Cracking down on tax dodging

The total amount lost to national exchequers through tax evasion and tax avoidance is greater than all the public deficits of national governments in Europe added together. Dodging tax, whether illegally or via legal loopholes, is immoral not only in itself but also because of the damage it does to our economy.

So Labour MEPs this week voted to establish a special parliamentary committee to investigate tax avoidance and tax evasion across Europe. The proposal was approved overwhelmingly by the European Parliament yesterday, and the committee will start its work immediately.

In recent months, the so-called LuxLeaks scandal has highlighted that responsibility for tackling the problem rests not just with the individuals and corporations involved, but also with national governments who fail to close loopholes, or even appear to take advantage of them for their own ends. Luxembourg’s past misdemeanours may well be the worst examples we know about in Europe, but they are far from being the only ones. We need to focus on the wider issue of how it is that we’ve created, in Europe, a system which effectively gives an incentive to every member state to become its neighbour’s tax haven, and that makes it so easy for multinational companies to evade taxes by shifting profits from one country to another.

Before the decision to set up the committee was finalised, there was some debate in Parliament about the legal form the committee should take. As an alternative to the ‘special committee’ option, some MEPs — notably the Greens — argued for a ‘committee of inquiry’. But the problem with a committee of inquiry is that its remit would have to be too narrow.

Under Parliament’s rules, committees of inquiry are only empowered to investigate violations of EU law or maladministration by EU institutions. But the question of tax avoidance is much broader than that. We need to look not just at whether the law has been violated or misapplied, but also whether it should be changed. Fixing the problem is not simply a case of punishing past violations; it is likely to involve future systemic changes too.

For this reason, Labour MEPs — and Parliament as a whole — decided that a special committee, with a suitably broad remit including identifying possible legal changes, would be more effective.

The Greens have seized on this and started spinning the mischievous line that Labour doesn’t want a committee of inquiry’ into tax avoidance. This is turning logic on its head!

But that bit of political mischief-making is nothing compared with UKIP. Fewer than half of their 23 MEPs bothered to turn up for the vote — it was no surprise that Farage, whose own tax arrangements have been under repeated scrutiny, was among those who took the tactical decision to stay away. And predictably, those who did turn up voted against the whole investigation. No surprise there.

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