STOP

Fifty Shades of Tax Dodging • 39
European Parliament
“What worries me most is the fact that the reported practices (revealed in LuxLeaks) were manifestly legally possible in some
countries. This reality means that we need to urge the Member States to work with us to end systematic tax evasion practices in
Europe, be it in Luxembourg or any other country.”
Martin Schulz, President of the European Parliament 188
General overview
With the European Parliament traditionally an ally to tax
justice campaigners, new MEPs had to quickly define
their position on the subject after taking up office in 2014.
Almost immediately after starting their electoral term,
the MEPs had to decide whether or not to use their powers
to remove European Commission President Jean-Claude
Juncker following the troubling LuxLeaks revelations,
which date back to the period when he was Prime Minister
of Luxembourg. Through a messy compromise between
the largest political groups, Juncker was spared, 189 but
tax justice remained on the agenda. Over the course of
just one year, the European Parliament (EP) has finalised
the negotiation of an important directive on beneficial
ownership transparency, 190 adopted two key reports on
taxation with two more expected before the end of 2015, 191
amended a Commission proposal for a directive to include
public country by country reporting and publication of tax
rulings, 192 and established a special committee to look into
tax rulings and other harmful tax practices. 193
However, the EP does not always present such a united
front. While all party groupings in the Parliament strongly
condemned the revelations of the LuxLeaks scandal and
demanded tough actions, several of the biggest political
groups ended up opposing a proposal to set up a strong
inquiry committee to investigate harmful tax practices.
Instead, the Parliament found consensus on setting up a
weaker special committee. 194
Rather uniquely among the European institutions and
Member States, the EP continues to be a champion of the
developing countries’ perspective on tax justice. In 2015, the
EP cemented this impression by passing a progressive report
on tax and development that, among other things, called on
the Commission to put forth “an ambitious action plan … to
support developing countries fighting tax evasion and tax
avoidance and to help them set up fair, well-balanced, efficient
and transparent tax systems.” 195 Such calls unfortunately often
go unheard due to the relatively weak powers granted to the
Parliament under the EU treaties when it comes to tax. This is
unfortunate because, in spite of its occasional shortcomings,
the Member States and Commission could still learn a lot
from what the only directly elected and most transparent of
the EU institutions has to say on tax.
Tax policies
Special purpose entities (SPEs)
In its Annual Tax Report 2015, the EP made a number of
important recommendations on special purpose entities
(SPEs). Member States were asked to “publish an impact
assessment of their Special Purpose Entities and similar
legal constructs.” 196 This could be highly useful as it would
make clear what the impact of SPEs would be on other
countries’ tax base. Unfortunately, the EP report did not
make clear if the impact assessment should focus only on
other Member States’ tax base or whether it should also
focus on non-EU Member States, including developing
countries. Secondly, the report asked Member States to
publish “data showing the flow of investments through
such entities in their countries.” Such disaggregated data
only exists for a small number of Member States and
would make it easier to identify SPE structures that are
being abused to circumvent tax legislation. Lastly, and
perhaps most importantly, the EP called on Member States
to “introduce sufficiently strong substance requirements
for all such entities to ensure that they cannot be abused
for tax purposes.” 197 Substance requirements ensure that
SPEs have some amount of economic activity in the country
of operation, as opposed to shell companies or letterbox
companies. These substance requirements can, for example,
take the form of a minimum number of employees. Taken
together, these three recommendations for Member
States on SPEs formed a good first step for assessing
and addressing the harmful effects that SPEs have on tax
collection in both developing and developed countries.
Patent boxes
The EP addressed the issue of patent boxes in its 2015 Annual
Tax Report, calling for “urgent action and binding measures
to counter the harmful aspects of tax incentives offered on
the income generated by intellectual property or ‘patent
boxes’.” 198 While this is a welcome step, the implications of
this call are not clear, since the proposal does not specify
exactly what type of binding measures could be used.