News Analysis: Long way to go for harmonized corporate tax policies within EU

The Dutch-German agreement to enhance the exchange of information on tax rulings was "an important step" towards greater transparency, but there is still a long way to go before reaching common ground on harmonized corporate tax policies within the European Union (EU), according to taxation experts and European officials.

A FIRST STEP TOWARDS TRANSPARENCY

The Netherlands and Germany agreed last week to cement the "spontaneous" exchange of information on tax rulings, an obligation that EU member states should respect according to a 1977 directive but refuse to do so calling on commercial secrecy laws or public policy.

Taking a first step, the Dutch and the German agreed to give insights into one's tax rulings when the rulings have an impact on taxation in the other. In addition, one will exchange information on tax rulings concluded with non-EU countries when the other is not a party to the agreement in question but will be affected in terms of taxation.

More states are expected to follow the Dutch-German example because a draft directive issued earlier this year by the European Commission suggests that automatic exchange of information by tax authorities of all EU countries is due to become mandatory as of Jan. 1, 2016.

According to Dutch finance ministry sources, the Dutch government would like to see an agreement on the automatic exchange of information on tax rulings being reached by all EU countries during the six months rotating EU presidency held currently by Luxembourg or right after by the Netherlands that takes over EU presidency on Jan. 1, 2016.

FROM TRANSPARENCY TO HARMONIZATION?

Transparency is a starting point for EU member states to reach the goal of "tax justice" by harmonizing their tax regime.

"The co-existence of 28 different tax regimes fragments the single market and prevents growth due to over taxation or double taxation of businesses subject to as many costs caused by compliance with disparate national tax rules," said EU parliamentarian Alain Lamassoure in an interview with Xinhua.

"Within the European Union we must aim to agree on the same definition of taxable profit, but allow each state to apply the rates that suit it," said the French MEP who heads a special European Parliament committee TAXE that looks into unfair tax practices.

Different practices on corporate tax are at the core of this controversy. According to the TAXE committee, 22 of the 28 EU states enable big corporations to arrange specially-designed corporate structures leading to tax avoidance, most of the times to the detriment of other European countries.

The 45-member TAXE committee is having talks with tax authorities in EU member countries in order to table out a concrete legislative proposal on corporate tax base harmonisation by the end of the year.

"Tax rulings which facilitate tax dodging by transnational corporations and individuals are widely used among European countries in some cases to attract investments," said Tove Maria Ryding, an expert on tax justice for the European Network on Debt and Development (Eurodad) in an interview with Xinhua.

"The practices followed differ from country to country, while several countries also allow letterbox companies and other structures to be set up, such as the so-called special purpose entities, which can be misused for tax dodging purposes," Ms Ryding explained.

The Netherlands, Luxembourg, Ireland and Belgium have been under investigation by the commission to see if such arrangements are in fact unlawful state aid. This investigation has been extended to include all EU member states. Endit