It is a great pity that the effort that must be carried out to curtail tax evasion and aggressive tax planning has been deviated from what should be its proper goal: that of combatting tax abuses primarily on a national basis.
Instead, the real target has become that of curtailing tax competition with a view to moving towards tax harmonisation on a European basis.
In my view, we’re putting the cart before the horse.
Tax competition is a legitimate tool of policy.
It is certainly needed by small countries, islands and other economic systems which are placed at major competitive disadvantages due to their limited endowments and distance from major markets.
Moreover in the EU, tax competition is already constrained by the conditions of the Stability and Growth Pact.
States which cut their tax rates to the bone, must still discover other sources of revenue to make up for their tax losses in order to keep within the prescribed budgetary balance.
Working towards tax harmonisation, first by establishing a common corporate tax base and then by driving forward towards a minimum effective tax rate across Europe, is unjustifiable on political and economic grounds.
Even the US – a fully fledged federal state – has nothing like this.
Indeed as of now already, with the constraints of the fiscal compact and other conditions that reflect emu in Europe, member states are subject to more constraints in their budgetary management than are the states of the US.
In deploying the state powers that the exercise of their sovereignty allows, member states of the EU can do much more to curb tax abuse.
The key principle for all should be transparency.
In this regard, the US FATCA has proven its efficiency with a framework for automatic information exchange between US and foreign tax administrations on the income and holdings of US citizens abroad.
The EU has been developing its own version of FATCA by extending the Administrative Cooperation Directive.
In this respect, I have for long failed to understand why national tax administrations do not go further and publish annually a full list of individuals and corporate actors falling under their jurisdiction, and listing annual tax on profits and income that they paid most recently.
That should provide indicators regarding anomalous business outcomes, both crossborder and in national markets.
Correlations with turnover for anomalous outcomes can be crosschecked through the VAT audit trail.
If and as necessary, let’s improve the audit trail on VAT payments to clarify how businesses achieve their turnover.
Industry ratios for average margins expected from turnover would provide another tool then by which to counter tax avoidance.
In the end, a state can always introduce an equalization tax to compensate for turnover that has no reflection in tax receipts from profits made.
My point is this:
To combat tax abuse, the scope for using the tools available at a national level is far from being exhausted.
To turn as of now to new European tools is counterproductive and not in the interest of member states, or at least some of them, especially when the real intention is to introduce tax harmonisation.
The objective at a European level should be that of enforcing transparency across the board, both at EU level and that of the OECD.