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8 • Fifty Shades of Tax Dodging
Global overview
When used to their fullest potential and combined with good
public expenditure, taxes can build health systems that
save lives, fund our children’s education and help to create
more stable, equal, democratic and prosperous societies.
Taxes can also – when they are regressive and punitive –
exacerbate poverty and inequality. 1 What is needed then are
tax systems that are just and fair. In developing countries,
where inequality is high, poverty is widespread and there
is an acute lack of basic social services, effective and
just tax systems are even more essential. Tax also has an
international dimension, given that harmful tax policies
in one country can undermine tax collection in other
countries. 2 This report looks at the international aspect of
taxation by focusing on how Europe can support and protect
tax collection in developing countries by adopting fair
and responsible tax policies at home. By doing so Europe
will not only help to unlock development for some of the
poorest regions in the world, it will also help to address the
injustices of tax dodging in Europe. In short, this report is
about our shared need for tax justice.
The last few years have brought the tax debate to the boiling
point in Europe. A number of scandalous revelations about
the lack of tax payments by multinational companies and
the role that a number of European countries have played in
this made sure that tax dodging stayed in the public limelight
throughout the year. While some of the scandals concern
tax evasion – which is a type of tax dodging that entails
illegal activities – a number of the revelations concern tax
avoidance. This is a term used to describe tax dodging that
doesn’t entail a deliberate violation of tax laws, but rather
acting against the spirit of the law through aggressive tax
planning, which is in most cases fully legal. 3 Despite being
legal, the tax avoidance of multinational corporations often
occurs at such a large scale that it is considered by many
people to be highly immoral and undesirable. 4
With the public attention came a political promise to tackle
the scandals: G20 declarations, 5 Organisation for Economic
Co-operation and Development (OECD) projects, 6 EU action
plans 7 and government announcements all promised to wage
war against the great tax dodging problem that could no
longer be ignored. This report analyses whether the promised
action was ever delivered, and whether those changes that
have been delivered will actually solve the problems.
50.4 per cent
of the population in nine EU Member States surveyed
consider taxing the rich and subsidising the poor to be an
essential characteristic of democracy. 8
87.4 per cent
of the population in eight EU Member States surveyed agree
that cheating on taxes is never justifiable. 9
Box 1
Corporate casualties: How tax dodging hurts
European businesses
Since multinational companies have access to
cross-border tax planning they can lower their
tax rates in ways that is not possible for domestic
companies. Because of this, domestic companies are
often at a competitive disadvantage compared with
multinational companies. This is the message from
an eye-opening research report published by the
European Commission in 2015. 10 The report looked at
20 EU Member States and found that, in all of them,
large domestic companies face a higher corporate tax
rate than multinational companies that make use of
tax planning techniques.
On average, the multinationals can get away with a
tax rate that is 3.5 percentage points lower than for
similar domestic companies. 11 The study also found
that in three out of four of the 20 EU Member States,
small- and medium-sized enterprises (SMEs) faced
a higher tax rate than multinational companies,
despite the fact that almost all Member States give
sizeable tax subsidies to SMEs to increase their
competitiveness. 12 It seems tackling tax dodging is not
just good for justice; it’s good for European business.