EYP Liverpool Prep

More than 360,000 people in total have used an offshore company to avoid and
evade taxes.

The EU aims to create a common list of tax havens, but it is facing significant
challenges due to the fact that many Member States already have their own lists
but lack of common criteria. Also want to demand contry-by=country reports for
multinational companies, to locate their source of profits.

The estimated cost of the combination of tax evasion and avoidance in Europe is
1000 billion per year. The EU loses 70 billion in tax revenues each year due to
tax avoidance on corporate income tax.

There is a debate here about privacy, for the proposal on CbC reports jeapordises
the secrecy of potentially valuable info.

Several NGOs and agencies have been established with the aim of combating tax
evasion such as Tax Justice Europe.

The Code of Conduct on Business Taxation group is a non-legally binding

instrument whose purpose is for Member States to cooperate and assess each
others eax regimes. The Common Consolidated Corporate Tax Base was
proposed by the Commission in 2011, offering a set of rules that companies
could use to calculate their taxable profits.

This is a seriously costly issue. Tax evasion in Greece was 24.6% and in Italy
21.6% of GDP whereas Germany had 13.5% of GDP tax evasion.

EU finance ministers recently have approved a series of measures to tackle tax

evading methods that were exposed by the Panama papers. Among the
measures, the EU will propose a joint linst of tax havens to expose jurisdictions
used by European individuals and companies to evade or minimise tax.

Member States are giving tax evading multinational companies a sweet deal
Companies that evade tax, such as Google, come to agreements with tax officials,
which only require to pay back a very small fraction of what they owe. There is
also disparity between member states. Italy is looking for 13-15% from Google.
France is looking for 3X UK. These different approaches might encourage
avoidance. A more unified penalty-system would improve the situation.

The interest and Royalties Directive and Parent Subsidiary Directive sometimes
leads to double non-taxation
This directive is intended to prevent double taxation by having revenues taxed
only at the member state it moves to. The complexity of modern business models
makes the profit shifting incredibly difficult to keep track of, coupled with a lack
of transparency in some countries. The system allows companies to shift.
revenues to lower-tax member states. Perhaps it would be better to tax
companies in the location in which they earn their profits.

Transfer pricing has caused the EU to lose hundreds of billions annually

About 70% of international trade takes place within multinational companies
and not between them. By doing this, parent companies can effectively escape
taxation at the same time as moving the money that was made in the EU outside
of it. To solve this, the EU Commissions proposed rule called the Controlled
Foreign Company rule. The CFC would allow member states where the parent
company is located to tax some of the revenue that companies place in no or low
tax areas.

The movement of intellectual property rights between countries often goes

untaxed
A company wanting to sell a patent in a tax free country often avoids tax. The
solution would be to impose an exit tax that would tax the company based on the
current value of the intellectual property.

Stateless income is a massive opportunity for MNEs to evade taxation

This practice involves exploiting the differences in states definitions of a
resident. Some definitions require the company to be chartered there, others
require the company to be managed and controlled from there. In the case of
Apple, its Irish subsidiary cites the US as the resident, however the US sees Apple
as based in Ireland. Thus, it is effectively stateless. Thus the EU should encourage
a consistent definition of residence.

Treaty shopping is a form of tax avoidance

Multinational companies can benefit from tax treaties that exist between
countries that are not their country of residence. E..g by setting up a branch of a
company in the UK if they are based in France, they can avoid paying some tax
that they would normally pay if they traded directly from France to the US. The
UK-US income Tax Treaty would render the UK branch exempt from the 30% tax.
From there, the profits can go untaxed into France. To solve this, we could
introduce the Anti-Treaty Shopping rules. This would mean that the UK branch
could not get the 30% off as the French parent company is the ultimate beneficial
owner.

The unfair taxation of Digital Transactions are causing EU government to lose

billions of dollars annually
The VAT from a digital transaction (such as buying an app) comes from the tax
residence of the supplier. If a peson from Greece buys an app from Greece, then
the Greek government will receive their standard rate of tax. But if the Greek
person buys an app from a Singaporean minimal tax rate, the government will
receive the Singaporean minimal tax rate. To solve this, we could introduce the
OECD International VAT/GST guidelines, which recommend that taxes fro online
transactions are collected in the country where the customer lives, meaning that
in the example Greece would not lose out.
The lack of information sharing between countries makes it difficult to
effectively tax multinational companies
Given tax havens reluctance to share taxpayers information and the differences
in countries tax policies, the lack of transparency becomes a huge issue. It makes
audits and properly taxing companies difficult. To solve this, implement the IMF-
approved and OECD recommended plan of Country-By-Country Reports, which
involves the parent company of MNCs filing reports to tax authorities in their
hoem country, detailing profits, sales, employees, assets, income tax paid. An
automatic transfer of tax information annually between certain coutnries exists
between the US and Colombia where they annually automatically share tax info
of Columbians in America and Americans in Columbia. The Columbian finance
minister said this helped cracking down on tax avoidance in/through his
country.

Differences in the tax rates and loopholes allow for avoidance

We could enforce a law that prevents member states from cutting corporation
tax below a certain per cent (15%).