Paper

Together EU Countries can secure tax sovereignty

Summary EU member states are formally sovereign in determining their tax bases and rates. In the EU, tax decisions are made in unanimity, but the countries lose between 533-1000 billion euros annually in tax revenue due to legal and illegal tax evasion and complicated tax rules. No single country is able to stop the tax evasion alone, however together EU countries have a possibility to ensure real sovereignty on taxation. The obstacles are reinforced by globalization, where cross-border cash flows and trade are increasing. In addition, digitization means companies are not necessarily physically present where they have their turnover. Cases such as Panama Papers and LuxLeaks have understandably prompted the general public and political anger. In the corporate tax area, rising tax competition has led to a decrease in taxation both in the EU and in the rest of the world. This highlights how the old national tax systems are not equipped to handle the new reality.  There is a need of far greater coordination and common rules, if countries are to secure their taxation sovereignty in the future.
 
Many Danes want the EU to do something about tax havens, but they are at the same time reluctant to transfer sovereignty to the EU. However, this is a fake trade-off, since it is only by pooling our sovereignty with other countries that we actually have an opportunity to address the challenges of cross-border cash flows and trade.

Main conclusion
  • Globalization is increasingly challenging national tax systems, which are not designed to handle the way cash flows and trade circulate today - especially in large multinational companies operating across national borders.
  • Developments can in worst case scenarios deprive national states of the opportunity to tax companies, etc., in the way politicians and citizens want. This means that countries lose tax sovereignty.
  • The sovereignty of countries is also challenged when some countries offer tax rates at a few percent to attract big companies e.g. similar to what happened with Apple in Ireland.
  • Over the last 15 years, the average corporate taxation in EU countries has decreased by around 4 percentage points. Without common rules in the area, this race to the bottom will in all probability continue.
  • The extensive tax evasion in EU countries, including due to difference in national rules, is estimated to result in lost tax revenues in the order of between 533 to 1000 billion. € per year.
  • Many Danes see tax havens as one of the challenges the EU should prioritize highest. On the other hand, a large majority of Danes do not wish to transfer competence to the EU in this area. This however is a prerequisite for doing something about the problems.
  • Through the EU, Denmark and other member countries have the opportunity to pool their sovereignty and thus establish a tax system in line with the political and, ultimately, popular wish to do so. This applies not only within the EU, but also in regard to third countries where the EU can use its economic and trade-power to put pressure on other countries to tighten the rules.
  • Despite the reluctance of some member states, the EU has succeeded in implementing several initiatives in the tax area, for example. elimination of bank secrecy and automatic exchange of information between authorities.
  • In addition, the Commission has several initiatives on its way, such as; against money laundering, terrorist financing and tax evasion as well as mandatory automatic reporting from tax advisors. The EU is also cooperating with the OECD and puts pressure on the other OECD countries to achieve results.
  • However, there will be a need for more comprehensive reforms and initiatives, if the countries are to seriously ensure their tax sovereignty. This applies, inter alia, to areas like VAT, corporation tax, financial taxation and climate and energy taxation
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