Greens across Europe have called for steps to be taken both on a national and European level to fight against tax evasion, the use of tax havens, and aggressive tax avoidance. The calls come after journalists from 30 countries published data concerning roughly 130,000 people involved in tax haven companies.
For the Greens, it’s clear that the problem results from a lack of transparency, and a lack of information-sharing. The EU has limited powers to force individuals and businesses operating in Europe to disclose their full financial details. A lack of a common European approach to the problem has made it worse. Europe doesn’t know what it’s big companies are doing with their money.Green MEP Sven Giegold sees the release of these documents as an opportunity to tighten our rules on tax evasion. “Journalists have brought transparency to these shadowy spots in the financial sector. It is now up to governments to put their words into practice.”
In general terms, tax evasion means individuals or companies deliberately conceal the true state of their financial affairs to the tax authorities. It’s illegal
However, some companies and organisations use complex arrangements to minimise the amount of tax they have to pay. This is called tax avoidance, and it’s perfectly legal. Companies use it to avoid paying €1 trillion in European taxes every year, a staggering figure.
Tax avoidance is a particularly emotive subject in Europe. The austerity-led response to the crisis means a lot of Europeans face a much higher tax bill. For the last five years, Ireland has suffered under difficult austerity budgets. Google’s European headquarters is based in Dublin. They use a complex system of subsidiary companies across the world to reduce the amount of tax they pay in Europe, by almost €1.55bn. In the UK, flags were raised when Starbucks took advantage of tax loopholes and didn’t pay any taxes in 2011. Discrepancies like these are difficult to justify, when citizens are expected to pay their full bill.
The Green Group in the European Parliament have called for EU-wide cooperation to tackle the problem. According to Giegold, “A European version of FACTA, which meets national taxation requirements, is urgently needed.”
FACTA (Fair and Accurate Credit Transactions Act) forces financial institutions who are active in the US to reveal information on US tax payers to the American Internal Revenue Service. It also applies to activities outside the US by subsidiary companies. It’s brought a lot of openness and clarity to the US corporate tax system. Similar legislation in Europe would be an important tool for tackling taxation problems, and help the EU shine a light on what businesses are doing with their money.