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MP talk

Jutta Urpilainen is a Member of Parliament for the Social Democratic Party and member of the City Council of Kokkola. She has also served as the Minister of Finance and the chair of SDP.According to an estimate by the European Commission, the EU is at least 1,000 billion euros out of pocket because of tax evasion and avoidance.  A major problem related to tax evasion is that in many cases it does not involve any illegal activities but is regarded as tax planning which is legal under our system. This leads to member states losing a notable amount of tax revenue.

In recent years, Finland, along with other countries, has stepped up its efforts to put a stop to tax evasion. Active on this front, Finland, led by Prime Minister Katainen, has restricted companies’ entitlement to interest deductions, prepared an action plan with a view of combating international tax evasion and organised an international seminar in Finland in 2013 with the goal of finding a new means of curbing tax avoidance.

In collaboration with OECD, G20 countries have drawn up a BEPS action plan, which is aimed at addressing tax base erosion and profit shifting. Generally met with praise, the programme still involves some challenges, including drawing the line between legal and illegal tax planning and improving the settlement of cross-border tax disputes. 

The efforts to curb tax avoidance have already produced results. Voluntary tax disclosure programmes have resulted in 37 billion euros of additional tax revenue. And this figure is set to rise as to date only 24 countries have participated in the programmes.

The agenda of the European Commission includes policy decisions on EU-level tax evasion, according to which the Commission will prepare an action plan within next six months for combating tax avoidance and tax fraud. The goal is to implement a system under which taxes are paid in the country where the profit is generated. This involves an agreement on automatic exchange of information on tax decisions, a declaration which has been signed by 52 member states.

But instead of settling for merely combating tax evasion we should also look for ways of intervening in tax competition taking place within the EU. Tax competition may easily lead to a situation where countries try to attract investments by cutting taxes, as has happened in Ireland where the corporate tax rate is 12.5%, making the country a European tax haven. This will result in tax competition heating up even more.

Fortunately, the European Commission’s action plan also aims to make the tax rate for corporate taxes more uniform across the EU. I believe Finnish, as well as European economy on the whole, will benefit from the implementation of a uniform and adequate minimum level for the corporate tax rate. This would lead to companies making their investment decisions on the basis of qualities such as skill base and the stability of society instead of the tax rate. From the perspective these other criteria, Finland is a strong contender for investments and an attractive location for business.

The only measures that are effective in battle against tax evasion are extensive international agreements. Bilateral agreements on transfer of information are not enough to improve the situation; we also need more comprehensive systems.  The recent steps forward give reason to hope that in the future we will have a fairer international tax system – as long as we persevere on the path we have now started on.