Tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries

The Committee on Development adopted an own-initiative report by Elly SCHLEIN (S&D, IT) on tax avoidance and tax evasion as challenges for governance, social protection and development in developing countries.

The Committee on Economic and Monetary Affairs, exercising its prerogatives as an associated committee under Parliament’s Rule 54 of the Rules of Procedure was consulted to give an opinion on the report.

Members recalled that tax evasion and avoidance have been identified as major obstacles to the mobilisation of domestic revenue for development by all major international texts and conferences on financing for development. They called on the Commission promptly to put forward an ambitious action plan, in the form of a communication, to support developing countries fighting tax evasion and tax avoidance. Members insisted that effective mobilisation of domestic resources and a strengthening of tax systems will be an indispensable factor in achieving the post-2015 framework that will replace the Millennium Development Goals (MDGs).

They expressed as well concerns about the level of corruption and non-transparent public administration that hinder tax revenues from being invested in state-building, public services or public infrastructure.

According to Members, tax resources remain low as a proportion of GDP in most developing countries, making them particularly vulnerable to the tax evasion and avoidance activities of individual taxpayers and companies. This represents a considerable financial loss for developing countries which needs to be addressed.

Action plan to combat tax avoidance and tax evasion in developing countries: the Commission is urged to take concrete and effective measures to support developing countries and regional tax administration frameworks, such as the African Tax Administration Forum and the Inter-American Centre of Tax Administrations, in the fight against tax evasion and tax avoidance, in developing fair, well-balanced, efficient and transparent tax policies.

Members asked the Commission to give good governance in tax matters, and fair, well-balanced, efficient and transparent tax collection, a high place on the agenda in its policy dialogue (political, development and trade), and in all development cooperation agreements, with partner countries.

They also called for:

• for information on beneficial ownership of companies, trusts and other institutions to be made publicly available in open-data formats;
• countries to adopt and fully implement the Financial Action Task Force’s (FAFT) anti-money laundering recommendation.

Publication of tax information: Members invited the European Union and its Member States to enforce the principle that listed or unlisted multinational companies of all countries and sectors, and especially those companies extracting natural resources, must adopt country-by-country reporting (CBCR) as a standard, requiring them to publish, as part of their annual reporting and on a country-by-country basis for each territory in which they operate, the names of all subsidiaries and their respective financial performance, relevant tax information, assets and number of employees, and to ensure that this information is made publicly available. The Commission is called upon to put forward a legislative proposal to amend the Accounting Directive accordingly.

Members underlined that tax exemptions and advantages granted to foreign investors through bilateral tax treaties provide MNCs with an unfair competitive advantage relative to domestic firms, especially SMEs. They also called for the fiscal conditions and regulations under which extractive industries operate to be revised. Members called for the establishment, by the end of 2015, of an internationally agreed definition of tax havens, of penalties for operators making use of them and of a blacklist of countries, including those in the EU, that do not combat tax evasion or that accept it. They called on the EU to support the economic reconversion of those developing countries that serve as tax havens.

They also urged:

• Member States with dependencies and territories that are not part of the Union to work with the administrations of these areas towards the adoption of the principles of tax transparency and to ensure that none serve as tax havens;
• that, when negotiating tax and investment treaties with developing countries, income or profits resulting from cross-border activities should be taxed in the source country where value is extracted or created;
• the Commission and the Member States to conduct impact assessments of European tax policies on developing countries;
• the Member States to agree swiftly on a Common Consolidated Corporate Tax Base;
• for sanctions to be considered both for non-cooperative jurisdictions and for financial institutions that operate within tax havens;
• the Commission and the Council, and on partner governments, to ensure that tax incentives do not constitute additional options for tax avoidance;
• the EIB and the EBRD, and on Member States’ development finance institutions, to monitor and ensure that companies or other legal entities that receive support do not participate in tax evasion and avoidance.