The European Commission presented an Action Plan on Wednesday (17 June) to reform corporate taxation in the EU. The largest political groups in the European Parliament reacted positively to the initiative, suggesting that Commission President Jean-Claude Juncker has consolidated his powerbase among MEPs following the Luxleaks scandal.

The initiative, which aims to establish a system in which companies pay their taxes where they make their profits, was launched against the background of the Luxleaks scandal, which destabilised the former Luxembourg premier during his first days in office.

In fact, the parliamentary groups who voted to keep Juncker in office last November also appear to back the Commission’s plan.

>> Read: Juncker emerges stronger from Luxleaks censure motion

The Action Plan sets out a series of initiatives to tackle tax avoidance, secure sustainable revenues and strengthen the Single Market for businesses. It includes a strategy to re-launch the Common Consolidated Corporate Tax Base (CCCTB) and a framework to ensure effective taxation where profits are generated.

Corporate taxes have remained in the headlines because of the way multinationals can legally reduce their bills by basing themselves in low-tax centres. The EU is already investigating the tax arrangements of Apple, Starbucks and Amazon in some member states.

The Commission is also publishing a first pan-EU list of third-country non-cooperative tax jurisdictions, and launching a public consultation to assess whether companies should have to publicly disclose certain tax information.

>> Read: Commission to propose common tax base for multinationals – again

EPP and S&D largely favourable

The European Peoples’ Party, the largest group in the European Parliament, welcomed the Commission’s plan. Its spokesperson in the Parliament’s Special Committee on Tax Fairness Burkhard Balz (CDU, Germany) said that the only way to stop tax avoidance and aggressive corporate tax planning is joint action by all member states.

Balz sees a need for action first, because of systemic discrimination against small and medium-sized entreprises (SMEs). “SMEs do not have the resources to set up complicated tax planning schemes. De facto, only big multinational companies can profit from the mismatches between national systems. The new tax action plan must end this discrimination against SMEs,” Balz stressed.

Balz welcomed the step-by-step approach the Commission wants to take on the CCCTB. “Some member states so complicated the previous proposal, that it is wise to go first for a common tax base without consolidation,” he explained. A tax base without consolidation would not allow companies to set losses in one country off against profits in another country, Balz argued.

The Socialists and Democrats (S&D) group also welcomed the Commission’s plan as “a further step in the right direction”. They called on EU governments to act swiftly so that taxes are paid where profits are generated, and to ensure tax transparency in general.

S&D spokesperson on economic and monetary affairs Elisa Ferreira, (PS, Portugal) said the ball was now in the camp of the member states, but also warned of internal divisions between Commissioners.

“The Council cannot hide behind the unanimity rule to perpetuate a situation of privilege in some countries. Also, at the European Commission, there can be no doubt about the determination of its members to put an end to the present unfair and damaging tax dodging. The Commission must ensure, at the highest level, a real and effective coordination against harmful tax practices among Commissioners Johnathan Hill (internal market), Pierre Moscovici (tax), Margarethe Vestager (state aid), Valdis Dombrovskis (Eurozone) and Vera Jourová (justice) in their respective portfolios,” Ferreira stated.

The chairman of Parliament’s Economic and Monetary Affairs Committee, Roberto Gualtieri (S&D, IT) said that the legislature had championed many, if not all of the measures announced by the Commission. The Parliament will support any piece of legislation that contributes to the effective implementation of the principle that companies should pay a fair share of tax in the country where they make their profits, he said.

“I urge the Commission to stick to the consultation time-line and to the follow-up. The Economic and Monetary Affairs Committee will ensure a prompt and timely handling of the Commission proposals. I hope that this time the Member States will behave responsibly and will approve the package without delays and, more importantly, without watering it down,” Gualtirei said.

Greens and Conservatives critical

The Greens/EFA group criticised the Commission’s plan and said that they had challenged Juncker to “act or go”. Molly Scott Cato, tax spokesperson for the Greens/EFA group, stated that the proposal underlines “how the Commission is dragging its heels over the proposal for country-by-country tax reporting, which is a crucial measure for ensuring transparency of corporate taxation”

Philippe Lamberts, Greens/EFA Co-President and author of the tax transparency obligation for banks, added that regarding CCCTB, the countries that benefit most from the absence of a mandatory CCCTB, including Ireland and the UK, were “doing their best to sap the Commission’s resolve”.

“Without consolidation, which the Commission proposes to put off till the cows come home, the end of corporate tax dodging is inevitably also delayed. In order to be effective, a consolidated base must be accompanied by a minimum rate,” Lamberts said.

He also said that his group was disappointed that the Commission’s tax proposal, announced in March, consisting of a sensible clarification and extension of existing obligations to exchange information on sweetheart deals for multinationals, was being undermined “by a range of member states that prefer to continue to operate in the shadows where tax agreements are concerned”.

European Conservatives and Reformists MEPs criticised the attempt by the Commission to re-launch CCCTB. They believe that welcome moves to close legal loopholes should not become an excuse for the EU to impinge on the sovereign right of national governments to set their own corporate tax rates.

ECR head Ashley Fox said: “We believe that more transparency is the answer to tackling aggressive tax planning. However moves by EU officials towards greater harmonisation of taxation policy risk seriously undermining the sovereignty of national governments and the competitiveness of Europe.”

The South West and Gibraltar MEP, who also sits on the parliament’s temporary committee on taxation, added: “The UK is leading the way in preventing tax avoidance, for example by committing to introduce legislation to implement the model for country-by-country reporting already agreed at the G20 and the OECD.

“Corporate tax avoidance is a problem that stretches beyond the frontiers of Europe. The EU acting in isolation cannot solve this problem.”