Tax 5

Take action to stop corporate tax dodging

Amazon, Facebook, Apple, and other multinational corporations make billions in profits in Europe. Yet they pay hardly any taxes. The majority of EU member states want to expose corporate tax dodging – but German Economy Minister Peter Altmaier is standing in their way! It is now up to German Justice Minister Christine Lambrecht: she can put the legislative proposal to a vote in the EU Council – and finally increase tax transparency for multinationals. Take action today to make this happen!

UPDATE - June 2021

There has now been a very disappointing outcome to the inter-institiutional negotiations to finalise new tax transparency rules for multinationals. The new rules include various major loopholes which will let big corporations off the hook when it comes to reporting on the tax they pay in different countries. Tax paid in most countries around the world will not be subject to the new reporting requirements, while corporations will be able to withhold information for up to five years if it is considered 'commercially sensitive'. Furthermore, there is a reporting threshold of €750million turnover for two consecutive years in order for companies to meet reporting obligations, thereby excluding almost all EU companies from the scope of the rules. Regrettably, these new rules do not constitute effective public country-by-country reporting; major multinationals wishing to avoid tax transparency will not find it hard to avoid these new rules. Until we secure real tax transparency, tax justice will remain a distant goal.

UPDATE - March 2021

Campaign success! The EU Council, now led by the Portuguese Government, has voted to progress this tax transparency file to the next stage by opening negotiations with the European Commission and European Parliament. The new law should be finalised within months. This is excellent news. Corporate Europe Observatory is working in coalition with a number of other tax justice groups to make sure that the final rules for tax transparency of major corporations are as strong as possible.

UPDATE - December 2020

Over 230,000 people took action in November 2020 to demand that the German Presidency of the EU Council put the action of tax transparency on the agenda, so that ministers could demonstrate their majority support and the file would move forward. Regrettably the German Presidency chose not to do this, and the file became a victim of internal German Government coalition politics. The signatures were presented to Minister Lambrecht on 20 November and we will continue to press the upcoming Portuguese Presidency to maintain majority support for the file and to table it for a ministerial vote. Thank you to everyone who took action.

Petition

Multinational corporates are making billions of profits in Europe – yet they pay hardly any taxes. Our demand: stop supporting multinationals hiding their tax dodging from the public! Corporations must finally disclose how much they earn in each country and what they pay in taxes (so-called public Country By Country Reporting, pCBCR). Increasing transparency would be an important step towards stopping corporate tax tricks.

A proposed new law to introduce pCBCR finally has a majority in the EU Council and as the current President of the Council of the EU, Germany can decide to put this legislative proposal on the agenda of the Competitiveness Council for a vote, even if it abstains itself. Seize this opportunity to increase tax justice in Europe!

Pave the way for a vote: multinational corporations need to start paying their fair share and contribute to society.

By taking action, your message will be sent to

  • German Minister of Justice and Consumer Protection: Christine Lambrecht (centre-left SPD political party)
  • German Minister for Economic Affairs and Energy: Peter Altmaier (centre-right CDU political party)
  • German Minister of Finance: Olaf Scholz (SPD)
  • Co-chair of the SPD: Norbert Walter-Borjans
  • Co-chair of the SPD: Saskia Esken
  • Chair of the CDU: Annegret Kramp-Karrenbauer

This action is supported by Campact, Corporate Europe Observatory, Netzwerk Steuergerechtigkeit, and Transparency International Germany.

Find out more below

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What is the basic problem?

The international system of company taxation is extremely outdated. Large international corporations take advantage of this: they open subsidiaries in countries that levy hardly any corporate taxes – and shift their profits there. This way, they pay much less tax than they would in the countries where they actually generated their profits.

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How does corporate tax dodging work?

The principle is simple: the subsidiary in the country with the low taxes, which is independent from a tax point of view, makes a contract with the subsidiary in the country with the normal taxes. This contract regulates the prices of intra-group services – loans, patents, licences – in such a way that high costs are incurred in the country with normal taxes and high profits are generated in the low-tax country.

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What is the trick with intra-group loans?

Intra-group loans are the most popular trick to avoid taxes. A subsidiary in the country with normal tax rates gets a loan from a sister company or the parent company in a low-tax country. The interest payments on the loan can be deducted from profits in the country with normal taxes and end up as profits in the low-tax country, where less or no tax is payable on them. Because this is so often abused, there is a limit to the amount of interest that can be charged at market rates and, for some years now, there has even been a limit on interest. Nevertheless, corporations manage to circumvent this barrier.

