Tax Congress of Berlin Tax Forum 2016
" EU and OECD initiatives against
tax profit shifting".
20 June 2016, 11.00 – 19.30
Haus der Deutschen Wirtschaft
Breite Straße 29, 10178 Berlin
Speech
INTRODUCTION
Ladies and Gentlemen,
It is a pleasure to be here today to discuss with you Europe's latest initiatives
on corporate tax policy. And indeed, there are many developments to discuss.
Since the beginning of the mandate of this Commission, the reform of corporate
taxation within our Internal market has been a top priority – and the pace of our work
reflects that.
This is not a priority that we have plucked out of the air. It is one that is very
tightly tied to our wider objectives for the EU: economic sustainability, social justice,
competitiveness and stability for our businesses and our Member States. Allow me to
elaborate:

First, if we want a strong and sustainable economy, we need a tax system
that supports this. A tax system that delivers stable revenues for countries. A
tax system that ensures a level playing field for all businesses. A tax system in
which our citizens have confidence, and which they are ready to comply with because it is fair and applies to all equally. For me, it is clear that the corporate
tax framework in place today in Europe does not fit this bill.
Member States lose around EUR 50-70 billion in revenues every year to
corporate tax avoidance1. The IMF estimates losses at around 0.2% GDP for
both OECD and non-OECD countries. This is money that is slipping away from
the public purse, away from public investment and away from growth-promoting
policy areas. Moreover, governments have to compensate for this loss by shifting
the burden elsewhere – to citizens, workers or smaller, less mobile businesses,
making it even more unfair and politically unacceptable when tax payers come to
vote.
1
European Parliament study
This goes against every principle of growth-friendly taxation, and threatens
our European agenda for jobs and investment: it cannot continue.

Second, growth in Europe also depends heavily on a strong and healthy
Single Market. Businesses must be able to enjoy legal certainty, a level-playing
field and minimal obstacles as they operate across borders in the EU. In other
words, businesses rightly expect the EU to design solutions to the administrative
costs of their cross-border activities.
However, the corporate tax environment, as it stands today, does not
deliver this. Domestic companies are paying 30% higher taxes than their
multinational rivals, due to profit shifting. Our state aid cases indicate that certain
companies are enjoying unfair tax benefits that are not accessible to their
competitors. And the mixed messages from Member States – who engage in
fierce tax competition while also searching for arbitrary national solutions to
protect their tax bases – is destabilising for businesses and investors.
We need to restore stability and a level-playing field.

Last but not least, if we want to maintain the European social model and
ensure a basic harmony between the people, the policy makers and the
business community, we must restore fairness to the tax system. Public and
NGOs' calls for corporate tax reform have become relentless, as new tax
scandals continue to emerge. Corporate taxation is no longer a subject for
specialists. It is a topic on which the man on the street has very strong views.
These views cannot – and should not – be ignored.
We have a duty to make corporate taxation fairer and more transparent, and to
use every means possible to block tax abuse. We have an obligation to take
every measure possible to stop profit shifting, prevent base erosion and ensure that
all companies pay their fair share of tax where they make their profits.
These are the driving force behind the Commission's ambitious agenda against
tax evasion and avoidance.
And we are delivering hard and fast on this agenda. In fact, in the 18 months that
I have been Commissioner for Taxation, we have put forward a series of ambitious
initiatives that will fundamentally reform corporate taxation in Europe: making it better
for Member States, businesses and citizens.
(TRANSPARENCY REVOLUTION IN THE EU AND BEYOND)
My first move was to kick-start a "transparency revolution" within the EU – an
essential foundation for any further reforms. And this revolution is rolling forward
at tremendous speed.
Prompted by the Commission, Member States have agreed to abandon the
traditional culture of secrecy and self-interest in corporate taxation, and to
embrace a new style of openness and collaboration instead. They have
committed to automatically exchange information on their tax rulings and to share
country-by-country
reports
on
multinationals'
tax
information
between
tax
administrations.
Moreover, in response to public and political demand, we have pushed these
transparency boundaries even further, with a proposal for public country-bycountry reporting for multinationals in all sectors. This was an idea that I
embraced from day one – as a crucial measure to restore public confidence in
corporate taxation. It needed careful impact assessment to find the right approach,
and we took the time to do this.
I firmly believe that the proposal we made in April strikes the right balance. It
provides a high degree of pubic transparency on corporate tax practices, while also
protecting the competitive interests of EU companies. The proposal is largely aligned
with the proposal for CbCR between tax authorities – but with a narrower scope to
prevent the information from being abused and to preserve competitiveness. We
have also been careful to minimise administrative burdens that public reporting
requirements could create for tax administrations or businesses. In fact, an added
value for businesses is that an EU approach to public reporting will replace the
patchwork of different national approaches that are starting to emerge.
This proposal is now being negotiated by the European Parliament and
Council. Given the speed at which our other transparency proposals were adopted –
only a few months – we can be optimistic that these public disclosure requirements
will soon be part of EU law.
(Panama Papers)
Despite these achievements, however, our transparency campaign is far from
over: the recent "Panama Papers" scandal revealed that loopholes still exist in
the international tax system. They need to be urgently addressed. Funds are still
being concealed offshore. Artificial arrangements are still being used to hide assets
and income. These activities – which involve both individuals and companies – may
be supporting tax evasion, corruption, money-laundering and terrorist financing.
So we have to throw light on these shadowy activities by pushing our
transparency campaign to a new level. In this respect, I would highlight three
priority areas for action:

First, we need to improve the transparency requirements on beneficial
ownership. This was confirmed by the G20 in April 2016. Tax authorities must be
able to identify the "real live" person behind opaque companies and trusts.

