Fiscal Evasion a Large Topic of Discussion at EU Summit in Brussels

Brussels EU Parliament Photo: http://flickr.com/J.Elliott

Brussels EU Parliament
Photo: http://flickr.com / J.Elliott

On Wednesday, May 22nd, Brussels hosted a summit for the leaders of the European Union (EU) states.  France, alongside the UK and Germany, lobbied for the four-hour session to include an in-depth discussion of tax loopholes and evasion within the Eurozone, alongside the scheduled talks on European energy policy ad infrastructure.  These talks were prompted by the growing consensus among EU nations that the estimated one trillion euros worth of yearly losses through legal forms of tax evasion must be stopped.

Often referred to as tax optimization, the issue at hand regards the legal evasion of taxes in which major companies – including Apple, Google, and Starbucks – have avoided paying income taxes on foreign subsidiaries and branches, allowing billions of dollars of sales and production to go untaxed.

The recent tightening of bank policy was a reaction to the fiscal crisis in both Europe and the United States. Neither region can afford large sums of potential profit to slip by in the form of legal tax evasions.

“Tax evasion is a crime that can be committed with virtual impunity but also with devastating effects on society,” commented Martin Schulz, the President of the European Parliament.

The solution advocated by France comes in the form of “tax harmonization,” which would standardize taxes within the EU, arguably allowing for fair competition within the singular financial market.

On Saturday, French President Francois Hollande advocated for the creation of an economic government of the Eurozone, complete with a full-time president and standing board.  This government would not only harmonize tax policy, attempting to account for the loopholes in the Eurozone’s current fiscal evasion, but also set social policy and consider monetary reform established by the member states.

The idea of fiscal harmonization is not as revolutionary as it might seem.  Hollande’s support of it prompted comments that the action was “du Sarko,” reminiscent of the pan-European policies set forth by Hollande’s predecessor, Nicolas Sarkozy.

Another prominent issue in Wednesday’s fiscal discussion was the competition of non-EU entities such as Switzerland, Monaco, and Liechtenstein.  These areas, not subject to EU regulations, could become tax havens, attracting the business of foreign nations hoping to evade the regulations the EU is working to put into effect.  To avoid this matter, the Summit on Wednesday issued a mandate to prompt negotiations with such third party countries.

In addition to the issue of tax havens, the EU Summit in Brussels also made pledges to address bank secrecy and relocation policies, which allow multinational companies to take advantage of international tax loopholes and competition.

In a speech on Thursday following the summit, European market commissioner, Michel Barnier, said that under an EU directive on bank capital (entitled “CRD IV”), will go into effect next year requiring European banks to communicate the profits, the taxes, and the subsidies they receive in each country.

He also commented that “in line with the conclusions of [Wednesday’s] European Council, we will extend requirements for greater transparency to large companies and major groups,” targeting companies such as Apple and Google whose financial actions reach across international borders.

After the summit in Brussels, British Prime Minister David Cameron traveled to Paris to continue talks with Mr. Hollande.  The UK is advocating the implementation of a tax system more similar to that of the United States, entailing the exchange of tax information across borders.

The UK, France, Germany, Spain, and Italy are currently testing this system and wish to extend it to the rest of the European Union by the end of the year.  Continued discussion of international tax harmonization will be taken up in December.

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