Accountancy Europe’s Tax Day 2017 couldn’t have been more timely
On the same day, 30 May, Jean-Claude Juncker, European Commission President, told Members of the European Parliament (MEPs) that a new Directive on tax intermediaries will be published by end-June. At the same time at Tax Day, the Commissioner for taxation, Pierre Moscovici, told delegates that the leaks from Panama, Luxembourg and Malta “have been the reason for why we’ve been able to adopt EU tax [legislation] at an unprecedented speed”.
“Our conviction is that isolated policies cannot overcome cross-border challenges such as evasion, avoidance and external competition. There is a need for a coordinated approach at the international and, at least, European level,” he said.
Transparency is the first step to restoring public trust, Commissioner Moscovici added. While the legal basis of the Commission’s proposal on public country-by-country reporting is still challenged by several Member States in the Council, it has not been abandoned either. Since the beginning of this year Member States have been exchanging information on financial accounts “to expose those that hide their money abroad”.
Fairness in taxation is an issue that people care about deeply, and the leaks created a “major credibility gap”, emphasised Jeppe Kofod, the Danish MEP and co-rapporteur of the upcoming PANA Committee report. He pointed to a Eurobarometer survey that found around three quarters of EU citizens wanting to see more action against tax evasion – but what is fairness and how can this be best brought about? These questions were central to the Tax Day’s focus on the future of taxation.
Mr Kofod said he recognised the “public outrage” at companies and individuals that have exploited legal loopholes, as the burden to maintain tax revenues then falls on ordinary people and SMEs. For him, transparency is also key to tackling harmful tax regimes, and this requires international cooperation. “Member States have an obligation not to harm each other,” he said. He supports a common corporate tax base for Europe, asking whether it was fair for Apple to pay such minimal tax in Ireland. Accountancy firms, he added, should alert lawmakers to tax loopholes.
John Connors of Vodaphone followed up with the business response. He emphasised that companies “have nothing to fear from transparency but they have been reluctant to expose themselves to aggressive scrutiny”. He would prefer the focus to be on fostering collaborative approaches between tax regimes and companies, but he said that he was “comfortable” with greater transparency providing there was a level playing field.
The relationship with tax administrations was also examined by Dutch MEP Paul Tang. He called for better standards for tax advice and greater collaboration between tax regimes and advisers to improve corporate responsibility. He also supports the Common Consolidated Corporate Tax Base (CCCTB), which outlines a single set of rules for calculating companies’ taxable profits in the EU and provides a ‘one stop shop’ for filing a single tax return for all their EU activity. The 2016 proposed relaunch of the legislation was described as a “a pro-business proposal” by Commissioner Moscovici, who said that it would decrease time spent on annual compliance activities by 8%. Broadly in favour of the proposal, tax analyst Delphine Siquier Delot, however, questioned why it wasn’t mandatory for every company.
The digital revolution is one of the “mega-changes” that “are redefining the world in which we live”, said Prof Dr Edelfried Schneider, President of Accountancy Europe, in his introductory remarks. Leading these changes is Estonia, whose digitalisation of tax information and sharing has both reduced the administrative burden on companies/individuals and increased tax revenues, according to Rivo Reitmann of the Estonia Tax and Customs Board. Its simplified tax system could be applied anywhere, he added.
A good example of an area where the ‘grey economy’ can be better taxed through digitalisation is taxi services. An Estonian online ordering service, Taxify, says that technological developments have helped tax collection. The challenge, however, is to train up staff to respond to these developments and to improve technological infrastructure across Europe, highlighted Eelco van der Enden of Accountancy Europe. Such advances in IT could help “compliance enforcement in a cooperative manner”, he argued.
Technology also has a role to play in developing new models of tax collection, highlighted Prof Marie Lamensch, an expert in VAT law. She said it was “time to radically change the way in which we collect VAT”.
Future tax reforms
But is it also time to radically change what we tax? Femke Groothuis, president of The Ex’tax Project, argued for a shift from taxing labour to taxing pollution and the exploitation of natural resources. High labour taxes, she said, hold back R&D and services, and that replacing revenues with greater ‘green’ taxation would remove incentives to trim the labour force. She argued that energy taxes in British Columbia, for example, have benefitted the economy and that her organisation’s modelling has shown that such a switch in tax emphasis would increase countries’ GDP by 2%.
Just what a major US tax reform bill, which is currently under preparation, will mean for Europe was another important area of discussion. This reform package, which would include a measure to slash US corporate tax rates, faces many obstacles, but if it does pass through the US Congress (and the prediction is that this could be by the end of the year), then it could result in much US corporate money being ‘repatriated’ to the US, an assembled panel of experts warned. Whether European countries would react by imposing a tax on that transfer is open to question. A tax war is not beyond the realms of possibility, one panellist said.
As the EU prepares its list of tax havens, which will be ready by the end of the year according to Commissioner Moscovici, it is, however, unlikely the US will join the 92 countries already on the list.
But the Trump Administration and a post-Brexit UK have raised questions, and some policy-makers have expressed fears over competitive taxation. Though the Commissioner also didn’t expect the UK to become a tax haven – given that it has been one of those countries most favourable to country-by-country reporting – he said that “we will need to be vigilant”.
The future of tax policy will depend for a great deal on cooperation on European and international level, most notably between the European Commission and the Organisation for Economic Co-operation and Development (OECD). OECD’s Pascal Saint-Amans and Valere Moutarlier, Commission Director on Direct Tax agreed on the need for joint international action to make tax fairer. But Mr. Saint-Amans expressed concerns on EU actions going beyond the 15 internationally agreed actions on base erosion and profit shifting (BEPS), including public country-by-country reporting. Mr. Moutarlier indicated the EU is fully committed to BEPS as a minimum standard, but emphasised that the EU made a sovereign decision to opt for additional measures.