WIREDGOV

The EU should promote the introduction of a financial transaction tax, even if it is alone in doing so "as a first step", says Parliament in a resolution on innovative financing voted in plenary on Tuesday. A second resolution, also voted in plenary on Tuesday, calls for more EU tax-related assistance and clamp downs on tax evasion and tax fraud to boost revenue and efficiency in the developing countries.

Together, the Economic Affairs Committee resolution on "innovative financing", and the Development Committee one on "tax and development" set out Parliament's ideas on how best to generate new revenues, reform tax governance and maximise revenue from traditional sources.

The innovative financing resolution, drafted by Anni Podimata (S&D, GR), argues that the tools proposed can yield a "double dividend" by not only generating more funds, but also making the financial sector safer and society greener. 

The tax and development resolution, drafted by Development Committee Chair Eva Joly (Greens/EFA, FR), says that EU and developing countries should seek to boost their tax revenues by combating tax evasion and harmful tax practices. This, it says, will not only reduce poverty but also eventually lead to a "governance dividend".

A Financial Transaction Tax without further delay

Most notably, both resolutions call for the development of a low-rate financial transactions tax (FTT) which they say could raise around €200 billion per year in the EU and would also discourage speculative trading by making it more costly. If imposing this tax worldwide proves too difficult, then the EU should impose it at European level, adds the innovative financing resolution.

The same resolution throws down the gauntlet to critics who warn about capital flight, arguing that the EU would benefit if purely speculative trading were to move to other jurisdictions since this would help to increase market efficiency. The idea of introducing an FTT within the EU was not backed by the resolution drafted by Eva Joly.

Combating fraud and tax evasion

The innovative financing resolution calls for more measures to reduce tax evasion and tax fraud, which are currently estimated to cost EU Member States about €250 billion per year. MEPs also ask Member States to look into a possible worldwide lottery to help fund the fight against hunger.

Tax self-sufficiency, not foreign aid dependency

The tax and development resolution calls for more tax-related development assistance from EU Member States and a clampdown on tax havens. Developing countries should at the same time reduce their reliance on foreign aid, by putting in place viable tax systems, it adds. Recent studies suggest that revenue loss due to tax fraud amounts to ten times the development aid injected into the economy. As much as €800 billion is lost annually from developing countries to tax havens and illicit financial flows, it adds.

Crack down on tax havens

Multinationals should be prevented from "transferring their profits to countries with the most favourable tax regimes" and should pay their taxes in the countries where they actually generated the profits, says the tax and development resolution. One way to combat harmful tax structures would be to withdraw banking licences from banks that work with tax havens, say MEPs.

Trade liberalisation cuts customs revenues

Parliament's tax and development resolution criticizes a European Commission paper on promoting good governance in tax matters for ignoring the fact that trade liberalisation, and in particular economic partnership agreements, substantially reduce the customs revenues of low-income countries.

The Podimata report was adopted with 529 votes in favour, 127 against and 19 abstentions. The Joly report was adopted by a show of hands.

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