What is fair taxation and what can the EU do about it?
Just in time for Christmas, tax authorities from all EU member states, business representatives, civil society organisations and the European Commission met in Brussels at the EU Platform for Tax Good Governance, to discuss the topic of fair taxation – covering elements ranging from progressive taxation to corporate aggressive tax planning. ActionAid was also there, to ensure that the perspective of women and men living in poverty in developing countries are heard by EU policy-makers working on tax issues.
Progressive taxation is the way to go
We presented the work we have been doing around the world to make tax systems fairer and more progressive, focusing on making sure that those who earn more or have more wealth pay higher taxes. Systems that are designed that way, to prevent the poor from paying a greater proportion of their available resources than the rich, are what we call progressive tax systems. Such systems can not only generate sufficient public revenue, but also distribute contributions fairly and serve to bridge economic and gender inequalities.
This is particularly important for developing country governments, who are under an immense pressure to attain the Sustainable Development Goals (SDGs) yet lack the resources needed. Taxation is a key way with which governments can gather sustainable revenues to fund public services, yet due to the massive scale of tax avoidance and evasion by corporations and wealthy individuals – many of them European – the balance of contributions is being shifted towards those who earn less.
Overall, the lesson is that tax systems must be designed in a progressive manner, or they risk worsening economic inequalities and pushing people into poverty. At the meeting, we presented the eight briefings that we have recently published, which look into different types of taxes and how they can be made more progressive: introduction to progressive taxation; value-added tax (VAT), excise taxes, international trade taxes, taxes on the informal sector, property tax, capital gains tax and other wealth taxes.
Why are we talking about this in Brussels?
As part of its approach to development cooperation, the EU and Member States have committed to work with partner countries to promote progressive taxation. We think that there is a lot that they can and must do to live up to that commitment:
- The EU and EU countries need to play their part in curbing tax avoidance and tax evasion. They must lead by example and conduct impact assessments of how their tax policies may have spillover effects on developing countries, and they need to adopt rules around tax transparency for corporations;
- The EU and EU countries can promote progressive taxation through the aid that they give to domestic resource mobilisation, including by collaborating with other international and regional organisations.
Fair corporate taxation
Another topic on the agenda of the Platform for Tax Good Governance was around the fairness of corporate taxation. What can the EU do to make sure that corporations are paying their fair share? There was overall consensus that there has been some progress in many of these areas in the last five years.
Significantly, the European Commission has tabled a proposal – called the Common Consolidated Corporate Tax Base (CCCTB) - which would introduce a new approach to taxing multinational corporations in the EU, namely by taxing them as one coherent entity rather than the current approach of taxing them as a group of smaller separate entities. Taxing them as one entity would stop the current opportunities they have to significantly dodge taxes by shifting profits between subsidiaries. Instead, under the CCCTB proposal, the right to tax the profits of a corporation would be allocated to countries based on the level of economic activity. However, EU member states have not yet reached agreement on this proposal and it’s unclear whether they ever will.
Another aspect necessary for fair corporate taxation is tax transparency. Here again, the European Commission has put forward a legislative proposal - called public country by country reporting - which would require corporations to publish their profits and taxes paid in every country in which they operate. Yet the proposal falls short of ensuring that transparency is detailed enough to help tax authorities and civil society in developing countries. And in any case, EU member states haven’t been able to agree on the proposal for over a year, and the topic hasn’t even made it into the agenda of their most recent meetings due to lack of political will.
By bringing together expert representatives from business, tax professional and civil society organisations, the Platform for Tax Good Governance is meant to assist the European Commission in developing a more coordinated and effective EU approach against tax evasion and avoidance. At the meeting on 19 December, participants clearly indicated that the proposals for CCCTB and public country by country reporting are essential to advance this agenda.
ActionAid is glad to be part of the Platform and to contribute to an EU approach that more adequately takes into account the impacts that EU and national tax policies can have on developing countries. We will continue doing so in 2019 and urge national governments in the Council of the European Union to play their part and adopt the two legislations we mentioned above, which would greatly help moving towards fairer corporate taxation in the EU – and outside.