On 11 February 2014, Vice President of the European Commission Joaquín Almunia, responsible for Competition Policy, delivered his address before the third European Competition Forum in Brussels. After making remarks on current competition concerns in the telecom and energy sectors, Commissioner Almunia came out forcefully against corporate tax regimes that, he asserts, undercut fairness, integrity and social stability.
Commissioner Almunia signalled a renewed interest in corporate tax regimes throughout the G20 and the OECD.
Because of the gaps in national tax laws, many of the largest multinational companies pay very low taxes, and they don’t need to break the law to do it. The present state of affairs undermines the fairness and integrity of tax systems and – in the European context – it has several undesirable implications. Among other things, it is socially untenable. How can governments ask ordinary citizens to accept adjustments and pay their fair share of taxes if big companies don’t?
But here I am talking from the competition policy perspective. The reason to tackle taxation from the State aid standpoint is simple. Selective taxation is economically inefficient, because it distorts the level playing field for the allocation of capital within the internal market. This is particularly the case for the digital, creative, and other industries based on intellectual property. In these sectors, it is easier for companies to push activities from one country to another and take advantage of the gaps that exist within the EU.
And this is where competition policy gets into the picture. Because aggressive tax planning is contrary to the principles of the Single Market, even under the present distribution of competences between the EU and its Member States. A limited number of companies actually manage to avoid paying their proper share of taxes by reaching out to certain countries and shifting their profits there. In those cases where national laws or tax-administration decisions permit or encourage these practices, there might be a State aid component involved and I intend to go to the bottom of it. This is why in the last few months we have been sending requests for information to some Member States where we have doubts about the consistency of some aspects of their legal framework or of their administrative practices.
Commissioner Almunia made his remarks in the context of state aid control. The European Commission has far-reaching powers over that policy. The same cannot be said of taxation, which is largely a domestic prerogative – and is likely to remain so, for the forseeable future.
Aside from that preliminary remark, it is questionable whether the Commissioner’s presumptions and – perhaps – exaggerations are valid. The Single Market thrives on free movement and competition. Competition between domestic economies, e.g. in terms of corporate tax regimes, should in principle be welcomed – not dismissed as unfair. If there are any excesses, these should be dealt with. At the same time, EU Member States that are perhaps not as efficient or competitive in terms of taxation, should not be allowed to hold back the ones that are, by indirect means. For that would be a true infringement of Single Market principles.
Earlier, mid 2013, the European Commission send out information requests to the governments of Luxembourg, Ireland and The Netherlands. There is a strong sense in those countries the European Commission might be influenced by competitors, such as the British government, who seek to promote and strengthen their own position. That suspicion was not taken away at the European Commission Forum, where Mr Vince Cable, UK Secretary of State for Business, Innovation and Skills, ‘encouraged’ the European Commission to use its state aid powers in order to police domestic tax prerogatives.
There is, as of yet, no formal investigation .