Tax avoidance: a never ending story

During yesterday’s opening ceremony we also got introduced into one of our main topics: tax avoidance. Claus Staringer (WU Vienna), Otto Farny (Chamber of Labour Vienna), Martina Neuwirth (Vienna Institute for International Dialogue and Cooperation) and Jozef Vasak (EU Advisor on economic governance and European semester) opened the panel section and introduced the topic „tax avoidance“ into the frame of EU law system.

Martina Neuwirth (VIDC), Jozef Vasak (EU Commission), András Szigetvari (DerStandard), Claus Staringer (WU Vienna), Otto Farny (Chamber of Labour Vienna)

Martina Neuwirth (VIDC), Jozef Vasak (EU Commission), András Szigetvari (DerStandard), Claus Staringer (WU Vienna), Otto Farny (Chamber of Labour Vienna)

Here is an overview of the antecedent facts regarding tax avoidance practices: on 20 June 2016, the Council set rules against tax avoidance which had to be followed by all the European member states. But what does all this really mean? Tax avoidance is reducing tax burden as a business in a perfectly legal way (in comparison: tax evasion is the illegal way). Moreover, there are three important aspects that need to be taken into consideration: first of all, there is no specific arbitrage technique on how to avoid taxes. Secondly, it is perfectly legal and there is no clear authority entitled to define this as avoidance. Even if perfectly in line with the law, the problem of tax avoidance is still perceived as unfair by the public opinion.

One of the biggest aspects pointed out by all the participants during the discussion was related to the ethical side connected to these practices. As Prof. Claus Staringer said: “Amounts are not necessarily the problem – it´s an ethical question”. For him the mere problem lies with the lack of values in the European system. A key solution would be focusing on ethical values. Dr. Otto Farny, expert in taxation at the Chamber of Labour in Vienna, also agrees with that and adds that the huge amount of money lost tax avoidance could be the real solution to fight against the massive youth unemployment, especially in countries like Greece or Spain. He believes that a general change in politics is necessary.

Martina Neuwirth, responsible for International Financial and Trade Policy at the Vienna Institute for International Dialogue and Cooperation (VIDC), provided us with another good example: She mentioned that billions of dollars were used in 2015 for tax avoidance, although the results were not as impressive as the case of the Netherlands shows. Countries like the Netherlands give specific tax benefits to private companies such as Apple. This  by representing a tax system with certain exceptions for some corporate activities which can be used by multinationals to lower their tax burden. That is why Luxembourg, Ireland as well as the Netherlands are also known as the paradises for tax avoidance. The problem is that their systems do not fulfill the  EU regulations.

Josef Vazak, Advisor for Economic Governance at the European Commission’s Representation, believes that effectiveness lies in staying united in the European Union. For such a reason national systems should implement EU regulations and make sure none of its countries allow tax benefits to special corporations as the EU strictly imposes.

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This has also been a point of discussion during Thursday’s session of the Council of the Ministers. The majority of the countries is definitely in favor of tax avoidance regulations throughout the EU, nevertheless there are smaller countries that are still skeptical about some points. The main critical point concerns the Article 7 of the Directive from 2016 about controlled foreign company rule. Small countries like Cyprus, Estonia or Lithuania are afraid that applying a too general taxation system would affect their economy. Minister of Cyprus said it is in the interests of these countries to stay competitive and provide an attractive tax system. Without doing so their economy would be damaged and its effects would spread and involve many other countries. Portugal is also very concerned about tax avoidance. Anyway, there seems to be high agreement on the proposals of the European Union but let’s follow the outcomes of the next days’ debates.

To sum it all up: there is still a lot of work to do in terms of fighting tax avoidance and there will probably be no end in the near future.

Using the words of Prof. Staringer: “This world is in order, but actually it´s manipulated, so it is not in order.

Patricia Bartos and Kristina Kolaric

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