Front companies in EU crosshairs after pressure from Parliament – POLITICO
Legislators in the European Parliament are prohibited from legislating on tax bills. But years of lobbying are finally paying off.
The European Commission will present a bill on Wednesday aimed at “neutralizing” businesses across the EU that have letterboxes but no offices or employees and are used to dodge taxes, according to a draft obtained by POLITICO.
The Unshell Bill “responds to a request from the European Parliament for EU action to combat the misuse of fictitious entities for tax purposes and, more generally, at the request of several Member States, companies and civil society for a stronger and more coherent EU approach against tax avoidance and fraud â, the project indicates.
The parliamentary push reflects years of growing expertise in tax policy, in which Parliament has virtually no power over EU initiatives.
There is no guarantee that it will be successful. Governments can veto any tax bill they dislike, meaning that all lobbying efforts by Parliament could fail when the Commission’s proposal is considered for approval by EU countries.
However, EU treasuries are missing some â¬ 20 billion a year due to tax-evading letterbox companies, according to the 52-page draft. Recovering some of these tax losses could go a long way after a costly coronavirus pandemic that left the EU with a heavy debt burden.
“We have lobbied against the vehicle of aggressive tax planning, the shell companies, and the Commission has taken that on board,” said Dutch S&D MEP Paul Tang, who chairs Parliament’s subcommittee on taxation and helped lead the growing influence of the legislature. “We will put more pressure on member states to clean up their act,” he said, pointing to Ireland, Luxembourg, Malta and the Netherlands.
Brussels has stepped up its crackdown on tax evasion techniques since 2016, when the Panama Papers scandal exposed how far businesses and the wealthy will go to avoid paying taxes. Similar scandals have since emerged, such as the Paradise Papers and the Pandora Papers. In response, the EU created a blacklist for tax havens, but only for countries outside the bloc.
Unshell could hit Luxembourg particularly hard. A media survey published in early February, dubbed OpenLux, revealed 55,000 “ghost” companies in the Grand Duchy managing assets worth at least 6,000 billion euros.
OpenLux said giant multinational companies such as LVMH, Pfizer and Amazon, as well as sports figures such as American golfer Tiger Woods and Portuguese football star Cristiano Ronaldo, used fictitious entities in Luxembourg. The authorities of the Grand Duchy have rejected the allegations of the investigation.
According to the proposals released Wednesday, national tax authorities should examine shell companies within their borders to see if they have provided “economic activity.” If they did, the tax authorities would leave companies alone for five years before repeating the review process. If they did not, they would be deprived of all tax benefits.
Change of tactics
In recent years, European lawmakers have started to change tactics in tax policy. The Brussels legislative process grants MEPs the right to produce an opinion that EU governments in the Council can take into account or ignore when amending bills.
The Panama and Paradise Papers scandals have triggered temporary parliamentary committees that could send missions around the world and call on industry and government officials to speak in public hearings. These committees produced reports with legislative recommendations, such as tackling front companies, but had little power.
This soft touch is now over. Parliament now has a permanent sub-committee, supported by tax policy experts with in-depth knowledge of the subjects dealt with. The S&D Tang also played an active role in lobbying the Commission and national parliaments to act as chairman of the subcommittee.
“This Parliament is dangerous” given the “very good job” that lawmakers are doing, said a treasury official, adding that the committee hearings are now even attracting the attention of national capitals. âThey are super efficient.
However, the veto power of governments could turn out to be Unshell’s downfall.
There is also the risk that more political tax initiatives will replace the bill. France is determined to use its upcoming six-month Council presidency for legislative discussions to implement a comprehensive offer to set a minimum effective corporate tax rate of 15% across the bloc.
Parliament officials fear that Paris’s focus on the tax rate will leave Unshell behind, although a French treasury official has said that discussions on Unshell in the Council are planned for the next presidency.
Supporters say if Unshell falls flat, Europe could struggle to lecture the international community on tax evasion.
“If Europe wants to have legitimacy at the international level and exercise real influence in the fight against tax evasion and harmful tax practices, it must set an example ‘at home’ within the EU,” he said. said French Renew Europe MP Gilles Boyer, who also sits on the tax committee.
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