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Just How Unified is the European Union?

Posted on May 15, 2017 by Stuart Gibson

After voters chose Brexit and elected Donald Trump, much of the developed world grew apprehensive over the rise of populism and nationalism, and its effect on traditional Western institutions and alliances. With populist candidates on the rise in Austria, France, the Netherlands, and Spain, many wondered whether the European Union could survive.

This month French voters rejected Marine Le Pen in favor of centrist Emmanuel Macron, giving wins to centrists in all four countries, and many in Europe and the U.S. are breathing a sigh of relief. Winning the presidency, however, is just a start, as Macron faces the enormous challenge of reforming the French system. He knows that his victory reflects more a rejection of extremism than a vote of confidence for a man who has never held elected office and lacks a base of support in Parliament. Frans Vanistendael reviews the events that brought Europe back from the brink and discusses Macron’s tax and spending plans for France and Europe (p. 607).

In recent years, the EU has displayed a unified front on many international tax issues, particularly tax avoidance by large multinationals. To that end, various EU bodies have voted to expand automatic exchange of information, require disclosures of tax rulings, create registers of beneficial ownership, and adopt strict antiavoidance rules.

But the EU is not a monolith when it comes to tackling tax avoidance. Ireland, Luxembourg, and the Netherlands are challenging rulings by the European Commission that they provided illegal state aid in the form of tax rulings. And as the EU considers whether to adopt a common consolidated corporate tax base (CCCTB), it faces pushback from some member states. While reiterating their support for the OECD’s base erosion and profit-shifting project, the finance ministers of Luxembourg and Cyprus recently warned against a CCCTB directive (p. 569).

Another EU member state that takes a contrarian view to addressing tax avoidance is Malta, which holds the presidency of the Council of the European Union. Teri Sprackland recently sat down for an exclusive interview with Maltese Finance Minister Edward Scicluna, who also chairs the Economic and Financial Affairs Council, the group of EU finance ministers. Scicluna discusses the Maltese economy, European efforts to address tax avoidance, and what Brexit could mean for his country’s finance sector (p. 550).

Many governments around the world have turned to amnesty as a way to get tax scofflaws to pay up and to boost tax collections. Brazil’s amnesty program may have created more problems than it solved. Prosecutors recently announced that a former executive with Petrobras SA tried to use the amnesty program to legalize BRL 48 million (about $15 million) in bribes received from the award of contracts (p. 559). And Brazil’s finance minister warned that President Michel Temer may veto legislation that would ease the rules for corporations paying back taxes under Brazil’s tax amnesty (p. 560).