Second, we must address the question of tax advisors, and those who
promote or encourage the "Panama Papers"-type of arrangements. How can
we ensure better oversight of their activities? How can we hold them accountable
if they assist in tax aggressive tax planning schemes? This is a complex task, but
it is too important to shy away from. And we are working on concrete proposals to
be presented soon.

Third, we must ensure that the new global transparency standard – the
Common Reporting Standard – is fully and properly implemented
worldwide. This will provide tax authorities with a powerful instrument to detect
and deal with evasion. If applied worldwide, it will leave tax evaders with nowhere
to hide. But it must be applied worldwide.
(Third countries)
As fraud operates internationally, tax transparency cannot have boundaries.
The EU is doing its part and leading by example with ambitious reforms. But if some
countries "opt-out" of the new global framework for more openness, more
cooperation and more fairness in taxation, the whole structure comes crumbling
down.
The Panama Papers confirmed that that there are still countries that actively
encourage tax evasion and avoidance – although this was not a surprise.
That is why the Commission has been pushing for a much tougher stance
against tax havens – starting with an EU blacklist of problematic third
countries. We have Member States' full support for this new blacklist, and we are
now analysing every country in the world to see where the real threats to our tax
bases might lie. The first EU blacklist will be ready next year – and I am confident
that this will encourage many problematic third countries to start playing fair. This
means that countries that have not identified any problematic third-country in the past
– for instance Germany – will have to shift their approach on these matters to ensure
that the efforts made at EU level are followed-up at global level.
(EFFECTIVE TAXATION)
Let me move on to the second arm of our corporate tax agenda: ensuring
effective taxation.
We insist on a very basic principle: that every company must pay tax where it
makes profits, in line with national rules. To achieve this, we have developed a
new, far-reaching and coordinated approach to fight base erosion and profit shifting,
within and out of the EU.
A key element is our proposal for legally-binding anti-avoidance measures to
tackle the most common forms of aggressive tax planning. What we proposed is
very much aligned with internationally agreed measures against Base Erosion and
Profit Shifting (BEPS), but adjusted to the requirements of the Single Market and
Union law. This is the case, for example, in how we propose to resolve "hybrid
mismatches", to tax a controlled foreign company or to ensure the limitation of
interest deductibility.
We are extremely close to a political agreement on this fundamental piece of
legislation. At the Ecofin meeting in Luxembourg last Friday, Ministers convened to
agree on the directive, demonstrating once again that they are determined to work
together to combat profit shifting.
In addition to this major new piece of legislation, we have also launched work to
reform other aspects of corporate taxation, such as transfer pricing and preferential
regimes, in line with newly agreed international norms.
Overall, these measures will allow EU Member States to deliver on their international
BEPS commitments, quickly and efficiently, and protect their national tax bases more
effectively.
(Competitiveness: dispute resolution, CCCTB)
At this point, I must stress that it is not just our Member States that benefit
from the new EU approach to corporate taxation.
Businesses will benefit too. And I want to shatter the myth that fighting corporate
tax avoidance and creating a competitive business environment are mutually
exclusive goals. In fact, they are two sides of the same coin. How can we hope to
boost jobs and innovation, if the majority of businesses are at an unfair competitive
disadvantage to their tax-avoiding rivals? How can we expect to foster growth and
innovation, if 1/5 of our public investment budget is lost to aggressive tax planning?
How can we succeed in attracting investors, if each country takes its own divergent
approach to corporate taxation?
Businesses and investors need simplicity, certainty and a level-playing field.
They also need a swift and efficient system to solve double tax disputes, and the
Commission will make proposal to improve the current situation by the end of this
year.
This will come together with the real prize for businesses: the Common
Consolidated Corporate Tax Base, CCCTB, which the Commission will relaunch in the autumn.
The CCCTB will complete the Single Market for businesses, from a tax
perspective. It will cut costs and administrative burdens for companies, who will no
longer have to waste resources tackling transfer pricing or profit allocation issues. It
will ensure greater legal certainty for businesses, who will no longer have to muddle
through 28 different national systems, but will enjoy a single EU rulebook instead. It
will remove two major complaints of cross-border companies, by eliminating double
taxation for companies within the CCCTB and allowing them to enjoy cross-border
offset. And, crucially, it will secure a playing field for all business that operate in our
Union.
How? Quite simply, by removing the main channels for multinational profitshifting that exist in our Single Market today. All profits and losses will be
consolidated, and shared amongst Member States on the basis of assets, sales and
personnel. These are real, tangible factors which cannot be easily manipulated for
tax planning purposes.
The CCCTB will ensure that taxation truly reflects the real economic activity of
companies. As such, it is not only a business-friendly proposal - it is also a powerful
weapon against tax avoidance and the key to truly fair and effective taxation.
I know that many businesses are concerned by our "two step" approach where consolidation will be postponed until the common base is secured. Let
me reassure you on these concerns - the Commission has no intention of
abandoning this aspect of the CCCTB. Once the common base is agreed, we will
channel all our energies into securing the consolidation aspect of the CCCTB. We
are well aware that this is what businesses are eagerly waiting for, and we will deliver
it. I am not saying this will be easy, but I am determined to succeed.
CONCLUSION
Ladies and Gentlemen, we are bringing about a paradigm shift in EU taxation –
one that will make it more transparent, more efficient and more business
friendly.
We must continue to work together as a Union to achieve this, and we must continue
to push our international partners to do the same. And I know that here in particular
we can count on the OECD. We have done a lot already. And we have much more to
come.
The pace and ambition of the Commission's agenda will not drop over the coming
years – I am personally committed to this. Fair and effective taxation goes hand in
hand with growth and economic sustainability, so it must remain a top priority. Thank
you.