By Todd Buell

Law360 (June 5, 2020, 3:01 PM EDT) -- The coronavirus crisis has increased urgency for broad and global reform of the international tax system, said Paolo Gentiloni, the European Commission's top tax official, adding that the commission plans to propose recommendations in an upcoming document on tax governance.

In a letter dated Thursday, Gentiloni said the document would include ideas to reform the European Union's Code of Conduct Group that makes recommendations for which countries belong on the EU's list of uncooperative jurisdictions for tax. Companies continue to use the harmful tax competition that exists between countries to their advantage, he added. 

"The current international business tax system is in need of significant reform, and the coronavirus crisis has increased the urgency for a global, consensus-based solution," said Gentiloni, a former Italian prime minister who took over as the commission's tax chief in December. "New and intensifying forms of tax competition exist between countries, and this harmful competition is exploited by some companies to avoid paying their fair share."

The commission supports the work of the Organization for Economic Cooperation and Development to create a two-pillar global tax approach that meets the needs of the modern economy, Gentiloni said.

The European Commission didn't respond on the record to a request for comment. 

The first pillar of the OECD's tax effort involves a reallocation of taxing rights to countries that have large numbers of consumers but where companies may lack a taxable physical presence. The second pillar would set a minimum effective corporate tax rate.

"Despite the challenges of COVID-19, the goal remains to reach an agreement by the end of 2020," Gentiloni said. "If no agreement is reached at the OECD, then the commission is committed to take EU action, and the design of any such measures will take into account the current global discussions."

Gentiloni was responding to a letter dated March 31 from six Italian members of the European Parliament who all represent the Lega party, which is skeptical of more shared sovereignty in the EU. They cited an estimate from the Italian Competition and Market Authority, or ICMA, that Italy loses between €5 billion ($5.6 billion) and €8 billion annually because of tax havens within the EU, explicitly referring to Ireland, Luxembourg and the Netherlands.

The ICMA didn't respond to a request for comment for comments. The parliamentarians also didn't respond to a request for comment.

The parliamentarians said those countries, by offering foreign companies "extremely advantageous dividend and capital gains taxation, attract investments — in many cases fictitious — which are solely aimed at reducing the tax burden of multinationals."

The Italian parliamentarians said those circumstances lead "to situations of unfair competition and tax losses for the countries where the wealth is actually being produced." 

The Dutch government said it had no formal reaction to the accusation of being a tax haven.

"We are acutely aware that being an open economy with a business-friendly setup also risks that the Netherlands can be used in tax structures with the purpose to avoid taxation," Roy Kenkel, a spokesman at the country's permanent representation in Brussels, told Law360. "Therefore, one of our key policy priorities is combating tax avoidance with a view to prevent the eroding of the tax base of other countries." 

The Dutch government announced last week that in 2024 it plans to impose a withholding tax on dividends paid into low-tax jurisdictions to curb what a senior Dutch government official on May 29 called a problem among multinational companies that's worse than previously estimated.

Meanwhile, Luxembourg pointed to recent actions it has taken to fight tax avoidance.

A spokesman for the Luxembourg Finance Ministry sent Law360 a statement that said, "In recent years, Luxembourg has been fully committed in the global fight against tax fraud, evasion and tax avoidance,and has been an active player in the EU's and the OECD's efforts for more tax transparency." 

Representatives of Ireland didn't have immediately respond to a request for comment. The country and others have said recently that they are taking steps to crack down on tax avoidance and aggressive tax planning.

In his letter, Gentiloni cited the work of the EU Code of Conduct Group — a body technically under the auspices of EU countries that recommends which countries go on the EU's list of uncooperative jurisdictions. The list has faced criticism because it includes only non-EU countries. 

The upcoming document will include some preliminary ideas for reform of the group, Gentiloni said. The Code of Conduct Group, he said, must stay "up to date in a rapidly changing environment." 

--Editing by Neil Cohen.

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