A “Fair” Share

By Global Tax Weekly

If overbearing tax and regulation are still somewhat alien to the American way of life, the same cannot be said for the European Union, where companies and individuals must by now be well used to governments taking what they think is a “fair” share of their income (i.e. over half of it in many instances), and generally interfering in the lives of taxpayers. And so it goes on. The European Commission’s latest wheeze is its corporate tax plan, which it claims would be “a revolutionary step” towards international tax transparency and the fight against base erosion and profit shifting. The gruesome details of the Action Plan won’t be published until summer, but we’ve been warned to expect the controversial plans for a common consolidated corporate tax base to rear their ugly head again. Essentially though, the corporate tax plan is the EU’s version of the OECD BEPS project, with its focus on aligning taxation with economic substance. Although the OECD supports the EU’s plans, they could be seen as yet another example of the project being undermined by unilateralism before the final recommendations have been published. Funnily enough, the logical inference of the Commission’s immediate priority, the greater scrutiny of tax rulings issued by EU member states, is that governments and tax authorities themselves are as much to blame for tax base erosion as multinational companies, a point which seems to get lost in the ritual company-bashing that accompanies each new tax avoidance scandal. Still, I’m not really sure what Brussels hopes to achieve from its tax ruling information exchange proposals. In its press memo published when the Action Plan was announced, the Commission said that tax ruling information sharing “will better equip member states to protect their tax bases and counter-act aggressive tax planning” and “deter companies from using tax rulings as part of their aggressive tax planning, as they will be under closer scrutiny.” Presumably this is meant to encourage member states to patch “loopholes” in their tax legislation – tax loopholes that are often there by design as much as by accident. But will this deter the tax authorities themselves from issuing contentious tax rulings? If it doesn’t, what’s the point? Given that the Commission expects to challenge more rulings in the years ahead, I suppose one thing this initiative will achieve is keeping the European Court of Justice’s staff busy in the years ahead. But, ultimately, the member states in support of the idea, as OECD Secretary General Angel Gurria so presciently observed, “all need the money.”

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