Happy Anniversary Luxleaks

Posted: Nov 05, 2015 in General by Instinctif Partners

Happy Anniversary Luxleaks – But still no reason to celebrate

Jan Mayrhofer & Anke Schäffner

Following Luxleaks – the name given to the scandal that revealed how the government of Luxembourg had been arranging ‘sweetheart tax deals’ with multi-national companies – the past year has seen a growing demand for transparency and reform among EU citizens.
Tax evasion, however, should not be seen as a phenomenon confined to the Grand Duchy or a few nation states. Current President of the European Commission and former Prime Minister of Luxembourg got to the heart of the issue when he recently contended that we “should rather say EUleaks rather than Luxleaks”. This is because tax evasion poses a classic collective action problem to many governments. Tax havens such as Luxembourg and Ireland have an incentive to maintain the flawed status quo as it attracts revenue and real economic activity as well as boosts the importance of small nations at the international stage, while citizens around the world are footing the bill for the crisis in our global tax system.

Immediately after the ‘Lux-leaks’ revelations, the European Parliament held an extraordinary debate on the fight against tax evasion and in February 2015, the European Parliament has set up a special committee on tax rulings (TAXE).  Last week, TAXE recommended measures to make corporate taxes in the EU fairer and more transparent by asserting the principle that taxes should be paid where profits are made. It also recommended country-by-country reporting for multinationals. This change is crucial as it enables the calculation on the level of the parent, rather than its subsidiaries, and hence avoids tax loopholes through transfer pricing.

Notwithstanding the European Parliament’s goodwill, an in-depth study by the European Network on Debt and Development published earlier this week maintains that “the complex and dysfunctional EU system of corporate tax rulings, treaties, letterbox companies and special corporate tax regimes still remains in place”. Slow progress towards a new tax system can partly be ascribed to the unwillingness of several global players like Amazon, McDonald’s and Walt Disney to play a constructive part in the investigations following LuxLeaks.

Today, 5 November 2015 marks the anniversary of Luxleaks, which indeed functioned as impulse for change – albeit slowly. Above all, LuxLeaks and the efforts by the European Parliament that followed in suit is a powerful reminder of why Europe has found it in its common interest to adopt common rules. The only way to hold trans-national corporations accountable is trans-national lawmaking. The European Parliament has already given the green light for country-by-country reporting and the EU finance ministers could make it a reality as soon as 16 November. If multinationals want to have a stake in the new tax rulings, it is now or never.