Parliament's TAXE Committee investigates tax rulings, schemes that help multinational companies pay very little tax. Find out how they work from our fictional example.

Want to avoid taxes? Try a tax ruling

https://api.multimedia.europarl.europa.eu/documents/20125/12071252/v007-0030-en.srt

the European Parliament has  a new temporary special committee,

the TAXE Committee.  But what does it do?

Well, shed light on a tax system used to  help multinational companies pay less tax.

MEPs visited many countries to try to find  a way to stop such favourable tax rulings.

Her family business selling sandals  has become quite a success.

She’s selling them all over Europe now, and  in the process she’s earned a lot of money.

So much in fact that  she can afford to pay consultants

If, as a good citizen,  you've always paid yours,

perhaps you’re wondering  how she’s got away with it?

Well, her consultant told her  she just couldn't compete:

none of her main competitors, he said,  was paying the full amount of tax.

He proposes to talk to the finance ministry  in a neighbouring EU country,

to see if a 'creative' solution can be found.

Could setting up a subsidiary there  help Charlotte save taxes?

In what’s called an advance tax ruling

the ministry agrees to the plan  that Charlotte’s lawyer has presented.

Charlotte will now sell her sandals  at the actual cost of production

to her company’s subsidiary  in the neighbouring EU country.

In reality, the sandals aren't  handed over of course.

They’re just owned  by the subsidiary company.

It then immediately sells them  back to the parent company at a big profit.

Since the parent company  has paid so much for them,

the profits it gets from its sales  are marginal.

The much bigger profit is made  in the neighbouring EU country,

even though it has  never seen a single sandal.

Thanks to the tax ruling that  Charlotte’s consultant has negotiated,

And it’s all perfectly legal.  But is it perfectly moral?

The European Parliament is looking  into how companies like Charlotte’s

can be forced to pay their taxes  like the rest of us.

After all, Charlotte relies,  like anyone doing business in Europe,

on things like roads, communication  infrastructure and safe airspace.

And, even more importantly,  on a safe legal environment.

All of those things are paid for  with taxpayers’ money

that if she wants to continue  to benefit from these services