EP report against tax avoidance to impact services sector

A report tabled by European Socialist MEP, Hugues Bayet, on combating tax avoidance that includes provisions that may damage Cyprus as a regional business centre, was discussed on Tuesday in the June European Parliament plenary session in Strasbourg.

The report was drafted after a proposal tabled by the European Commission, as part of the EU anti tax avoidance package, in the context of the actions of the OECB’s Base Erosion and Profit Shifting (BEPs).

EU Commissioner for Economic and Financial Affairs Pierre Moscovisi reiterated that the EU does not wish to impose a single tax rate or a minimum tax rate. “We do not want a minimum tax harmonisation but a fair and effective taxation.”

Apart from a tax heaven black list and a single European tax number, the report and the proposal includes a so-called switch-over clause which targets types of foreign income, such as profit distributions, proceeds from the disposal of shares and permanent establishment profits which are tax exempt in the Union and originate in third countries, a tax feature used in Cyprus. Moreover, the proposal provides that a company should be subject to taxation that is equal to the market value of the transferred assets, at the time of exit, a provision deemed to damage Cyprus’ bid to attract foreign corporations to the island.

The Commission proposals comes as OECD estimates that aggressive tax optimisation by multinationals causes losses to state budgets amounting to between USD 100 and 240 billion annually, representing between 4 and 10% of global corporate tax revenues. Furthermore, discussions come in the wake the scandals of ‘Lux Leaks’ and the ‘Panama Papers’ that revealed many billions.

“Even the cleaning ladies here at the European Parliament pay more tax than Google,” Fabio De Masi, of the European Left told the EP plenary. MEPs said the Commission should move further from the setting a minimum tax rate.

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However Cypriot MEP Lefteris Christoforou (EPP-DISY) responded that a healthy competition among the member states on the tax rate cannot be compared with tax evasion and tax avoidance.

“We should not stab the EU in the back,” he said, noting that such moves may force corporations to live the union and opt for tax jurisdictions outside the EU.

“Instead of curtailing tax evasion and creating black lists, we will hit the GDP of our own countries and will give the advantage to other states such as the US,” he said, noting only communist regimes impose minimum tax rates.

On his part, Costas Mavrides of the European Socialists (DIKO) said the EU should proceed further with the OECD’s BEPs guidelines and set out a minimum tax rate. “If we go further we are entering uncharted waters,” he added.

He said the Commission’s directive erodes the memberstates comparative advantage in the context of free competition and operates against small island states such as Cyprus which have consolidated advantages to the economy stemming from the services sector.

The report will be voted on Wednesday.