the total number of documents requested, which appeared to be some 5 500; regrets the lack of cooperation with the committee by the Commission and Council, impeding the fulfilment of its mandate;

88. Given Parliament’s current lack of parliamentary inquiry powers, calls on the Council and the Commission to urgently consent to the pending proposal for a regulation of the European Parliament on the detailed provisions governing the exercise of Parliament’s right of inquiry (43), in order to confer genuine investigative powers needed to exercise its parliamentary right of inquiry;

89. Calls on the Commission to examine whether the abovementioned infringements could still be brought to the Court of Justice;

90. Calls on the Member States to respect the principle of profits taxation in the place they are generated;

91. Calls on the Member States and the EU institutions, which share the political responsibility for the current situation, to put an end to harmful tax competition and fully cooperate in order to eliminate mismatches — and refrain from creating further mismatches — between tax systems and harmful tax measures which create the conditions for massive tax avoidance by MNCs and tax base erosion within the internal market; calls, in this connection, on the Member States to notify the Commission and other Member States about any relevant changes to their corporate taxation law that could have an impact on their effective tax rates or on any other Member State’s tax revenue; stresses that the Member States that play a pivotal role in facilitating tax avoidance should take responsibility and lead the efforts to improve tax cooperation within the EU;

92. Calls on the EU Heads of State and Government to make new clear political commitments to taking urgent action to tackle this situation, which can no longer be tolerated, not least because of its impact on national budgets, which are already subjected to fiscal consolidation measures, and on the tax contributions of other taxpayers, including SMEs and citizens; stresses, in this context, that it intends to play its role fully and is ready to put in place more effective political scrutiny, in close cooperation with national parliaments;

93. Calls on the Commission to fulfil its duty as guardian of the Treaties by ensuring that EU law and the principle of sincere cooperation between Member States are fully complied with; urges the Commission to take further legal action as a matter of course in accordance with the powers conferred upon it by the Treaty; calls therefore on the Commission to reinforce its internal capacity, possibly through the creation of a specific tax department in its services, to deal both with an increasing flow of state aid notifications in the field of competition policy and with its reinforced responsibility for coordinating new measures relating to tax transparency;

94. Calls on the Member States to provide the Commission with all necessary information so that, without hindrance, it can carry out its role as guardian of the Treaties;

95. Calls on the Commission to promote good practices on transfer pricing and the pricing of loans and finance fees in intragroup transactions, to bring them in line with prevailing market prices;

96. Underlines the fact that Member States remain fully competent to set their respective corporate tax rates; insists, nevertheless, that tax competition in the EU and vis-à-vis third countries should take place within a clear framework of rules in order to guarantee fair competition between firms in the internal market; calls on the Member States to first and foremost ensure a business-friendly environment, characterised by, inter alia, economic, financial and political stability, as well as legal certainty and the simplicity of tax rules; given their crucial role in ensuring fiscal sustainability, calls on the Commission to more thoroughly address corporate taxation issues, including harmful tax practices and their impact, in the framework of the European Semester and for relevant indicators, including estimates of the tax gap arising from tax evasion and tax avoidance, to be included in the macroeconomic imbalance procedure;

97. Calls on the Member States, especially those that receive financial assistance, to implement structural reforms, combat tax fraud and enforce action against aggressive tax planning;

98. Calls on the Commission in this respect to strike the right balance between fiscal and economic convergence, and calls on the Commission to ensure that actions are in support of growth, investment and jobs;

99. Takes the view that, among other things, a comprehensive, transparent and effective automatic exchange of tax information and a mandatory common consolidated corporate tax base are essential preconditions for achieving a tax system at EU level that complies with and preserves the basic principles of the internal market;

100. Invites the Member States and the EU institutions, given the complexity of the issue, to implement various sets of complementary actions in order to improve the current situation, bearing in mind the need to reduce complexity for all stakeholders and to minimise compliance costs for businesses and tax administrations; stresses, therefore, that simplification of tax schemes should be the first step in seeking to bring clarity not only to Member States but also to citizens, who are at present excluded from the exchange of information;

101. Calls on the Commission to further investigate empirically the opportunity of restricting the deduction of royalty payments to related corporations from the corporate income tax base payments as a way to counteract intra-group profit shifting;

