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European Union Leaders Meet on Tax Avoidance Austria Gives Ground on Tax Avoidance
(about 4 hours later)
BRUSSELS — European Union leaders gathered here Wednesday for a one-day meeting focused on tax avoidance, amid mounting indignation over reports that American companies including Apple had sheltered profits in member states like Ireland. BRUSSELS — The European Union inched closer to ending bank secrecy on Wednesday when Austria agreed to eventually start sharing personal bank account information with other countries, as long as similar rules also applied to tax havens like Switzerland that are not part of the Union.
Findings by United States Senate investigators showed this week that Apple sharply reduced its tax bill in the United States and the rest of the world by recording a majority of its worldwide income in Ireland and paying low corporate tax rates there. It was the first time that Austria, long considered a tax haven for the wealthy, agreed to a deadline for disclosing such information, after rebuffing calls for greater transparency for a decade. The country said it expected to reach an agreement in principle on the matter by the end of the year.
The findings and subsequent outcry — including suggestions that Ireland offered Apple particular advantages — put the Irish prime minister, Enda Kenny, on the defensive even before the meeting began. That news, at a summit meeting of E.U. leaders here, upstaged a separate but related topic that has dominated European headlines this week: tax-reduction strategies by big multinational companies like Apple, which U.S. congressional investigators say slashed its tax bill by setting up companies in Ireland.
“I’d like to repeat that Ireland’s corporate tax rate is statute based, is very clear and very transparent, and we do not do special deals with any individual companies in regard to that tax rate,” Mr. Kenny told reporters Wednesday afternoon. On the personal wealth front, pressure on Austria has grown more intense lately as other E.U. countries try to curb citizens’ ability to stash money in other jurisdictions, short-changing their home governments of tax revenue during a time of lean budgets and gaping deficits.
“Our country has had its stable corporate tax rate for many years, but that’s not the only reason that companies come to Ireland,” he said. Ferreting out hidden bank accounts has become a cause célèbre in many countries, especially Greece, which has jailed hundreds of suspected tax delinquents, including former government officials. In France, Jérôme Cahuzac, a French minister responsible for fighting tax evasion, resigned after admitting, following weeks of denials, that he had held a secret bank account in Switzerland.
Similar controversies have arisen in Britain about low tax rates paid by the British operations of companies like Google and Starbucks. The 27-member Union estimates that tax avoidance within its countries, through tax fraud and evasion by companies and individuals, costs governments a total of ¤1 trillion, or $1.3 trillion, a year.
The summit meeting has been billed as an opportunity to push ahead with a crackdown on tax avoidance among companies and individuals based in European Union states and neighboring countries. But the Apple findings could put pressure on participants to address the global tax strategies of multinational corporations. The crackdown on bank secrecy in Europe is also a result of U.S. demands for fuller cross-border sharing of information under the Foreign Account Tax Compliance Act.
Leaders were expected to discuss closing the gap between the ways that the wealthiest taxpayers and ordinary citizens are treated under European Union tax rules at a time when so many people are feeling the pinch from austerity policies and low growth in Europe. ‘'We will act jointly, and I believe we will manage the exchange of data by the end of the year,'’ the Austrian chancellor, Werner Faymann, said at the meeting here.
To the intense irritation of the European Commission, the union’s executive body, and powerful members of the bloc like Germany and France, Austria and Luxembourg have resisted pressure to share banking information more widely and rapidly. Mr. Faymann said it was a ‘'bad day for tax cheats.'’ But he stressed that Austria’s concessions were contingent on the ‘'negotiations with third countries'’ like Switzerland. Austrian officials say that without overhauls in those other jurisdictions, financial services industries in the Union would be at a competitive disadvantage.
They claim that financial havens outside the bloc, like Switzerland and Liechtenstein, remain available to wealthy individuals and to companies. Officials from Austria and Luxembourg say that without overhauls in those other jurisdictions, financial services industries in the union would be at a competitive disadvantage. ‘'We want more than just a data exchange; we also want it with countries outside of the European Union,'’ he said. ‘'We want the fight against fraud to not stop there; there’s more to it.'’
European Union leaders were still expected to press Austria and Luxembourg to speed up adoption of the bloc’s tax standards at the meeting on Wednesday. Those efforts already have dragged on for a decade. Luxembourg continues to block proposals to expand this sharing beyond banking information, while Austria has resisted taking even that step. The leaders, who met for four hours on Wednesday, also confirmed a mandate for the European Commission to negotiate tougher agreements with five countries, Switzerland, Andorra, San Marino, Monaco and Liechtenstein.
José Manuel Barroso, the president of the commission, called Wednesday for action to recover total annual losses to national treasuries from fraud and evasion by companies and individuals in the European Union. Commission estimates put the losses at around $1.3 trillion. The chances of them agreeing quickly are not great. And E.U. officials warned that those countries could turn the tables by asking the Union to make changes first, risking a standoff.
