The EU needs to be mindful of tax competition from countries outside the EU and adopt policies that will allow EU companies to remain competitive, Airbus’s head of tax, Guillaume de La Villeguérin, told the European Parliament’s Special Committee on Tax Rulings and Other Measures Similar in Nature or Effect on July 2.
De La Villeguérin was one of two witnesses that appeared at the hearing. Richard Murphy of Tax Research LLP, also spoke, offering a harsh assessment of OECD’s recent work on country-by-country reporting and transfer pricing and discussing secrecy jurisdictions.
In contrast to other public hearings on tax avoidance where MNE representatives have received a public grilling, members of the European Parliament mostly praised de La Villeguérin and Airbus.
The MEPs were grateful that the Airbus agreed to allow a representative to appear at the hearing, unlike 19 other MNEs that were asked to testify, but declined.
Clearly frustrated by the other companies’ lack of willingness to participate and the committee’s inability to compel their appearance, committee chair Alain Lamassoure, a French member of the EPP group, said the MNE’s written refusals to attend the hearing will be published on the committee’s website.
De La Villeguérin stressed that MEPs need to be “be mindful about what is happening elsewhere” when attempting to formulate EU tax policy.
He said that Airbus’s US competitor, Boeing, recently received an $8.7 billion tax break from Washington State, that China is funding its exports in the aeronautical industry, and that Canada and Brazil have undertaken similar activities.
Non-EU countries “may not play according to the same rules” as the EU, de La Villeguérin noted.
Several MEPs seemed persuaded by de La Villeguérin arguments, stating that they did not want to damage EU business or jobs by raising tax standards.
De La Villeguérin also said it is critical that the EU form a comprehensive position on the allocation of tax base. India and China have begun to challenge longstanding principles in this area, he noted.
He said the EU should be aware that if it adopts the argument that taxation should be based on the location of the customer, the same argument could be later be adopted by India and China to the detriment of the EU.
He also said the committee should differentiate between tax rulings that are state aid from those where a company merely wants to clarify tax law and from bilateral advance pricing agreements (APAs). He said that bilateral APAs do not present any room for tax avoidance as they are negotiated between nations.
Country-by-country
Murphy, who is a founding member of the Tax Justice Network, said the OECD is “strangling country-by-country (CbC) reporting for tax purposes at birth” by making the process too cumbersome.
He said that under the OECD rules, it can take up to 18 months for a government to receive the CbC data. A company has one year to send the CbC information to the parent jurisdiction, and another six months can elapse until the information must be shared with other countries. After the 18 months, it is not clear whether a jurisdiction can ask questions about the data directly or if it must go through the parent company jurisdiction.
Murphy said that public release of CbC information is essential to ensure that countries immediately receive the data for risk assessment purposes. Public release will also make companies accountable so they will change their tax avoidance behavior and can provide valuable information to shareholders, he said.
Murphy also said that the OECD template for CbC reporting is vastly superior to that in the EU Capital Requirements Directive 4 (“CRD IV”).
De La Villeguérin said he did not support CbC reporting, stating that companies will feel pressured to release excessive amounts of information to explain tax positions. This could result in the release of information that benefits competitors, the said.
Murphy predicted that the new OECD transfer pricing guidelines will prove to be unworkable because they are too complex. Companies will appeal for an alternative, namely, the common consolidated corporate tax base (CCCTB) or unitary taxation, he said.
Murphy also said the EU CCCTB provides “the ultimate tax giveaway” by allowing losses but not profits to be shared.
“The corporate world must be laughing themselves silly that that one has come forward — what an opportunity for abuse,” he said.
Jean-Claude Juncker, President of the European Commission and Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs were originally scheduled to testify at the hearing. Both will now appear July 13.
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