As a report published yesterday by the Greens/EFA group in the European Parliament discloses, the German chemicals company BASF has used aggressive tax planning strategies to avoid paying 923m Euro between 2010 and 2014. Just like so many corporations before them, BASF used the well-known tools of creative tax accounting: dividends from subsidiaries were transferred to 100% exempted holding companies in the Netherlands; an inflated Maltese subsidiary was used in order to give loans to other subsidiaries under a preferential tax regime; a Swiss company was used to acquire BASF patents; and an excess profit ruling scheme in Belgium that was considered as illegal state aid by the European Commission in 2016.
Again and again, such cases show the necessity to move towards unitary taxation of corporations to close existing loopholes and prevent frictions between national tax systems. Until now, subsidiaries of multinational firms were counted as independent entities. This allows multinationals to relocate their profits even within the European Union to avoid paying higher tax rates. As the Greens have often highlighted in the past, the findings are anything but new: the Apple case has recently shown how it was possible for the tech giant to allocate profits to a fictional ‘head office’ with no employees or premises and that was not based in any county. This allowed Apple to pay only 0.005% of effective corporate taxes in 2014.
It’s high time to stop these business practices and achieve tax justice.
Yesterday, the Economic and Financial Affairs Council (ECOFIN) discussed a proposal made by the European Commission to introduce a common and consolidated base for the taxation of corporations (CCCTB). What sounds rather technical is, however, a powerful tool in the fight against tax avoidance. It establishes a single set of rules for the calculation of the tax that corporations have to pay in EU Member States.
A key principle of fair taxation is that the nature of business operations needs to be reflected in corporate taxation. But this can only be done if corporations are taxed as a whole and on the same thing. Introducing a common tax base is an important step towards taxing multinationals where they do their business at the tax rates of Member States. It also allows a taxation at the source of business operations: losses in one state can no longer be offset with gains in other states.
The next step - to be followed at a later stage - is the introduction of a consolidated tax base across Member States to create a balance sheet that covers the operations of all subsidiaries within the European Union. Double taxation and unnecessary bureaucratic burdens can thus be reduced, which would make business in the European Union much easier for corporations, and tax authorities would consequently have less trouble with corporate tax tricks.
Nevertheless, more effort is needed to regain fairness in corporate taxation and restore the trust of citizens. Although ambitious, CCCTB is not a recipe against tax competition between Member States. The large spread between corporate taxes, ranging from 12.5% in Ireland to up to 33.3% in Germany, France and Belgium, sets an incentive for global corporations to defer profits to the cheapest locations.
Greens therefore advocate for a minimum tax rate to prevent countries from participating in a vicious race-to-the-bottom that will eventually harm public finances and lead to even more tax injustice.
A unitary base is nevertheless a huge achievement as it benefits businesses, states, and their citizens alike. We, as Greens, support this step as it shows that the European Union can deliver on a more equitable Europe.
Photo: The German chemicals company BASF has used aggressive tax planning strategies to avoid paying 923m Euro between 2010 and 2014 via Shutterstock