A new study released by research advocate groups Transnational Institute (TNI) and Global Justice Now (GJN), has warned that the Transatlantic Trade and Investment Partnership, otherwise known as TTIP, would seriously hamper efforts aimed at targeting tax avoidance, over fears that governments could be sued in corporate courts.
The report titled, 'Taxes on Trial: How Trade Deals Threaten Tax Justice' details how multinational corporations in 24 different countries have used what are known as 'corporate courts' — legal mechanisms included in many trade deals — to sue governments for introducing reforms deemed to harm investment opportunities — even if the reforms are regarded as beneficial for the public good.
The study argues that if the TTIP, currently being negotiated between the US and EU, is agreed and then ratified, the 'corporate court' feature would prevent signature countries from signing effective tax legislation amid fears it may trigger legal action.
"If member states of the EU tried to introduce tax practices with social or environmental benefits that meant that companies had to pay more, they could be subjected to a law suit in a closed door 'corporate court' that could result in damages of billions of pounds being awarded to the company," the report warned.
Corporate Grab Behind 'Toxic' Trade Deal
Following the hugely embarrassing LuxLeaks scandal of 2014, the findings come amid heightened debate about the issue of tax avoidance in Europe, with the European Commission last month launching new guidelines which it has claimed will stop multinationals from using loopholes to avoid paying tax.
The UK, which has jurisdiction over tax havens like the Cayman Islands, Jersey and Guernsey, was recently accused of striking a "sweetheart" deal with Internet giant Google, after announcing that the company would pay back only US$190 million (£130 million) worth of tax based the past decade's earnings.
Proponents of the TTIP, which is still in the negotiating phase, say the deal will be hugely beneficial to all parties involved as it will slash red-tape between the US and EU, allowing for more trade and business.
However, critics say it will wash away labor and environment standards in Europe and allow large multinational corporations to undermine the sovereignty of member states in such areas such as tax.
Nick Dearden, director of Global Justice Now said approving the TTIP "could effectively prevent us from bringing about laws that could address tax injustice."
"The ability to enact effective and fair tax systems to finance vital public services is one of the defining features of sovereignty. The fact that multinational companies would be able to challenge and undermine that under TTIP is testament to the terrifying extent of the corporate grab embedded in this toxic trade deal."
Concerns Over Corporate Courts
The issue of corporate courts, formally known as investor-state dispute settlement systems (ISDS), have been hugely controversial amid concerns over their transparency, objectiveness and the impacts they can have on national policy.
Proponents say such mechanisms are put in place to protect investors and ensure foreign investment is worthwhile, however critics argue that such measures are unjust and give unprecedented power to multinational corporations.
The report argues that such measures are unjust, noting that while corporations can sue governments for anything perceived to have breached investment potential, "there is no comparable system of international justice for states" to do the same.
"If a state has a dispute with a corporation over its tax bill, it can't launch an ISDS case — this is a one-way system, accessible only to foreign investors (domestic companies can't use it either)."
Cecilia Olivet from the Transnational Institute said the trade deals like TTIP need to be challenged to prevent such corporate courts from being allowed to operate in Europe.
"The evidence of the dangers of these investment deals continues to mount. Not only do they affect health and the environment and cost taxpayers millions in legal fees… they also affect the ability of governments to tax corporations effectively. This is yet more money lining the pockets of corporate executives stolen from the public taxpayer."