#FairTaxation

Fair taxation for an EU based on solidarity

Fair taxation concerns all citizens. We need greater transparency in order to create a globally fair tax system that does not allow corporations to deprive the state of its revenues. Europe must act decisively and consistently to combat tax fraud, money laundering and speculative financial transactions.

Europe cannot act in solidarity unless it agrees on the minimum standards for a fair tax policy.
Olaf Scholz, German Finance Minister

Emerging from the crisis with a fairer system

Crises have a special way of highlighting how important it is to practice solidarity in financing public goods. Throughout the EU, member state governments have adopted unprecedented assistance measures to protect citizens, jobs and businesses that have been affected by the coronavirus crisis. Providing this type of assistance, and ensuring that states remain capable of taking effective action, can only be done if states have reliable sources of tax revenue over the long term. It is therefore essential to have a fair tax system where everyone pays their proper share. For this reason, one of the Finance Ministry’s central priorities is to take decisive action against tax fraud, money laundering and speculative financial activity.

#EuroABC

Minimum tax rate
Minimum tax rate

The purpose of a global minimum effective tax rate is to ensure that the taxes on a company’s profits do not fall below a certain rate, wherever those profits are generated. Tax legislation would thus create a level playing field for all businesses, big and small. The aim is for an international agreement to be reached by the end of the year.

Fair play for companies, revenue for public goods

Current tax legislation fails especially when it comes to collecting enough tax from the big tech companies: these companies can choose to have their registered office wherever tax rates are low, even if most of their market and customers are elsewhere, i.e. in countries with higher tax rates. For this reason, big tech companies often pay significantly less in taxes than conventional industrial enterprises, which is unfair. A global minimum effective tax rate would rectify this.

The idea of a global minimum tax rate was floated by German finance minister Olaf Scholz and French finance minister Bruno Le Maire. At the G20 meeting of finance ministers in June 2019 in Japan, the major developed and developing countries agreed to get a global minimum tax rate underway by the end of 2020.

This does not mean that countries will be told how much to tax their businesses. The idea is that countries will have the right to retroactively tax profits generated on their territory at a rate equivalent to the difference between the tax paid and the agreed minimum tax rate. This would help prevent corporations which operate internationally from avoiding fair taxation, for example by recording their profits in countries with low taxes.

#EuropeCounts

130

Over 130 countries, including all EU member states, are working on a global minimum tax rate within the framework of the OECD.

240

According to the OECD, up to €240 billion are lost annually worldwide due to tax evasion. This is roughly the equivalent of up to 10 percent of global corporation tax revenue.

0.2

The Franco-German proposal for a European financial transaction tax envisages a tax rate of at least 0.2 percent.

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Financial transaction tax (FTT)
Financial transaction tax (FTT)

A tax imposed on financial transactions on or outside of the stock market, for example on purchases and sales of shares. The goal of such a tax is to stabilise the markets by introducing higher transaction costs, which makes speculation less attractive.

Sustainable investment, not short-term speculation

The FTT would rein in speculators and stabilise markets, while also involving the financial sector more deeply in the financing of public goods. The FTT allows for a fairer taxation of the financial sector.

In 2018, German finance minister Olaf Scholz and his French counterpart Bruno Le Maire introduced into the EU-level negotiations on an FTT a new proposal based on the financial transaction tax already in place in France.

The Franco-German proposal envisages a tax of at least 0.2 percent. Most of the tax would be paid by German and non-German institutional investors such as banks and fund management companies. German households would contribute only a small share of the revenue from this tax. The tax would apply to share purchases by companies with registered office in Germany, though only shares of companies with an exchange value (market capitalisation) of over €1bn would be taken into account. The proposal includes a range of justified exemptions. For example, the exemption of initial issuances from the FTT ensures that German companies do not face restrictions when raising capital.

France and Italy already have such a financial transaction tax. The United Kingdom’s stamp duty is a proven historical FTT. Experience in these countries shows that the tax can make a contribution to ensuring the financial sector is subject to fair taxation, without adverse effects on investment and savings behaviours.

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Anti-money laundering directive
Anti-money laundering directive

The EU has adopted five anti-money laundering directives, which contain provisions on countering money laundering and the financing of terrorism. The member states of the EU must implement these directives in national law. In Germany, the EU provisions are implemented by the Money Laundering Act (Geldwäschegesetz).

Europe is fighting money laundering

Criminals launder money to conceal the proceeds of their crimes from the state. Often, this occurs directly in connection with organised crime. The origin of these proceeds must be concealed since illegal income cannot simply be paid into a bank account without arousing suspicion. For this reason, criminals perform transactions via other areas of businesses, for example betting offices, or bars or restaurants.

To tackle the problem head-on, the EU has issued comprehensive provisions on how to combat money laundering. These provisions make it more difficult to conceal illegal funds in complex shell corporations. The EU has made measures to address risks emanating from non-EU countries (third countries) more stringent, expanded the responsibilities of financial supervisory authorities and improved exchanges of information and access to information. In May 2020, the European Commission presented a new action plan.

The German Federal Finance Ministry is a strong ally of the European Commission in its fight against money laundering and will use its Presidency of the Council of the European Union in the second half of 2020 to drive progress on these measures.

Furthermore, on 1 July 2020 Germany will be assuming not only the EU Council Presidency, but also, simultaneously, the two-year Presidency of the Financial Action Task Force (FATF), a role in which the German Finance Ministry will take lead responsibility. Founded by the G7 in 1989, the FATF is the international standard setter for combating money laundering and the financing of terrorism and of proliferation. The FATF is also the international umbrella organisation of a global network consisting of another nine regional partner organisations. Over 200 jurisdictions worldwide have committed to implementing the FATF Standards.

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