TAE on the subject of tax transparency
Statement by Michael Jaeger,
Secretary-General of the European Taxpayers’ Association, at the
public hearing on tax transparency before the European Parliament’s Committee on Financial Affairs,
Thursday, 9 September 2021
It goes without saying that the European Taxpayers’ Association rejects any form of tax evasion or tax fraud.
Because taxes that are not paid by one group must be paid by others.
Tax fairness is essential. However, lawful corporate tax planning should not be equated with tax evasion or tax abuse, as has recently been the case in public debate. The lawful use of tax planning opportunities, both nationally and internationally, has nothing to do with ‘trickery’. It is a legitimate measure taken by companies to minimise their tax burden.
Generating profit is the primary duty of companies in a market economy. Tax is paid on these profits. Companies have a primary duty to make optimal use of their resources in order to generate profits and minimise costs, which also includes corporation tax.
What is completely overlooked here is that taxes drain liquidity from companies. Taxed profits either flow back into the company or are distributed as dividends, which in turn creates an additional tax burden. Anyone wishing to avoid this would also have to consistently limit business expenditure, including the wages and salaries of all employees. However, this would contradict all economic principles and is something we firmly reject.
Taxes are also an important location factor that is completely disregarded in this discussion.
Only at first glance does the issue seem to be about tax transparency for so-called major players, none of whom, incidentally, are based in the EU.
In reality, the sole aim is to ensure that these companies, which are based outside the EU, pay tax within the EU. For the sake of tax fairness, however, it is irrelevant where tax is paid; what matters is that tax is paid at all.
It is of crucial importance that everyone is treated equally and that there is no unequal treatment on national grounds.
A glance at the published annual reports of large companies also reveals their tax payments. Corporations and public limited companies are legally obliged to publish their key business data, including profits before and after tax.
We take a critical view of the European plans to introduce tax transparency for several reasons. Here are some of our reasons, concerns and demands:
- Direct taxes, including corporation tax, encroach upon national sovereignty,
therefore EU intervention should be avoided as far as possible. - Tax transparency – or, rather, ensuring that companies pay their taxes – is primarily a national responsibility, not an EU one.
- EU countries are already obliged to report. Transparency is ensured within the framework of the OECD group of industrialised nations.
- In the context of the planned global introduction of a minimum corporate tax rate, separate efforts towards tax transparency are unnecessary, as this reform must also regulate the future distribution of corporation tax revenue.
- Tax transparency runs counter to the principle of competition, which also encompasses tax competition. As low-tax countries such as Bulgaria, Cyprus, Ireland and Malta are now forced to raise their tax rates, they lose their locational advantage, their appeal to investors and, consequently, their tax revenue. They will demand that the EU compensate them for their loss of revenue. This would lead to a European fiscal equalisation fund, which we reject.
- Corporate information collected as part of tax transparency must be treated as confidential and used exclusively for internal purposes. In our view, there is no need to publish it in a publicly accessible register. Only the tax authorities of the countries concerned and the relevant EU institutions should have access to the data and should exchange it exclusively internally. Otherwise, the companies concerned face the risk of massive competitive disadvantages. Competitors could use the data, which would now be publicly available, to draw conclusions about cost structures, pricing policies and profit margins.
- Bureaucratic costs and administrative burdens should be avoided and reduced to a minimum.
- Information obtained through potential tax transparency must always be scrutinised critically. Why is a company suddenly paying less tax? There may be various plausible economic reasons for this, such as increased expenditure on research and development, investments, declines in turnover, product changes, etc. Even a change of location is not primarily driven by tax optimisation.
- Large, non-European global players, which are to be covered by the planned measures, represent only a small proportion of companies.
It is foreseeable that countries such as the US and China will then also demand full tax transparency from EU companies. - The EU must ensure that the proposed transparency rules for large companies do not also apply to small and medium-sized enterprises (SMEs). We fear that this will not be possible in the long term. This would entail additional costs for SMEs.
- We call on the European Commission to carry out a comprehensive and transparent legal impact assessment of the planned measures.
Finally, I would like to comment briefly on the idea of an EU asset register:
For us, this represents a massive attack on the market economy and freedom. We run the risk of creating not only the ‘transparent company’ but also the ‘transparent taxpayer’. In our view, the European Commission’s plan to examine the feasibility of such an EU asset register is an expression of deep mistrust of tax compliance, even if reasons such as combating tax evasion, money laundering or terrorism are cited.
The real solution would be so simple: straightforward tax systems with low tax rates and few exceptions, rather than ever more complicated and bureaucratic requirements. This would create incentives for entrepreneurship and lead to growth and greater prosperity for all.