Corporate Tax

Portugal versus Germany conflict in avoiding corporate taxes within the EU

With Portugal taking over the EU presidency, the tax transparency law for companies, which has been controversial for years, is put to a vote in the Council of Ministers. The resistance of the federal government has failed.

The next time the German Economics Minister Peter Altmaier meets with his colleagues from the other 26 EU countries, there will be an embarrassing defeat.

  • Under pressure from the German corporate lobby, the Berlin government has been blocking the country-specific transparent tax return for years (Photo: Chris Tolworthy)

At the meeting of the Council of Ministers planned for February 25, the majority of EU governments want to pass a law that Altmaier and his predecessors have been trying to prevent for years: a reform of company law that obliges transnational companies – as the title of Bill reads – “Disclosure of Income Tax Information”.

A meeting of officials in the Council’s working group on company law in January revealed that there is now a safe majority in favor of reform.

As a result, the Portuguese government, currently holding the EU presidency, has put on the agenda what is known in EU jargon as “country-to-country public reporting”.

This has been confirmed by diplomats and officials from several EU representations in Brussels to the Investigate Europe journalist team.

Subsequently, a spokesman for the Portuguese government confirmed to Investigate Europe that “due to the importance of the proposed CBCR directive, the Portuguese Bureau is now referring the matter to the Minister COMPET (Internal Market and Industry), who will meet by video conference on February 25th.

“At this meeting, the Portuguese Presidency hopes to obtain clear political guidance from the ministers on the follow-up to this proposal in the Council. The Portuguese Presidency’s aim remains to reach an agreement on the Council’s position on the CBCR proposal.” “

According to Investigate Europe’s diplomatic sources, the meeting on February 25th will be “public”, ie streamed.

This ends the almost five-year dispute over an important step in the fight against tax avoidance by multinational companies.

These are companies that move a large part of their profits to “mailbox companies” in countries with lower tax rates. like the Netherlands and Ireland, attract businesses with these lower rates, making tax avoidance easier.

The Google group alone recently avoided taxing EU profits of almost EUR 20 billion per year in this way.

The EU Commission estimates the losses for the treasury of the other member states at up to EUR 70 billion per year.

€ 70,000,000,000

However, tax evasion is – in most cases – perfectly legal, as states undercut each other in the competition for investments.

The country-specific reporting obligation is supposed to generate public pressure through its transparency, since it shows how profits in low-tax countries are shifted to Shell companies with little or no production.

It will “help to examine the tax behavior of multinational companies” and “encourage them to pay taxes where they make profits”, the EU Commission justifies its proposal.

It was no surprise that such a reform received a large majority in the EU Parliament as early as June 2017.

However, under pressure from the German corporate lobby, the Federation of German Industry and the Foundation for Family Businesses, the federal government has been blocking the project for years.

The country-specific public reporting “would put German companies at a disadvantage in international competition,” said Altmaier.

In the Council of the EU, the second chamber for EU legislation, the federal government has concluded an alliance with 12 other member states which, as a blocking minority, prevented the necessary qualified majority of 55 percent of the states.

Which governments these were for a long time remained hidden due to the secrecy of the procedures in the Council.

It was not until autumn 2019 that it became known that these (as expected) not only included the low-tax countries Cyprus, Malta, Austria, Slovenia, Estonia, Luxembourg, Ireland and the Netherlands, but (surprisingly) also the social countries democratically led governments in Portugal and Sweden – who had promised their constituents that they would take action against corporate tax avoidance.

After this was reported by Investigate Europe, Altmaier’s Portuguese colleague Alvaro Siza Vieira came under such pressure from his party colleagues that he had to change his position.

The same thing happened in Austria.

In December 2019, the Austrian Parliament obliged the government to vote in favor of the EU Commission’s proposal in future votes in the EU Council.

This position was also taken over by the newly elected black-green (conservative / green) government in Vienna. Since then there has actually been a sufficient majority to approve the country-specific reporting law.

And also within the federal government, Vice Chancellor and Finance Minister Olaf Scholz (from the SPD) explicitly spoke out in favor of the law when his party demanded it.

However, this did not make a great impression on the coalition partner, the Christian Democrats (CDU) and their Minister of Economics, Altmaier.

They refused and took advantage of the fact that Germany held the presidency of the council meetings in the second half of 2020.

With the approval of their social democratic coalition partners, they refused to put the law on the agenda of the relevant council bodies and thus avoid voting: “a shame” in the opinion of German Green MP and financial expert Lisa Paus. Finally, the Council Presidency should be neutral.

And what Paus calls Germany’s “foul game” becomes even clearer with the Portuguese initiative for an early vote.

The representative of the Austrian Ministry of Economic Affairs, headed by the conservative People’s Party (ÖVP), made one last attempt to sabotage the project at the meeting of the Council’s working group on company law on January 22nd.

According to the minutes of one of the diplomats involved, which Investigate Europe had received, the representative raised legal reservations after four years of negotiations and “asked for an opinion from the legal service”.

However, this quickly became known and met with massive criticism, especially since Austria also provided the responsible rapporteur in the EU Parliament, the social democratic MEP Evelyn Regner.

When it publicly demanded compliance with the parliamentary resolution, the Viennese government assured the Portuguese presidency in writing of its approval.

And so the Portuguese got serious and planned the vote. “The majority is standing,” assures one of the EU ambassadors involved.

The tax evaders in the meeting rooms will soon no longer be able to hide.

This article is part of the Secrets of the Council project by Investigate Europe (IE), a team of journalists from ten European countries. In the Council of the EU, officials of national governments negotiate laws behind a veil of diplomatic secrecy and often act differently than publicly stated. For this reason IE tries to provide information about which governments are pursuing which policies in the Council. See more here

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