Progressive Economy newsletter - N°3 - 2017

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Newsletter - 03 - 2017 - Progressive Economy
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Fabien CANDAU
Jacques LE CACHEUX

5 Good reasons for a European Corporate Tax

European Commission has just launched a new “Reflection paper on the future of EU Finance” and in three years' time, a new Financial Framework will shape the budget of the Union. One of the topics up for debate is whether EU should have a European Corporate Tax as own resources. In January 2017 the S&D Group published a study on “Corporate Income Tax as Genuine Own Resource” done by professor Fabien CANDAU and Professor Jacques LE CACHEUX. Progressive Economy hereby gives you the study’s conclusions in five steps:

1. Why is there a need for a genuine own resource and why a European tax on multinational enterprises could be this genuine own resource?

1. Why is there a need for a genuine own resource and why a European tax on multinational enterprises could be this genuine own resource?

The EU budget has progressively lost its ability to finance common policies with high European value added. One reason for this problematic evolution is the structure of financing, dominated by national contributions. A genuine own resource would improve incentives on Member States to act in the collective interest.

2. Why is it better to tax multinational firms at a European level rather than at national level?

2. Why is it better to tax multinational firms at a European level rather than at national level?

The current system allows (and even encourages) Members States to compete with one another in a way that destabilizes the system itself, and has as consequence that some multinational firms are able to avoid taxation by playing on national tax systems differences and loopholes.

3. What is the current revenue loss due to corporate tax avoidance?

3. What is the current revenue loss due to corporate tax avoidance?

We estimate the revenue losses for 15* member States due to corporate tax avoidance through profit shifting under different scenarios for the year 2015, as follows:

  • "Alarming" Scenario: €198 billion
  • "Optimistic" Scenario: €15 billion
  • "Intermediate" Scenario: €98 billion.

* Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom

4. How to implement a European Corporate taxation?

4. How to implement a European Corporate taxation?

Implementing a Common Consolidated Corporate Tax Base (CCCTB) is a complex political task involving many steps before achieving the final goal. The current proposal from the European Commission is a system whereby multinational firms should consolidate the incomes of their affiliates into a single measure of taxable income in the country of residence of their headquarters. Then the taxable base can be distributed among the governments of the various countries in which they operate, based on a firm’s geographic distribution of different factors. CCCTB may be a step in the proposed direction, but other routes are possible. The full benefits from a European corporate tax rate can only be reaped if consolidation of the tax base is achieved.

5. How to use the current window of opportunity?

5. How to use the current window of opportunity?

In three years' time, a new Financial Framework will shape the budget of the Union. Now is the time to make change happen. We need a new budget for a new Europe. Therefore, there is a window of opportunity for the S&D Group and other progressive forces to fight for a European Corporate Tax as Genuine Own Resource for the EU Budget.

CLIMATE-RELATED FINANCIAL DISCLOSURE: WHICH WAY FORWARD FOR THE EU?, CEPS, 21 June

In Case You Missed It

CLIMATE-RELATED FINANCIAL DISCLOSURE: WHICH WAY FORWARD FOR THE EU?, CEPS, 21 June

Best points to take from the conference:

Disclosure (and transparency) are essential to provide market efficiency, but not enough to boost climate-related finance. This is to say that disclosure alone cannot fix the two main issues related to climate finance: pricing risks and overcoming the shortermism of financial market.

To re-shape finance correctly, several actions are needed from the regulators:

  • Provide a clear and consistent policy road map (EU Commission’s Working Group on sustainable finance will give some answers by the end of the year)
  • Provide clarity and stability of the market in order to attract investors (through clear definitions of what is “green”, standards, metrics of performances and a definition of “risk”)
  • Reduce the emphasis on short-term liquidity (which can work to the detriment of long-term investment choice)
  • Design incentives to integrate Environment Social and Governance criteria (ESG) into the business models of private companies

What can the European Parliament do? The EP can play a platform role to gather actors and raise awareness. On the other hand, in the view of the speakers, the key players are the biggest Member States

Group of the Progressive Alliance of Socialists & Democrats in the European Parliament
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