Time for the EU Parliament to Act on Corporate Taxes

 March 28, 2013

Now that Cyprus has ceased to be an offshore financial centre, Martin Schulz and his colleagues have the opportunity to go a step further and tackle the issue of unpaid corporate taxes within the European Union over the past ten years. According to The Economist, the amount of money spirited away by corporations avoiding taxes has reached the staggering global figure of 20.000 billion dollars, deposited in some 60 financial havens.

National EU governments are powerless to redress such massive tax avoidance practices that currently cause mass unemployment and a dearth of financial resources for their treasuries. Corporations , especially from outside of Europe, have been quick to speculate national politicians’ desire to attract FDI, and have extracted unreasonable concessions from them for establishing operations within the EU.

To contain the public’s outrage, gimmicks like the ones employed by premier David Cameron in Britain – getting some US corporations like Starbucks or Apple to make symbolic financial contributions – are simply not acceptable anymore. Such policies will do nothing to deter corporations, which make their profits off the backs of EU consumers and governments, to renounce their massive tax avoidance schemes in the future.

The European Parliament could thus impose a flat 30 percent tax rate on profits made within the EU and deposited offshore by European, Japanese or US corporations. This rate of taxation could subsequently be adopted as the EU-wide minimal norm.

The sums involved in the recovery of back taxes could be as high as 3.000 billion euros, to be collected by national governments. Some of the money thus recovered could go towards shoring up the EU budget and enhancing the pool of money available to the European Stability Mechanism, enabling the latter to deal with problems experienced by countries like Italy. This prevents the tendency of some governments to want to impose top tax rates of 75 percent or more. By the same token, the European Parliament could forbid countries such as Ireland to act as tax avoidance hosts in keeping their corporate taxes exceedingly low. Finally, the European Parliament is the right institution to legislate and mandate member states to : collect corporate taxes there where profits are being made; outlaw transfer pricing and other tax avoidance techniques; and eliminate tax loopholes from national member-states’ legislation.

To be sure, this is no easy undertaking, but in these disastrous economic circumstances exceptional measures are needed, if we are to avoid the implosion of democracy and the parallel rise of populist and fascist parties in Europe.