102. Stresses the fact that, despite repeated invitations, only four MNCs (44) initially agreed to appear before the committee to discuss international tax planning matters, out of a total of 17; considers that the initial refusal of 13 of them — some with high public visibility — to cooperate with a parliamentary committee is unacceptable and highly damaging to the dignity of the European Parliament and the citizens it represents; notes, however, that 11 MNCs (45) finally agreed to come to the committee only after the report had been voted on in the TAXE Committee and shortly before the vote in plenary, while two MNCs (46) persisted in their refusal; recommends, therefore, that its competent authorities consider depriving these companies from their access to Parliament’s premises and that serious consideration be given to setting up a clear framework and upgrading the duties set out in the Code of Conduct for organisations included in the Transparency Register (47), in terms of cooperation with Parliament’s committees and other political bodies;

103. Calls for an investigation into the role of the financial institutions in aiding harmful tax practices;

Cooperation and coordination on advance tax rulings

104. Deplores the content of the political agreement of 6 October 2015 within the Council, which falls short of the Commission’s legislative proposal of March 2015 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation; stresses that the latter provided, on top of a common framework for the registration and automatic exchange of information on rulings, provisions allowing the Commission to effectively monitor its implementation by Member States and ensure that rulings do not have a negative impact on the internal market; stresses that the adoption of the Council’s position would prevent drawing all benefits from the automatic exchange of rulings, in particular in terms of effective implementation, and calls on the Council, therefore, to stick to the Commission’s proposal and take due account of the Parliament’s opinion thereon, in particular as regards the scope of the directive (all tax rulings instead of cross-border only), the retroactivity period (all tax rulings still valid should be exchanged) and the information provided to the Commission, which should have access to the tax rulings;

105. Invites the Member States to support, in all international fora, the automatic exchange of information (AEOI) between tax administrations as the new global standard; invites in particular the Commission, the OECD and the G20 to promote this through the most adequate and effective instruments within an inclusive global process; insists that concrete steps should be taken to ensure that AEOI becomes truly global, and thereby effective, while respecting confidentiality requirements, by supporting developing countries’ efforts to build their capacity for full participation in the AEOI; stresses that, within the EU, automatic information exchange could take place in the form of a central EU-wide register which would be accessible by the Commission and the competent national authorities;

106. Invites the Member States to consider that any tax ruling should, in particular when involving transfer pricing, be established in cooperation with all involved countries, that the relevant information should be exchanged between them automatically, comprehensively and without delay and that any national action aimed at reducing tax avoidance and tax base erosion within the EU, including audits, should be carried out jointly, giving due consideration to the experience gained through the FISCALIS 2020 programme; reiterates its view that the basic elements of all rulings that have an impact on other Member States should be not only shared between tax administrations and the Commission, but also presented in the country-by-country reporting by MNCs;

107. Highlights, in this connection, the fact that not only cross-border but also national rulings can impact other Member States, and calls, therefore, for an extension of the automatic exchange of information to all rulings issued by, or on behalf of, the government or the tax authority of a Member State, or any territorial or administrative subdivisions thereof, which are still active at the date of entry into force of the directive; strongly insists on the key role of the Commission’s involvement in the process of data collection and analysis concerning rulings;

108. Calls, furthermore, for a framework which effectively controls the implementation of the automatic exchange of information, for the collection and publication of statistics on the information exchanged, and, in particular, for the establishment, by the Commission, before 31 December 2016, of a secure central directory to facilitate the exchange of information between the participating tax authorities; recalls that the establishment of a system for the automatic exchange of information on tax rulings will result in a very large quantity of information being collected, which might make it difficult to detect the truly problematic cases; stresses that this situation, in addition to the existence of 28 Member States with different languages and administrative practices, makes it necessary for the Commission and the Member States to reflect on smart ways, including by means of information technology, of dealing with the amount and diversity of the data obtained, in order to make automatic exchange of information in the Union genuinely effective and helpful;

109. Calls on the Commission to study the conditions for setting up, in the longer term, an EU-wide clearing house system, through which tax rulings would be systematically screened by the Commission so as to increase the system’s level of certainty, consistency, uniformity and transparency and check whether such rulings have a harmful effect on other Member States;

