In September 2014 Pierre Moscovici, the former French Minister of Finance, was named as European Commissioner for Economic and Financial Affairs, Taxation and Customs. The IFC Economic Report spoke to Commissioner Moscovici about his new responsibilities and ambitions for his time in office. In March, his department launched the Tax Transparency Package as part of its agenda to tackle corporate tax avoidance and harmful tax competition in the EU. A key element of this Tax Transparency Package is a proposal to introduce the automatic exchange of information between Member States on their tax rulings, we asked Commissioner Moscovici how this Package will impact on tax policy and economic growth in the EU going forward.
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IFC: How important is an effective tax policy for encouraging economic growth?
Pierre Moscovici: It is absolutely essential. An effective tax policy influences the sustainability of public finances, the dynamism and inclusiveness of labour markets, the stability of asset prices and the competitiveness of industry and services.
IFC: How significant were harmful tax practices in contributing to the EU’s current economic problems?
PM: Harmful tax practices were not at the root of the economic crisis, but the constraints on public finances stemming from it mean that any tolerance for such practices has gone. When ordinary people have to make large financial sacrifices to help pull their country through hard times, the exploitation of loopholes by those able to do so is just unacceptable. Everyone should pay their fair share.
IFC: The Commission has just launched its agenda for combating tax avoidance and aggressive tax planning – could you outline the key points in the Tax Transparency Package?
PM: One of the most important elements of the Tax Transparency Package I presented on 18 March is a legislative proposal for the automatic exchange of information on tax rulings. This will allow all EU member states to be aware of tax rulings issued by other member states which are affecting their own tax revenues. The Commission plans to present a second package of measures dealing with fair and efficient corporate taxation before the summer. This will also take into account current initiatives by the G20 and OECD to tackle tax avoidance.
IFC: How do you plan to secure ‘the highest level of tax transparency in Europe’?
PM: The automatic exchange of information on tax rulings is just the latest element of our work towards more transparency. The European Commission proposed an important revision of the
Administrative Cooperation Directive in June 2013 to end banking secrecy, which was adopted by the EU Council of Ministers in December 2014. On the Commission’s initiative, member states have also agreed to automatically exchange a broad spectrum of financial information with each other from 2017, from VAT to savings taxation. We will build on these successful initiatives in the coming months.
IFC: Is there a fear that Europe’s financial services sector may suffer if the rest of the globe does not follow the EU’s lead in tackling these issues?
PM: The initiatives underway in the OECD and G20 frameworks show clearly that tax transparency is not only a European priority. We are working closely with other partners in these fora to press for global action that is as bold as that we are taking in Europe.
IFC: A number of EU jurisdictions continue to offer low corporate tax rates, do you believe that the so called ‘race to the bottom’ is a significant concern? Would it be beneficial for Europe to have a level playing field in corporate tax rates?
PM: Corporate tax rates are a matter for member states and that is unlikely to change any time soon. We are however determined to address existing tax obstacles for companies operating across EU borders, by injecting a new impetus into efforts to agree on a common corporate tax base for their EU-wide activities.
IFC: How do you hope to tackle the problems of base erosion and profit shifting without damaging corporate relations with the EU?
PM: The BEPS Action Plan complements the EU’s measures to tackle aggressive tax planning. It sets out 15 specific actions to re-adjust international standards in taxation, so that they are better adapted to the changing global economy. Over the next year, new rules and standards will be developed in areas such as permanent establishment, transfer pricing and digital taxation. The aim is to protect the fairness and integrity of tax systems, and better equip governments in their clampdown on corporate tax avoidance. This should in no way harm corporate relations; on the contrary our intention is to create a tax environment that supports businesses.
IFC: Can you give us any indication of what may be included in the second package of measures which are to be directed at achieving ‘fair and efficient corporate taxation’?
PM: This second package of measures, to be presented before the summer, will include an Action Plan on Corporate Taxation, focusing on measures to make corporate taxation fairer and more efficient within the EU single market. It will include ideas for revitalising the Common Consolidated Corporate Tax Base discussion and for integrating into the EU framework the OECD/G20 actions on BEPS.
IFC: How effective has the EU clampdown on tax evasion and aggressive tax planning been so far?
PM: We are constantly developing our tools to fight tax evasion, and have already closed several existing loopholes in the system. In light of recent developments we have redoubled our efforts and accelerated our work. It is hard to quantify the amounts that have been clawed back thanks to EU action, since the very nature of tax fraud and tax evasion means that we cannot be certain how much money is hidden (though a 2013 report prepared in the European Parliament estimated the level of lost revenue at several hundred billion euros a year).
IFC: Do you feel that the blurring of the line between tax evasion and tax planning will create problems with establishing an effective tax policy?
PM: There is a clear difference between tax evasion and honest business. Our guiding principle is that tax systems have to be transparent and countries should tax companies where their profits are generated.
This is how each EU member state can improve its tax policy and become more effective.
IFC: How can the EU reconcile proposals for a central Beneficial Ownership Registry or the automatic exchange of sensitive tax information between member states with a client’s right to privacy?
PM: In our proposals we always consider carefully the balance between privacy and transparency. We believe that only the necessary information has to be provided and safeguards are an important part of our legislation that ensure that the information is in the hands of those who really need it.
IFC: What is your Commission’s ultimate objective with regard to the EU tax policy?
PM: To create a framework for economically efficient, socially fair tax policies supportive of strong, sustainable growth and high employment.