Brussels clampdown will force states to come clean on tax deals after ‘LuxLeaks’ scandal

European states including Ireland and Luxembourg will be compelled to share information on private tax deals they have granted to multinational businesses under proposals from Brussels to clamp down on corporate tax avoidance.

The European Commission was due today to publish reforms aimed at bringing into line rogue member states in the wake of the “LuxLeaks” revelations. The scandal exposed how Luxembourg had been facilitating corporate tax avoidance on an industrial scale for many years. Tax systems in the Netherlands and Ireland have also attracted the attention of the commission, the EU’s executive arm, over the past year.

The commission hopes its proposals will create a self-policing club by giving all EU tax authorities visibility into one another’s tax affairs. That solution, however, is unlikely to satisfy campaigners who have been calling for tax ruling information to be shared in public documents.

In an accompanying 61-page analysis, the commission will admit that that public confidence has been damaged by the Luxleaks scandal. Last November, the Guardian and other media organisations published investigations into scores of private tax deals handed out by the tax authorities in Luxembourg, helping big businesses avoid tax.

The commission will admit some countries have “contributed to, and encouraged, aggressive tax planning”.

There is particular distrust of reform proposals that stop short of public disclosures. This is due in part to the background of commission president Jean-Claude Juncker, who in his 18-year stint as prime minister of Luxembourg built the Grand Duchy into one of Europe’s most controversial hubs for tax structuring.

Fair tax campaigners voiced disappointment, while crediting the commission with making a start on tackling the issue.

“The package, published in response to the Luxembourg Leaks scandal, makes some improvements to the information that tax administrations receive, but keeps tax rulings confidential, denying proper public scrutiny of governments’ tax administrations and large companies,” said the European Network on Debt and Development.

The network’s head of tax justice, Tove Maria Ryding, said: “This is not tax transparency or tax justice. The veil of secrecy remains in place.”

The ball is now in the court of EU member states who will be forced to show their true colours

But the commission said that today’s proposals were only a “first step” in the attempt to tackle the problem, and that further policy changes would be ready by June. The new moves being proposed refer only to “basic” information being mandatorily exchanged, suggesting that corporate lawyers might find ways to exploit loopholes in the legislation.

The commission set a target date of the end of next year for making the new rules mandatory. But the draft legislation would first need to be endorsed by the 28 member governments and the European Parliament. Earlier attempts to outlaw aspects of banking secrecy and secure taxes from nationals earning income on their savings in banks elsewhere in the EU took a decade to see the light of day.

“The ball is now in the court of EU member states who will be forced to show their true colours: will they put their money where their mouth is and finally move forward, or will they continue to block the proposals?” said Sophie In’t Veld, a leading Dutch liberal MEP.

In the analysis underpinning the proposals, the commission said: “Many member states have designed complex and opaque corporate tax systems designed to incentivise businesses to shift profits to their jurisdictions. Member states have actually contributed to and encouraged aggressive tax planning.”

It added: “Aggressive tax planning of large multinationals carries a significant risk of a negative impact on overall tax compliance by reducing the morale and sense of fair play of European taxpayers.”

The loss of revenue resulting from the favourable tax rulings for transnational companies meant employees were having to bear the brunt of taxation disproportionately, while small businesses also suffered, the document stated.