The European Commission challenges tax avoidance
An Action Plan of the Commission proposes essential elements of good tax governance.
For good reasons, the subject of taxation is becoming a matter of keen public debate. Opinions on taxation are often a significant pointer to people’s whole political ideology. The subject divides into two broad areas: how tax money is spent (see our article in this edition on the most appropriate use of the proceeds of a Financial Transactions Tax); and what taxes can and ought to be paid.
On the second question, there are two polar positions. Are taxes virtually a legalised theft committed by ‘big government’ against individuals or corporations who have the prior right to their earnings? If so every tax requires specific justification, and the lower the tax the better - ‘better’ here meaning both more just and more efficient. This position is espoused by large segments of the USA Republican Party in the USA, as the continuing battle over the ‘fiscal cliff’ demonstrates. John Boehner insists on massive cuts in public spending, whilst refusing any tax increase even for the wealthiest Americans, even though tax levels on top earners are at their lowest for decades.
Are taxes, on the other hand, an essential contribution by economic actors to the well-being of the political community on which both persons and corporations depend for their very existence? In this European social democrat tradition, ‘tax evasion’ is illegal and even ‘tax avoidance’ (seeking by unusual means to minimise tax) requires ethical justification. The French Prime Minister takes this position in his recent fierce criticism of the actor Gérard Depardieu, who emigrated a few metres across the Belgian border. It was ‘a shabby act’ since ‘paying a tax is an act of solidarity, a patriotic act’.
The European Commission in its recent ‘Action Plan to strengthen the fight against tax fraud and tax evasion’ goes further than M. Ayrault, since one may doubt that a French corporation would be criticised for taking equivalent measures to those of a wealthy individual. Yet there is now serious public concern about the virtual exemption of the speculative finance sector from effective taxation and, more generally, about those transnational corporations (Amazon, Apple, Google, Starbucks and others) which shift profits to low-tax countries, so gaining a sharp competitive advantage.
The Commission’s document tackles several such practices, without challenging member states’ right to determine tax levels. The title is misleading, focusing on ‘fraud’ and ‘evasion’. The document itself is more ambitious. It seeks, for example to counter ‘aggressive tax planning’ (precisely the practice of the companies mentioned above), which erodes states' tax bases and distorts the operation of the internal market (§3.7). ‘Currently, some taxpayers . . . take advantage of mismatches in national laws to ensure that certain items of income remain untaxed anywhere or to exploit differences in tax rates. By paying taxes businesses can have an important positive impact on the rest of society. Aggressive tax planning could thus be considered contrary to the principles of Corporate Social Responsibility’. This last positive sentence sets a hopeful agenda for the new year. I rests with member states to respond.
Frank Turner SJ