The European Court of Auditors (ECA) has conducted a comprehensive audit to examine how the EU framework addresses these issues and will publish its report this month.
The fight against harmful tax regimes and corporate tax avoidance has become a pressing issue worldwide on account of increased globalisation. These adverse practices are perpetuated by companies exploiting loopholes in tax rules in order to shift their profits to low-tax jurisdictions. This also occurs in the EU, where the negative effects can upset the fair balance between member states’ tax systems, and lead to distortions in the single market. The European Court of Auditors (ECA) has conducted a comprehensive audit to examine how the EU framework addresses these issues and will publish its report this month.
Multinational corporations are increasingly adept at using complex tax structures to reduce their tax bills. This results in companies concentrating in fewer, specific countries and poses significant challenges to ensuring that taxes are paid where profits are made. In the EU, it remains a member state’s right (and it is indeed in its self-interest) to design its own tax regime, and the only action that can be taken at EU level is in the matter of the functioning of the single market. This means that the European Commission is principally concerned with monitoring, coordination and harmonisation. Over the years, it has built up a toolbox of measures with varying degrees of effect.
Several legislative acts have been established to combat harmful tax practices, such as the Anti-Tax Avoidance Directive (ATAD), the 5th amendment to the Directive on Administrative Cooperation (DAC 6), and the Directive on Tax Dispute Resolution Mechanisms (TDRD). The aim of these directives is to create a more transparent tax environment that discourages companies from engaging in aggressive tax planning, and in which tax disputes between member states are resolved more efficiently.
An EU Code of Conduct for business taxation was also introduced, representing a political commitment to tackle harmful tax competition, tax avoidance and tax evasion in the EU. The code is overseen by the Code of Conduct Group, which plays a key role in assessing member states’ potentially harmful tax practices, recommending changes to eliminate such practices, and monitoring the code’s implementation by member states.
The special report on combatting harmful tax regimes and corporate tax avoidance (available on the ECA website as of 28 November 2024) assesses the effectiveness of the EU framework in place and makes recommendations on how the EU can continue to scale up its fight against these adverse practices. The audit broadly covers the main EU legislative acts and other instruments in place, but not state aid to corporations or specific bilateral agreements between companies and governments, which are also key issues in the area of harmful tax practices.
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© European Court of Auditors
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