EU’s Widening Tax Probe ‘Ineffectual in Isolation’

Reports that the European Parliament (EP) is to investigate claims that countries within the European Union (EU) have collaborated with multinational companies (MNCs) and provided so-called ‘sweetheart’ tax deals shows the tax net spreading wider, says Taxand.

In its commentary, the tax advisory firm says that this latest inquiry into alleged state-facilitated tax avoidance follows on from a string of on-going probes into corporate tax affairs at an EU level, with the alleged provision of state aid to MNCs by Ireland, the Netherlands and Luxembourg hitting newspaper headlines last November.

“Following a number of years where aggressive scrutiny and knee jerk investigations have focused on multinationals, who are simply operating within countries’ legal framework, it is right that the political agenda moves on to concentrate on the role and actions of countries themselves,” said Keith O’Donnell, managing partner, Taxand Luxembourg.

“Governments have created the modern day international tax environment, acting through the Organisation for Economic Cooperation and Development [OECD], and businesses have followed this structure and adapted business models to conform to it, in a tax-efficient and legal manner.”

O’Donnell adds that it should come as no surprise that in the drive for investment, jobs, and growth, governments across the world have courted MNCs with an array of incentives. “This is clearly not an issue that affects the handful of countries mentioned in the media, but extends much wider – as the investigation looks set to reveal.

“The problems we see in the international tax system cannot be fixed by one or two EU countries alone, like they cannot be fixed by the multinationals, but we are clearly seeing a tightening of the screw, as action is demanded following public pressure.”

The base erosion and profit shifting (BEPS) action plan is currently bringing about the most significant change to the global tax system seen in decades, O’Donnell concludes.

“While there are still questions surrounding the implementation of BEPS and its time-frame, it is doing more to address the problems of our antiquated tax structure than anything else we have seen from the EU, which appears to be picking fights at both company and country level without due consideration.”

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