Growing concern in European capitals about aggressive tax avoidance by high-profile corporations such as Amazon, Google and Apple looks set to steal the agenda of a European Union summit in Brussels on Wednesday.
The summit was originally called to discuss energy policy and tax coordination, but press reports in Britain, France and the United States exposing how little tax major international companies have been paying by carefully structuring their European operations has forced the issue up the agenda.
France and Britain in particular have grown concerned by the sheer scale of the legal tax schemes, with a U.S. investigation revealing on Monday that Apple Inc had paid just 2 percent tax on $74 billion in overseas income, largely by exploiting a loophole in Ireland’s tax code.
That followed reports that the British unit of Amazon paid just $3.7 million tax on 2012 sales of $6.5 billion, and similar revelations concerning Google’s and Starbucks’s UK operations.
In all, officials have said that tax avoidance and evasion costs the EU around 1 trillion euros a year.
“A lot of these revenues (from the digital economy) are not getting taxed,» said a French diplomat briefing reporters in Paris ahead of the EU summit. «We need to find a way of bringing home the tax on these activities.”
Officials said French President Francois Hollande could raise the issue with the EU’s 27 leaders, although it was unclear what agreement could be reached with little advanced preparation and just four hours of talks scheduled.
A draft of the summit’s declaration, which is agreed in advance but can be changed, set out nine specific proposals for strengthening tax policy and coordination, including fighting tax avoidance schemes and the process of routing profits abroad.
“Work will be carried forward as regards the Commission’s recommendations on aggressive tax planning and profit shifting,» a draft seen by Reuters read.
“The Commission intends to present a proposal before the end of the year for the revision of the ‘parent/subsidiary’ directive, and is reviewing the anti-abuse provisions in relevant EU legislation.”
But officials played down the possibility of immediate steps to close tax loopholes or any ‘naming and shaming’ of companies in the final summit declaration, saying it was primarily up to EU member states to craft the necessary legislation.
“We agree that companies shouldn’t be able to avoid tax by pursuing aggressive tax avoidance schemes,» said an EU official involved in handling preparations for the summit.
“But while companies may be using loopholes to pay as little tax as possible, the truth is it’s a national issue. It’s up to the relevant member states to change their tax codes and tighten the net.”
The official said the most likely outcome from the talks was tougher language on strengthening bilateral tax treaties and bolstering so-called «anti-abuse» rules in national legislation.
“I can see the issue hijacking this summit, but the fact is there are recommendations out there already and it’s up to countries to explore them,» he said, referring to recommendations the Commission made last December on tackling aggressive tax planning and the erosion of the tax base.
France has already shown its willingness to take on major U.S. companies. In 2011, French authorities raided Google in an investigation of whether its Paris office does sales work. The company was asked to pay 1.7 billion euros in back taxes.
A similar issue has arisen with how Google operates in Britain, with questions raiseed about whether its sales staff are based abroad or actually in the country.
Google has said it follows tax rules everywhere it operates and that references to selling in job ads reflect the fact Google likes to hire people with a sales background.
In a briefing ahead of the Wednesday’s gathering, a senior EU diplomat sidestepped suggestions that EU leaders were looking to take on specific companies, but said the issue was serious.