“We need to use the momentum globally to ensure that corporations pay their fare share of taxation”, EU Commissioner Valdis Dombrovskis outlines from the World Economic Forum 2017.

valdis-dombrovskis

World Economic Forum, Davos, 17-20/01/2017 Valdis Dombrovskis and Winnie Byanyima, Executive Director of Oxfam International, attend a session named ‘Taxation without borders: a fair share from multinationals’. Date: 19/01/2017. Location: Davos-Congress Center,Davos © European Union , 2017 / Source: EC – Audiovisual Service / Photo: Johanna Leguerre

At the third day of the World Economic Forum 2017 in Davos, the session “Taxation without Borders: A Fair Share from Multinationals” took place where tax-base erosion and profit shifting policies were discussed in view of the Panama Papers and the fact that countries lose tones of money when multinationals implement such strategies.

Emerging countries need to do more

Developing countries must be more decisive in order to be able to tackle the root causes of profit shifting and tax evasion by large corporations. According to Winnie Byanyima, emerging countries are losing a lot through tax exemptions. The Executive Director of Oxfam International points out that tax policies must alter and tax rates should increase to bring these financial resources back.

More specifically, Winnie Byanyima said that: “World leaders are failing to move fast enough, or broadly enough, to make firms pay their fair share. Kenya is losing 1.1 billion dollars through tax exemptions and incentives each year. That’s almost double its health budget; in a country where one in 40 children die at childbirth. This is really a human rights issue.”

However, Ángel Gurría, OECD secretary general, stated that progress has been done since the 2008 when the financial crisis began. The secretary general of the Organisation for Economic Co-operation and Development (OECD) pointed out that now we have 3.500 agreements to share tax information compared to 2008 when only 30 existed. The latter clearly reveals that we are closer to addressing the issue of profit shifting policies via cross- linked information and knowledge. It is more efficient that we tax everyone with the same tax rate and not just have the same tax rate everywhere; the OECD secretary general said.

EU overcomes OECD’s proposals

Valdis Dombrovskis, Vice-President and EU Commissioner of Euro and Social Dialogue, Financial Stability, Financial Services and Capital Markets Union, mentioned during the session that the Old Continent has been on the forefront of the tax avoidance issue targeting multinationals that intend to use transfer pricing techniques and loopholes to move their profits to countries with low corporate tax rates.

The EU Commissioner insisted that the time is now to fight tax erosion in order to make sure that multinationals are taxed properly. More in detail, Valdis Dombrovskis said: “ We need to use this momentum globally and within the EU to fight profit shifting to ensure that corporations pay their fare share of taxation; not more but not less.”

The EU is doing more than the OECD suggests taking the initiative to propose further tax avoidance laws in order to ensure that tax administrations within the EU are interconnected and well informed on how much tax is paid by multinationals in the EU and to the rest of the world. Besides, Apple’s case is demonstrating that the European Commission is struggling to make sure that the U.S. tech giant is taxed fairly and within the EU state rules.

Fiscal against monetary policy

Mateusz Morawiecki, the Polish Deputy Prime Minister, focused mainly on the fiscal policy. Mr Morawiecki stated that monetary policy is not working as good as we thought of despite the Quantitative Easing Programs introduced by the central banks and that is the reason we should target more on our fiscal policy.  It is imperative to obtain a solid tax base for everyone.

Lack of trust

The OECD secretary general supported that the level of tolerance by the people has been heavily decreased because of the crisis which has contributed to low growth, high unemployment, high inequalities and distraction of trust.

In particular, Ángel Gurría characterised the issue of people believing that taxes are perceived by everyone and not just middle class people and small and medium companies as a political one. It is crucial that people’s trust on the political system is regained in order to avoid similar to Brexit, Italian referendum, U.S. elections result problems.

Multinationals still have a way to profit

Beneficial ownership structure is a way that multinationals use in order to control and owe other firms. Companies use these strategies to hide criminal and political activities. The complexity of these ownership structures makes it hard to determine the firm’s owner and the origin of the money that flow into the company. Thus, large multinationals keep on benefiting from such policies as the OECD encounters great difficulties to reveal the real owner.

All in all, it is clear that people have lost their trust on governments believing that things are not getting any better and large corporations will continue profiting by using loopholes of the system.

However, as the panel shared an optimistic view for the future, it seems that there is room for improvement as the situation seems to alter in a sense that countries and organisations are working together to diminish inequalities ensuring that everyone is paying its fare tax burden.

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