Join forces to root out tax avoidance, governments told

European governments should co-ordinate their efforts to root out tax avoidance, which costs them around €1 trillion every year, the EU’s executive body said yesterday.

The European Commission said member states need to share information better, introduce an EU-wide tax identification number and devise common criteria for black-listing tax havens.

The proposals were part of an action plan detailed by Algirdas Semeta, the taxation policy commissioner, to deal with inventive and increasingly common tactics used by big companies and others to reduce their tax bills.

“Tax competition must not open the door to fraudulent or abusive tax practices,” Semeta said. A new framework would result in profits being taxed in the state where the “actual economic activity takes place”.

The commission intends to present its action plan to EU finance ministers next year but is not aiming to persuade member states to pass binding legislation.

The impetus to deal with the problem has grown as several European countries try to increase tax revenues and cut spending to rein in heavy debts.

A number of high-profile examples have hit headlines in recent months, including one involving Starbucks.

A recent examination by Reuters of Starbucks’ accounts showed that the company had reported 13 years of losses at its UK unit, even as it told investors the operation was profitable and among the best performing of its overseas markets.

The chain’s UK unit paid no corporation tax on its income in the last three years for which figures were available.

Starbucks said yesterday it could pay up to £20m (€24.6m) more in tax as it announced plans to change its accounting practices.

A Reuters examination of Amazon’s accounts showed how the world’s biggest online retailer had minimised corporate taxes by setting up in Luxembourg, channelling sales through its units there.

In effect, Amazon used inter-company payments to form a tax shield for the group, behind which it has accumulated $2bn to help finance its expansion.

BusinessEurope, the lobby group that represents companies, said it supports the commission’s initiative, but called for a simplification of the tax system across the EU.

Semeta suggested part of the blame lay on tax regimes “artificially designed to steal tax bases or encourage aggressive tax planning”, hitting out in particular at non-EU state Switzerland.