Brussels is ready to crack down on its expensive corporate tax deals

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Brussels is stepping up its campaign against privileged deals on corporate taxation in the EU as pressure mounts on businesses and high net worth individuals to shoulder more of the tax burden imposed by deep recessions sweeping across Europe.

Paolo Gentiloni, the European commissioner for the economy, told the Financial Times that Brussels wanted to pressure capitals to root out “the structures that facilitate aggressive tax planning” as part of their national reform plans under of its 750 billion euros recovery fund.

The Commission is also continuing its intention to use a little-known EU treaty instrument to crack down on specific tax measures that distort the single market – although officials don’t expect Brussels to present individual cases before. next year.

“The fight against aggressive tax planning is crucial if we want to have a level playing field in the single market,” said the Italian commissioner, who appears before the European Parliament on Thursday. “We must use all the tools at our disposal to fight aggressive tax planning, especially now that we are working on the guiding principles for the implementation of the stimulus and resilience mechanism.”

Tax evasion by multinationals and high net worth individuals has exploded the EU’s political agenda as member states run into debt to pay for the Covid-19 recession. Brussels is pursuing a number of tax measures, including the introduction of greater transparency from large companies, but progress has been stalled on several fronts due to the need for unanimous consent of member states on tax matters.

As part of the stimulus fund, EU governments affected by the pandemic will receive a mix of grants and loans to support their economies – with the first cash disbursements expected in spring 2021. Gentiloni said that it would demand a “recovery and resilience plans” submitted to the committee as part of the stimulus fund address national measures considered “facilitating aggressive tax planning”.

In May, the committee identified countries, including the Netherlands, Ireland, Luxembourg and Hungary, among member states whose tax rules are used by companies engaging in aggressive tax planning. This raises the prospect of other member states pressuring appointed governments to take action against tax evasion or risk seeing their reform plans rejected. Under the rules, a qualified majority of governments must approve the commission’s decision whether or not to grant recovery funds. But governments may be reluctant to block reform plans in other countries for fear that their own measures will be blocked in tit-for-tat retaliation.

In July, Brussels launched the idea of ​​using Article 116 of the EU Treaty to take legal action to stamp out favorable tax regimes on companies if they risked undermining the single market. Basically, case approval under this article would require the support of a qualified majority of EU governments and cannot be opposed by a single Member State.

“The current legislative process can make it extremely long to pass tax proposals,” Gentiloni said. “I therefore undertake to explore the possibilities offered by the Treaties allowing us to move from unanimity voting to qualified majority voting and to the ordinary legislative procedure in matters of taxation.”

Diplomats expect, however, that a number of countries with favorable tax regimes could act as a blocking minority to prevent the commission from initiating a Section 116 lawsuit.

Paul Tang, Dutch MEP and head of the new parliamentary sub-committee on fiscal affairs, said the Netherlands “cannot complain that Italy does not have sound and sustainable public finances, then block the means of generating income from businesses and people who pay virtually no taxes. “.

“If the committee plays it safe and puts a country on the spot, it will be very difficult not to get a majority on the council. Now is the perfect time to change course in tax policy – if that doesn’t happen this year, it will be in the following years, ”Tang said.

Legal and political sensitivities surrounding the use of Section 116 mean that the tool will not be deployed until well into the next year. The measure should be carefully designed to target specific tax arrangements. Member states would then have to correct the distorted tax schemes or face prosecution before the European Court of Justice if they do not comply.

Speaking at a European Commission online tax event on Monday, Benjamin Angel, director of direct taxation at the commission’s tax directorate, insisted that Article 116 does not allow the tax harmonization “via the back door”.

But this has, he added, the potential to enable the Commission to remedy “a certain distortion of the internal market arising from the practices of certain Member States”.

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