Paul Brannen: Why the poacher who turned gamekeeper could bag the tax dodgers

North East Labour MEP Paul Brannen on why European Commission president Jean-Claude Juncker can crack the tax dodge problem

The expression ‘poacher turned game keeper’ sprang to mind this week in the European Parliament as in meeting after meeting Jean-Claude Juncker’s suitability for the top job in the European Union was discussed.

To many, and this is a cross party concern, his past role as Prime Minister of Luxembourg means he was at the heart of a tax haven that help facilitate tax dodging by some multi-national companies and some rich individuals on a massive scale.

I cautioned restraint by my fellow Labour MEPs as we need to remember that more tax havens are under British jurisdiction than that of any other country.

To me, what Juncker thought and did in the past seems much less important compared to what he now thinks and what he now intends to do to about tax dodging in his new role as President of the European Commission.

The fact that he knows a great deal about tax avoidance (technically legal but usually morally questionable) and evasion (always illegal) means he is well placed to act decisively to end tax dodging should he so wish.

Does any of this really matter? Absolutely. International tax evasion and avoidance not only threatens financial stability, by making it harder for governments to balance the books, it also undermines social justice, by pushing more of the tax burden onto low – and middle – income households who already bear the brunt of austerity measures.

In addition tax abuses undermine economic efficiency by allowing inefficient tax-dodging companies to out compete better, more responsible rivals – often the smaller, domestic firms that typically provide the majority of employment.

Tax avoidance amounts to £70bn a year in the UK, that is over half of the country’s total healthcare expense.

Labour has recently toughed up its stance on fighting tax evasion in Britain. Shadow Chancellor Ed Balls has proposed to fine companies up to 100% of their tax bill if they are caught dodging tax.

As capital flows beyond borders, so do tax dodgers. This is why our policies in this respect must be first EU wide and ultimately global. Only measures reaching out across borders, at the level on which multinational companies operate, can be fully effective in closing loopholes that are being used to evade or avoid paying a fair amount of tax.

In addition, joint action within the EU can minimise the risk of competitive disadvantages to any UK unilateral action. We do not want the UK to be the only one to impose the necessary tough new rules on financial markets, for example with banks then circumventing the rules through their affiliates in other EU countries: EU-wide rules protect us better.

Labour has therefore developed together with its partners in the Socialists and Democrats Group a comprehensive set of measures in the European Parliament to clamp down on the wide range of tax dodging practices. These measures must now be supported by the European Commission and agreed by the tax ministers of the 28 European countries.

The recent ‘Lux leaks’ revelations confirmed the scale of the problem, hundreds of cosy tax arrangements between multinational companies and the Luxembourg tax authorities.

Juncker has reacted to the scandal by announcing unprecedented initiatives in the field of automatic exchange of information, which have been blocked by a few EU member states – including his own – for close to a decade. In so doing he has unlocked the door, the more people who now push the quicker and further the door to tax justice will open.

Common rules on corporate transparency, broadening the automatic exchange of information between national tax authorities, police cooperation on international frauds and scams, action on tax havens, developing the Quick Reaction Mechanism to fight VAT fraud, and other collaborative mechanisms could pay huge dividends to Britain.

As a result the UK could gain billions in revenue, see a fairer distribution of taxation and curtail a major source of anti-competitive market distortions.

Corporate tax wars also pose a substantial threat. An EU-wide floor on corporate tax rates could prevent some of the worst excesses of a race to the bottom.

Much of the damage, however, stems from ‘competition’ to make it easy for companies to shift their profits made elsewhere in, at low or no tax.

The EU’s proposal for a Common Consolidated Corporate Tax Base and the intra-EU allocation of taxable profits according to the location of economic activity, could have a powerful impact in curtailing gaming of the system.

Tax justice is an imperative whose time has come and Juncker, as poacher turned gamekeeper, could be the man who delivers it for Europe.