The leaders were also expected to discuss issues like the situation in Syria and whether the bloc needed common rules to exploit its shale gas resources. But Switzerland and others are all under huge pressure already from the United States, which is demanding that details of all accounts held by American taxpayers be sent to the Internal Revenue Service, so they may decide there is not much point in digging in their heels with the Union when they have little choice but to cede to American demands.
But with the focus in recent days falling squarely on the aggressive tax strategies of multinationals, European Union leaders are also under pressure at the meeting to emphasize the need for more transparency about the ultimate owners of companies, trusts and foundations, and to take action to combat profit shifting. Those negotiations might also clear the pathway for Luxembourg, an E.U. member that agreed last month APRIL to share banking data by January 2015. But it is still awaiting the outcome of talks with the Swiss before deciding whether to expand the information exchange agreement to include investments like trusts and foundations, as Austria has apparently done.
“Given the highly public recent questions over the tax affairs of some prominent multinational companies, it is perhaps inevitable that tax avoidance will dominate this E.U. summit,” said Ben Jones, a tax expert in London at the law firm Eversheds. Once discussions with Switzerland are completed, Jean-Claude Juncker, the prime minister of Luxembourg, said his country ‘'would be in a position to decide the extent of the expansion'’ of the information exchange.
Mr. Jones, who advises multinationals on their tax affairs but does not count Apple among his clients, warned against rash decisions by leaders in the wake of the outcry over Apple. The summit meeting had been billed as an opportunity to push ahead with a crackdown on tax avoidance by E.U. companies and individuals. But the gathering risked being overshadowed by mounting indignation over reports that American companies, including Apple, had sheltered profits in E.U. countries like Ireland.
“Uncoordinated attempts by individual countries or blocs of countries to tackle the issue may actually create more tax loopholes or have a detrimental impact on businesses that do not engage in aggressive tax planning, damaging rather than benefiting some economies,” he said. Findings by the Senate investigators indicated this week that Apple sharply reduced its tax bill in the United States and the rest of the world by recording most of its worldwide income in Ireland and paying low corporate tax rates there.
Prime Minister David Cameron of Britain put the emphasis on action at the level of the Group of 8 leading industrialized nations, whose leaders will meet next month in Northern Ireland. The findings and subsequent outcry — including suggestions that Ireland offered Apple particular advantages — put the Irish prime minister, Enda Kenny, on the defensive even before he arrived here on Wednesday.
“We have got to make sure as we set those tax rates that companies pay taxes,” Mr. Cameron told reporters before the meeting Wednesday in Brussels, “and that means international collaboration, the sharing of tax information.” ‘'I’d like to repeat that Ireland’s corporate tax rate is statute based, is very clear and very transparent, and we do not do special deals with any individual companies in regard to that tax rate,'’ Mr. Kenny said Wednesday afternoon. ‘'Our country has had its stable corporate tax rate for many years, but that’s not the only reason that companies come to Ireland.'’
Similar controversies have arisen in Britain about the low taxes paid by the British operations of U.S. companies like Google and Starbucks.
The German and French leaders pledged Wednesday to step up efforts to recover more funds from global companies.
‘'We will work towards ensuring companies have to pay more where they are based,'’ Angela Merkel, the German chancellor, said at a news conference after the meeting.
François Hollande, the French president, told a news conference that Europe should unite to combat profit shifting by large corporations.
‘'We cannot accept that a certain number of companies can put themselves in situations where they escape paying taxes in ways that are legal today,'’ Mr. Hollande said. ‘'We must coordinate at a European level, harmonize our rules and come up with strategies to stop this.'’
Ben Jones, a tax expert in London at the law firm Eversheds, warned against rash decisions by leaders in the wake of the outcry over Apple.
‘'Uncoordinated attempts by individual countries or blocs of countries to tackle the issue may actually create more tax loopholes or have a detrimental impact on businesses that do not engage in aggressive tax planning, damaging rather than benefiting some economies,'’ said Mr. Jones, who advises multinationals on their tax affairs but does not count Apple among his clients.
Prime Minister David Cameron of Britain has said multinational strategies to avoid taxes will be a prime topic for the Group of 8 leading industrialized nations, whose leaders will meet next month in Northern Ireland.
Speaking Wednesday at the Brussels summit, Mr. Cameron insisted he was taking a tough line on tax with major multinationals like Google, after that company was accused on Wednesday by Ed Miliband, the leader of the opposition Labour Party, of going to ‘'extraordinary lengths'’ to avoid paying tax in Britain.
Mr. Cameron said he had raised the issue with Google’s executive chairman, Eric E. Schmidt. But Mr. Cameron also cautioned against making targets of particular firms. ‘'I don’t think we’re going to solve this if we simply take one company or another company that is registered in Europe, this one in Ireland,'’ Mr. Cameron said.
‘'We have got to make sure as we set those tax rates that companies pay taxes,'’ he said, ‘'and that means international collaboration, the sharing of tax information.'’