Fair and efficient taxation as important to EU as US

Ten years after the first iPhones hit the stores and a walk down any main street means navigating a stream of people oblivious to their surroundings, heads bowed over their now ubiquitous smartphones.

With their ground-breaking products and services, firms like Apple, Amazon, Google and Facebook, not to mention collaborative economy companies like Uber and AirBNB, have had an enormous impact on all of our lives.

{mosads}In only a few years, these disruptive innovators have transformed the professional lives and leisure habits of Europeans at least as much as they have of Americans.

Just as Europe has welcomed and prospered from American investment in more traditional industries for many decades, so we have opened our arms to these newcomers. We will continue to do so, because we recognize and appreciate the tremendous contribution that these firms have made to our societies.

This is a message that we will be passing very clearly as we both visit Washington, D.C. this week. 

At the same time, we have the same simple demand of businesses wherever they are based: that they pay their fair share of tax in the countries where their profits and value are generated and that all companies operating in Europe comply with our competition rules, regardless of their flag.

On the competition front, the steps the European Commission has taken to put an end to specific preferential taxation arrangements that constituted illegal state aid, such as that granted to Apple by Ireland, are well known.

EU state aid rules prohibit EU countries from distorting the level playing field by giving tax benefits to a select few. Yes, some of the companies involved have been American. But our decisions concern profits that these U.S. companies recorded in Europe and which should have been taxed there, just like those of any other company.

We continue to enforce EU competition rules in the European market.

Our investigations equally look at specific tax arrangements of EU firms. To cite just two examples, in October 2015, we found that Fiat had received illegal state aid in the form of selective tax advantages granted in Luxembourg.

In January 2016, we found that a Belgian tax scheme was illegal, and we ordered recovery of more than €700 million from more than 35 predominantly European multinationals.

The Commission has also been working hard to ensure that greater transparency becomes the new norm, not the exception, and we have achieved a tremendous amount on this front in just the last three years. 

We have also been working hard on how to reform our corporation taxation framework to make it both more fair and efficient. On Jan. 1, the automatic exchange of information on tax rulings came into force, marking the end of the secret sweetheart deals agreed to between our member states and multinationals.

Legally binding rules have been agreed to enable EU governments to effectively tackle harmful tax avoidance practices. We have proposed new rules that will shed more light on the role of intermediaries, including banks, in facilitating aggressive tax planning.

We have made a new proposal to EU governments to establish a “Common Consolidated Corporate Tax Base” for companies operating in the EU’s single market, which would be another powerful tool for the fight against aggressive tax planning. 

Because this is a global challenge, the EU is now also screening jurisdictions around the world with a view to compiling an EU-wide list of non-cooperative tax jurisdictions by the end of this year. There should be no place to hide when it comes to avoiding tax.

In short, we are making real progress in combating practices that result in national treasuries effectively being of resources that could be used to invest in public services, or to lower taxes for all.

This next big step in implementing this agenda for fair and efficient taxation is to ensure that online companies too are subject to the principle that profits are taxed where the value is created.

This entails complex issues: assessing how to establish and protect taxing rights in a country where businesses can provide services digitally with little or no physical presence and how to attribute profit in new digitalized business models driven by intangible assets, data and knowledge. 

In the coming days, the European Commission will contribute further to this discussion, which is already the subject of ongoing work by the OECD on behalf of the Group of 20 leading industrial and emerging economies.

In our view, four principles are fundamentally important: ensuring fairness between companies; creating the right tax environment for businesses to flourish in the EU; avoiding unilateral measures that would undermine the EU’s single market; and ensuring the system is future-proofed and resilient against abuse.

It will not be easy to find a consensus on this issue, but the debate must be taken forward at the international level with urgency and determination. The status quo is increasingly unsustainable: The time has come to act. 

Margrethe Vestager and Pierre Moscovici are, respectively, the European Commissioners for Competition and for Economic and Financial Affairs, Taxation and Customs.