Post-Truth In Tax Matters: Considerations Regarding A Recent Eurodad Report

On 7 December 2016, the European Network on Debt and Development (Eurodad) released a report entitled "Survival of the Richest: Europe's role in supporting an unjust global tax system 2016" which was produced by NGOs in countries across Europe. At the core of the report is the accusation that the number of Advance Pricing Agreements (APAs), referred to as secret "sweetheart deals" in the report, significantly increased over the last years.

The key messages of the report have been much-cited in newspapers in Luxembourg and across the globe. Unfortunately, the journalists covering the topic merely relied on the information provided in the executive summary of the report without conducting a critical review of its content. Otherwise, the misrepresentations in the report would have been detected and pointed out.

Below we summarise few examples of these misrepresentations:

1 Classifying APAs as secret "sweetheart deals"

An APA is an agreement between a taxpayer and a tax authority on the application of an appropriate transfer pricing methodology in regard to a specific intra-group transaction, confirming the arm's length nature of a transfer price (i.e. the price for goods or services transferred between members of the same group). The latter has to be substantiated in a transfer pricing study that is consistent with the OECD Transfer Pricing Guidelines.

The report denounces APAs as secret "sweetheart deals" which is wrong in many respects. First, an APA only confirms the agreement of the tax authorities with the transfer pricing methodology applied by a taxpayer. As such, APAs do not entail any particular benefit to taxpayers.

Second, APAs are not secret at all since they are exchangeable with the tax authorities of all EU and OECD Member States. Hence, there is full transparency with all the tax authorities that are concerned. Starting from the position that not publishing something involves secrecy is a point of view but it should not be presented as objective in any way.

Third, the report impressively shows how statistics can be used to disguise or misrepresent information. According to the report the number of APAs in the EU has soared from 547 in 2013, to 972 in 2014 and it finally reached 1,444 by the end of 2015. The authors of the report then compute a sharp increase of over 160 per cent between 2013 and 2015 (and an increase of almost 50 per cent from 2014 to 2015). The report further points out that the most dramatic increases have...