"Taxes Sign" by efile989 is licensed under CC BY-SA 2.0

In case you missed it – progress on tax justice!

Tax

“Taxes Sign” by efile989 is licensed under CC BY-SA 2.0

On the face of it, this week may not appear to have been particularly auspicious for tax justice campaigners. The big story, about big money (thirteen billion euros), was that the European Court of Justice ruled that Apple does not have to pay that amount to the Irish government. It was not proven that the very low tax rates Apple had, were the result of the government giving them a selective advantage not available to other companies.

Some have surmised that the ruling shows that many big companies with offices in Ireland were able to arrange their affairs to lower tax payments. Others conclude that the ruling shows the state aid rules are not the right way to address tax avoidance. But could the ruling, in fact, hasten international agreement on better global corporate tax rules? Just maybe. 

On the same day the judgement on the Apple case was announced, the European Commission published a new package of measures it wants to implement to improve tax policy across the bloc. Oxfam welcomes many of the measures, not least because it seems that some of the pressure we have built up alongside allies over the years has led to tangible policy proposals.

For example, the EU blacklist of tax havens should be strengthened whilst at the same time taking account of the lack of policy space many developing countries have. By focusing more on the real tax havens, the EU can play an important role in driving up standards.

UK-linked tax havens such as Bermuda and Jersey have already changed some tax rules in response to EU criteria but in some cases that has resulted in simply offering all companies 0% tax rates, hardly in keeping with the idea of ‘fair taxation’! It’s possible the EU will use stronger criteria to assess them against higher standards in the future.

Whilst the package of proposals implicitly recognises the existence of tax haven behaviour amongst EU countries, EU member states need to be much more consistent about applying the same rules to themselves as they do to ‘third countries’. The tax package proposes the way in which member states’ tax practices are scrutinised, but they will apparently still not be held to the same standard as ‘third countries’. 

Now that the UK is a third country, might we expect the EU to blacklist the UK as a tax haven? Based on the criteria the EU has previously used, probably not. But given the tighter criteria and expanded geographic scope of the EU blacklisting process, there is a danger that the UK weakens its tax policies to undercut EU countries.

For example, the UK government has proposed ‘freeports’ which could be conduits for money laundering as well as exercises in driving down tax standards, and the UK already has loopholes in its corporate tax policies as well as one of the lowest headline rates amongst OECD countries.  

The UK government is trying to chart a distinctive course on corporate tax policy internationally. It avows leadership on tax transparency, continuing to champion the policy of large companies revealing where they make profits and pay taxes on a country by country basis.

The UK also purports to successfully entice its Overseas Territories and Crown Dependencies (many of which have 0% corporate tax rates) to provide more publicly available information about companies with a presence there.

Through civil society and parliamentary pressure, the government is now legally obliged to ensure these territories implement this measure. The tide appears to be turning with Bermuda amongst the latest Overseas Territories to indicate it will comply with a deadline of 2023. 

But the even bigger questions of which country has the right to tax a multinational’s profits, what the relevant profit is, and what the tax rate should be are still the subject of international negotiations. The current OECD-led process includes some interesting proposals but they have already been watered down yet remain mystifyingly complex.

There is little certainty that countries which rely on corporate tax for a larger share of their overall tax revenues will really see much increase in corporate tax payments. Therefore, it is even more important that other international initiatives, such as the EU’s plan to introduce a minimum effective tax rate, is so important.

Were a critical mass of countries to adopt such a policy, it could become a de facto global minimum rate that all countries used. At a time when the Apple ruling shows the inadequacy of current rules and processes, and the wider context reveals how much extra effort governments will need to make to mobilise tax revenues in the wake of higher government spending and widening deficits, further progress on tax justice in the UK and globally is possible.

The progress signalled by the EU package, and by the UK’s territories’ commitments to enhanced transparency reminds us that in our long campaigns, we should welcome and build on these important steps.  

Author
Oliver Pearce

Oliver Pearce

Oliver is the Tax Policy Manager at Oxfam. He has worked in development for 10 years, starting at Christian Aid where he began as a Policy Analyst researching issues from climate change to governance. He joined Oxfam in February 2016 as Policy Manager for tax and inequalities issues. He also serves on the board of the European Network for Debt and Development (Eurodad) and on the Steering Group for the Independent Commission for the Reform of International Corporate Tax (ICRICT).