110. Stresses that, in order to enhance transparency for citizens, the Commission should publish an annual report summarising the main cases contained in the secure central directory, and that, in doing so, the Commission should take into account the provisions of the Mutual Assistance Directive relating to confidentiality;

111. Calls on the Commission to consider the establishment of a common framework at EU level for tax rulings, including common criteria, in particular: — the requirement to establish them on the basis of a comprehensive spillover analysis, including the tax rulings’ effect on other countries’ tax bases, with the involvement of all the parties and countries concerned, — their public disclosure, either fully or in simplified form, but fully respecting confidentiality requirements, — the obligation to publish the criteria for granting, refusing and revoking tax rulings, — equal treatment and availability to all taxpayers, — absence of discretion and full compliance with underlying tax provisions;

112. Asks the Commission to define common EU guidelines for the application of the OECD’s arm’s length principle aimed at harmonising EU Member States’ practices for fixing transfer pricing in such a way that, when establishing transfer pricing agreements, national administrations have the tools to compare similar undertakings and not only similar transactions;

113. Believes that a fair and efficient tax system requires an adequate level of transparency and confidentiality; is convinced therefore that Member States’ tax administrations and, where relevant, the Commission, should have access to information regarding the ultimate beneficiaries of any legal vehicle and/or tax rulings;

114. Calls on the Commission to make use, inter alia, of Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, which includes ‘tax crime’ in the broad definition of ‘criminal activity’, in order to determine the ultimate beneficiaries of certain legal vehicles;

115. Calls on the Commission to introduce, in-house, a central public register of all legal corporate-tax exemptions, deductions and credits, together with a quantitative budget impact assessment for each Member State;

Common Consolidated Corporate Tax Base (CCCTB)

116. Welcomes the action plan proposed by the Commission on 17 June 2015 to address tax avoidance and promote fair and efficient corporate taxation in the EU; calls on the Commission to speed up the presentation of legislative modifications for the prompt establishment of a compulsory EU-wide Common Consolidated Corporate Tax Base (CCCTB), which would address not only the issue of preferential regimes and mismatches between national tax systems, but also most of the issues leading to tax base erosion at European level (in particular transfer pricing issues); calls on the Commission to resume, without delay, the work concluded in 2011 on the proposal for a Council directive establishing the CCCTB, taking account of Parliament’s position thereon and of new factors which have emerged since then and incorporating the most recent conclusions from the work carried out by the OECD, in particular standards resulting from the Action Plan on Base Erosion and Profit Shifting (BEPS), so that a consolidated text can be produced in 2016;

117. Calls on the Commission to include in its proposals provisions aimed at clarifying the definition of R&D investments and of permanent establishment in line with economic substance, covering also the digital economy; points to the importance of R&D investments and the need to facilitate rather than hamper investment and growth in the digital economy, giving the EU’s emerging economy in this sector a competitive edge vis-à-vis other actors in the United States and elsewhere; stresses that the existing evidence shows that patent boxes do not help in spurring innovation and can lead to major base erosion through profit shifting; stresses, at the same time, that abuse or exploitation of such systems must be minimised through coordinated action by the Member States and common standards and definitions as regards what qualifies as R&D promotion and what does not; stresses that the so-called modified nexus approach for patent boxes recommended by the BEPS initiative will not be enough to sufficiently limit the problems associated with patent boxes;

118. Stresses that, to restore the link between taxation and economic substance and to ensure that taxes are paid in the countries where actual economic activity and value creation take place, as well as to correct existing mismatches, ‘formula apportionment’ should differentiate between sectors, to take into account their specific features, in particular with regard to digital businesses since the digital economy makes it more difficult for tax authorities to determine where value is created; calls on the Commission to consider carefully Parliament’s position on CCCBT and to adopt a formula apportionment which reflects the real economic activities of companies; calls on the Commission to continue its work on concrete options for the design of this allocation key, in particular with a view to anticipating, for each sector, the impact on the tax revenue of each Member State, according to the structure of its economy; stresses, furthermore, that the CCCTB is a useful means of combating BEPS and creating European added value regardless of whether or not the tax revenue might be partially used as a new own resource for the EU budget;

119. Strongly supports the introduction of a full, mandatory CCCTB as soon as possible; acknowledges the Commission’s approach of putting forward a simple CCTB (without consolidation) as a first step in its action plan of June 2015, but points out that this will leave many issues open, especially