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24 • Fifty Shades of Tax Dodging
3.6 Tax rulings
The international rules for taxation of multinational
corporations remain uncertain and complex, and concerns
have been raised that the outcome of the OECD’s BEPS
process (see section 1.3) will only increase this problem. 156
In order to have legal clarity, tax administrations can offer
companies or individuals tax rulings, including advance
pricing agreements (APAs), that make their tax position clear
and assures that the tax administration will not challenge
the tax practices agreed on. These types of agreements
can be effective ways to make the tax system more efficient
by bringing certainty to corporations. However, they can
also be misused to legitimise significant tax avoidance,
and so their use needs to be transparent and accountable.
Currently, these agreements are often negotiated bilaterally
between the multinational corporation and the national tax
administration, and are kept in secrecy.
The secret world of tax rulings for multinational
corporations became better known after the LuxLeaks
revelations in November 2014. 157 A law professor has
described these tax rulings in the following way: “It’s like
taking your tax plan to the government and getting it blessed
ahead of time.” 158 Such tax rulings have now become a
key tool in corporate tax avoidance. With provision for tax
rates lower than 1 per cent in some cases, 159 multinational
companies flocked to Luxembourg’s tax department to get
a ruling. The audit company PwC that brokered the tax
rulings has since been accused in the UK’s Public Accounts
Committee of promoting tax avoidance on an industrial
scale. 160 Along with other EU Member States, Luxembourg is
currently under investigation by the European Commission
for using tax rulings as a form of illegal state aid. The
Commission’s investigation was expanded in March 2015 to
include tax deals with McDonald’s. 161
Shocking as the revelations from Luxembourg were, the
really disturbing thing about these leaks was that they only
involved one country and the tax rulings brokered by one
audit company. It is safe to say that LuxLeaks revealed
only the tip of the iceberg: underneath is a much wider and
deeper problem, since 22 of Europe’s Member States make
use of tax rulings and we can only guess at the provision for
lower corporate taxes that they involve. While Luxembourg is
one of the most active Member States in issuing tax rulings,
it is certainly not the only one. Figure 5 illustrates this,
showing only one type of tax ruling – the so-called Advance
Pricing Agreements (APAs).
Important as this step may be, it does nothing to assist
developing countries or the citizens of Europe in accessing
the tax rulings, and doesn’t address the underlying problem
of a complex, uncertain and very opaque tax system, where
governments often engage in ‘tax competition’ to attract
multinational corporations with opportunities to lower
their taxes, rather than work together to ensure a solid and
coherent tax system. 163 Data from the Commission shows
that, out of the 547 APAs in force in EU Member States by
the end of 2013, 178 were with non-EU countries. 164
The Commission is conducting an impact assessment to
look into the pros and cons of making parts of the tax rulings
public. This is expected to be ready by the beginning of 2016.
However, as is the usual case with the Commission’s impact
assessments, it will most likely not consider the interests of
developing countries when weighing up the pros and cons.
3.7 Excluding developing countries from decision
making
As has been highlighted above, the OECD BEPS reforms
have systematically been biased against the interests of
developing countries.
Europe plays a key role in upholding the current system,
which dictates that international taxation reform is discussed
and progressed through OECD and G20 forums, where more
than 100 developing countries are not represented. For
years, developing countries have been calling for the UN
to take over the international taxation reform process, as
this would allow all countries in the world to have a seat at
the table when decisions are to be taken. The EU played an
active role in blocking this proposal in the July Financing for
Development conference in Addis Ababa, where the question
of the global tax body was a key sticking point between
developed and developing countries.
In the early stages of the negotiations, the EU seemed to
indicate some openness to discussing the proposal, calling
for a cost-benefit analysis, more clarity of what the mandate
would be and reflections on the potential interlinkages with
between different bodies to avoid ‘wasteful duplication’. 165
However, the EU’s line then changed to opposing the
intergovernmental tax body with a reference to the problem
of ‘institutional proliferation’ and their preference for
keeping the decision making at the OECD. 166 The proposal
was also opposed by other developed countries, including the
United States 167 and in the end it was not adopted.
The European Commission announced in March 2015 that
the details of tax rulings would be automatically exchanged
between Member States within the EU in an attempt to
discourage excessive rulings. 162