While European leaders meet to find ways to close tax loopholes, two multinational giants, Apple and Google, protest their innocence.
Apple, Google protest their innocence as EU mulls closing tax loopholes
BRUSSELS // European Union leaders yesterday sought to advance their fight against tax fraud and close the loopholes for large corporations' tax-avoidance schemes.
European officials say tax fraud costs the 27-nation bloc an estimated €1 trillion (Dh4.7tr) a year at a time when much of the bloc is in recession and governments are forced to tighten their budgets despite record unemployment.
The British prime minister, David Cameron, said the EU had to be sure "that companies pay taxes and that means international collaboration, sharing of tax information".
The meeting comes as the row escalates over the amount of tax paid by high-tech multinational corporations such as Apple, Amazon and Google.
The bloc's heads of state and government focused on the tax issue at their short afternoon summit yesterday. The discussions follow an inconclusive meeting of finance ministers last week, which failed to agree on an automatic exchange of banking information between all EU countries to catch tax evaders.
On the way into the meeting, leaders were hopeful of persuading Austria and Luxembourg, the two EU countries that prize themselves on their banking secrecy, from withdrawing their objections to the cross-border initiative.
"We will be able to decide crucial steps," said the German chancellor, Angela Merkel.
"There will finally be an exchange of the necessary tax data and there will be negotiations with third countries," she added, referring to talks with non-EU members, such as Switzerland, to accept a similar automatic information exchange.
"That is a great leap forward but we're not yet at the end," Ms Merkel said.
The Austrian chancellor, Werner Faymann, indicated that his country was in principle prepared to give up its banking secrecy for cracking down on tax cheats.
"I expect that we will achieve this data exchange by the end of the year," Mr Faymann said. "All those who were betting on us fighting over this for so long to grant tax fraudsters a completely easy game ... will be proven wrong," he added.
But Luxembourg, whose financial sector makes up about a third of its economy and tax receipts, seemed determined to put its foot on the brakes for fear of losing its competitive edge to non-EU states that would not be bound by the new rules.
"The decision is not yet ripe because we still need the results with third countries, with Switzerland for example," said the prime minister, Jean-Claude Juncker. "Once we have those results then we will get to decisions fast since we all basically agree with broadening the scope of the interest directive to all financial products," he added.
Some leaders criticised Luxembourg's reluctance and said that the EU would appear weakened in its negotiations with third countries if it could not get those rules agreed even within its 27-nation bloc.
"It is essential that we fight all sources of tax evasion and tax havens," insisted the French president, Francois Hollande.
The leaders were also set to discuss how to curb large companies' aggressive tax planning, which allows them to take advantage of loopholes to redistribute their profits globally to minimise their tax payments.
According to a draft summit conclusion, the leaders are urging rapid progress in the "efforts taken against aggressive tax planning, profit shifting, lack of transparency and harmful tax measures to be pursued globally" vowing to lobby for more international cooperation on the matter.
The investigation of the tax tactics of multinationals is being carried out on a global scale. On Tuesday, members of a US Senate subcommittee grilled the chief executive of Apple, Tim Cook, over allegations that the company's Irish subsidiaries help it to avoid billions in US taxes.
The subcommittee released a report on Monday that said Apple paid $6 billion (Dh22bn) in taxes last year. But the subcommittee estimates that Apple avoided at least $3.5 billion in US federal taxes in 2011 and $9 billion last year by using a complex set-up involving Irish subsidiaries , which are seen as being a key factor.
Mr Cook insisted that the company's overseas operations had nothing to do with reducing Apple's US taxes.
"We pay all the taxes we owe, every single dollar," he said. "We don't depend on tax gimmicks."
The Irish prime minister, Enda Kenny, denied Ireland was cutting special deals with multinationals.
"Ireland has been one of the front-runners, and will be, in regard to building a new international consensus," Mr Kenny said.
In London last week, UK politicians criticised Google's tax structure at a special parliamentary committee hearing. Committee chairwoman Margaret Hodge accused the company of "devious, calculated and, in my view, unethical behaviour in deliberately manipulating the reality of your business in order to avoid paying your fair share of tax to the common good".
Google vice-president, Matt Brittin, defended his company's complex corporate structure at the hearing, saying that Google was transparent about how it paid its bills.