Europe or Global? How Far to Go in Fighting Tax Avoidance

Germany prefers standard global regulations to fight tax avoidance by big companies. But the European Union wants tougher and more public accounting.
Jean-Claude Juncker (l) with Wolfgang Schäuble. Germany is not toeing the E.U. line on BEPS.

Germany’s finance minister, Wolfgang Schäuble, has been one of the leading voices when it comes to global regulations to fight tax avoidance. He's helped the G20 agree a deal designed to stop companies from gaming the global system.

But his support stops there. Germany plans to reject even stricter and more transparent rules that are being proposed by the European Union's executive arm, according to the country's deputy finance minister, Michael Meister.

Pierre Moscovici, the E.U. commissioner for economic and financial affairs, wants country-by-country public reporting of companies’ profits and tax payments in the European Union. He is expected to present draft legislation to do exactly that in the coming months.

But the G20, a group of the world’s largest industrial and emerging nations, doesn’t go that far. The biggest world economies instead agreed to a plan of action proposed by the Organisation for Economic Cooperation and Development, or OECD. According to the “base erosion and profit sharing” rules, or BEPS, national tax authorities are only required to exchange tax information for big companies, but not make it public.

It is not very helpful if we deviate from what we have agreed upon in the G20 framework. As an export-oriented country, we ought to have an interest in global economic processes being globally organized. Michael Meister, German Deputy Finance Minister

At a Handelsblatt conference in Berlin on Thursday, Mr. Meister, who like Mr. Schäuble is a member of the center-right Christian Democrats, stressed that the German government is concerned about maintaining global consensus.

“It is not very helpful if we deviate from what we have agreed upon in the G20 framework,” said Mr. Meister. “As an export-oriented country, we ought to have an interest in global economic processes being globally organized.”

Should the European Union consider tougher measures, it would be going it alone. China and India, Mr. Meister noted, don’t intend to set up their own regulations against legal tax evasion by corporations and will instead follow the rules agreed by the G20.

Germany isn’t the only European nation to prefer the G20 guidelines. So far, eight other E.U. member states have introduced or already implemented new laws to fight tax avoidance, without forcing companies to disclose profits and tax payments publicly.

That is also the approach that Mr. Schäuble will take in the draft law he is working on for implementing the BEPS rules in Germany, Handelsblatt has learned.

Despite such resistance, the European Commission is sticking to its plans to require large companies to make public their profits and taxes paid in each country. Sources in Brussels say Mr. Moscovici plans to present such a draft bill this spring.

Moreover, in an already presented, broadly-outlined draft directive against tax evasion, the executive arm of the European Union provides for two additional points that go beyond the OECD recommendations.

One would be an exit tax for companies shifting parts of their operations abroad for tax reasons. The other would make it impossible to secure one-off tax exemptions for profits earned abroad.

The OECD merely recommends that tax-free foreign earnings be subsequently subject to tax.

Mr. Schäuble’s course has faced harsh criticism in the European Parliament. Sven Giegold, a German parliament member from the Green Party, accused the minister of “stepping on the brakes in the fight against tax evaders” and “buckling to large corporations.”

But he's hardly the only one. Other E.U. states are following the G20 guidelines on country-by-country reporting to the letter. France, Ireland, Italy, the Netherlands, Poland and Spain have anchored the OECD guidelines on data exchange between tax authorities into national law. Portugal and Great Britain have also presented draft legislation that doesn't require public reporting.

Contrary to the worries of some Europeans, the United States and China are also both working on a one-to-one implementation of the OECD rules.

 

Ruth Berschens is Handelsblatt's bureau chief in Brussels. Donata Riedel reports on economic policy from Berlin. To contact the authors: [email protected], [email protected]