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How does the trick with patent or licence fees work?

Even with patent or licence fees, corporations shift profits to low-tax countries. For example, a corporation like Ikea or Starbucks collects a fee from subsidiaries or franchisees for the use of their name or concept. The subsidiary then deducts the fees from tax as a business expense. The money now flows to countries where only minimal taxes are due on income from royalties. Ireland, for example, attracts with a tax rate of only 6.25 per cent on patent or licence fees.

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What sums are involved?

There are huge sums at stake. Apple, for example, has for years transferred profits from all over Europe to Ireland via its subsidiaries and paid only 0.005 percent tax there - that is 50 euros tax on one million profits. Thus, the EU states lose up to 70 billion euros every year through legal tricks of individuals and corporations. Germany alone loses up to 30 billion euros. By way of comparison, Germany currently lacks over 300,000 day-care places. These could be created with three billion euros.

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Do German companies also avoid taxes?

Corporations with their headquarters in Germany are no better than Google and Co. In 2016, it was discovered that the chemical company BASF had used tricks to avoid 923 million euros in taxes. On behalf of Campact, the citizens' movement Finanzwende, the Munich Environmental Institute, and the Netzwerk Steuergerechtigkeit investigated Lufthansa's tax tricks. Almost all Dax companies are involved in the tax tricks – this is shown in a study commissioned by Die Linke in the Bundestag. There are medium-sized companies undertaking this practice too, for example, Vorwerk.

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How can tax cheating be uncovered?

There is a legislative initiative at the EU level against tax avoidance and evasion by large corporations: public country by country reporting (pCBCR) would force them to publish turnover, personnel, profits, and tax payments for each country in which they are active. When corporations shift profits on a large scale and avoid taxes, this would become visible to everyone.

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What would be the effect of tax transparency?

Public country-specific reporting by companies would create transparency about which company pays what level of tax in which countries. This would make it possible to assess whether these tax payments are in line with their economic activities. This would increase the pressure on corporations to pay taxes in the countries where they actually generate their profits.

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Where is pCBCR already applied?

Such public reporting requirements have been in place for banks in the EU since 2013. Commodity companies from the EU and the US are also required to publish country-specific information. Even though there is still much room for improvement, first effects are visible and tax payments by the banks concerned have increased. Check out Transparency International’s updated Corporate Tax Tracker to find out more.

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What is Germany's role?

Due to a recent change of position by the Austrian Government, the votes in the Council of the EU have now shifted. Even with a renewed abstention by Germany, pCBCR now enjoys majority support. The corresponding draft law already exists, it is just waiting for the vote. Justice Minister Christine Lambrecht (from the centre-left SPD) has publicly spoken in favour of the law. The German Presidency of the Council (which will end at the end of December 2020) has given her the power to put the initiative on the agenda of the EU Competition Council on 19 November and thus to put it to the vote. We now need Minister Lambrecht to deliver.

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Why has pCBCR not yet been implemented for companies?

Since the 1970s, civil society has been campaigning to establish an effective pCBCR. Influential companies and lobbyists have been able to prevent this, most notably the auditing firms Deloitte, Ernst & Young, KPMG, and PwC. Meanwhile, German corporate interests have been lobbying against the proposal. The Stiftung Familienunternehmen represents around 500 companies, nearly all of them big multinationals (including Haribo, Schwarz, and Henkel) and has called the EU proposal an “attack on the German economy”. Another big business lobby group Die Familienunternehmer has called the proposal “damaging” and “unspeakable”. This is ridiculous corporate hyperbole!

At the EU level, the last attempt to implement pCBCR was in 2019. However, there was no majority in favour – partly because the German Ministry of Economics blocked the approval.

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Further reading

Tainted love: corporate lobbying and the upcoming German EU Presidency. Corporate Europe Observatory and LobbyControl. June 2020.

State of play briefing on public Country by Country Reporting. Eurodad. January 2020.

Corporate Tax Tracker. Transparency International EU. October 2020.

Accounting for influence: how the Big Four are embedded in EU policy-making on tax avoidance. Corporate Europe Observatory. July 2018.

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