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The biggest threat to European unity is not the euro, after all. Tax avoidance is the ticking political time bomb.

A ginger group of far right and anti-EU members of the European Parliament have tabled a vote of censure against Jean-Claude Juncker, the president of the European Commission, who is accused of presiding over a swathe of sweet-heart tax deals with U.S. multinationals when Mr. Juncker was prime minister of Luxembourg. The motion, scheduled for next week, is unlikely to succeed but it exposes simmering public rage about the cozy arrangements that enabled companies to pay little or no tax on the billions they earned in European markets.

Once an obscure European statelet famous only for a radio station, Luxembourg is acquiring notoriety for being a tax paradise for multinationals and the European Commission is already probing two deals in which the Grand Duchy approved special tax arrangements for Amazon and Fiat. The Commission believes the deals may be state aid, illegal under the European treaties. Official documents leaked to several European newspapers recently showed that hundreds of multinationals have negotiated special deals that allow them to enjoy corporate tax rates of as little as 1 per cent on worldwide profits funnelled into a Luxembourg holding company.

It's all about shifting money earned in higher tax jurisdictions to low-tax countries such as Switzerland or Ireland, where a swathe of American multinationals, including Google, benefit from Ireland's corporate tax rate of 12.5 per cent. The European Commission is now probing Apple's tax arrangements in Ireland as well as a tax deal struck between Starbucks and the Netherlands. Starbucks' Dutch holding company charges big royalty fees to its operating subsidiaries in Europe and the coffee chain's chief financial officer was hauled over the coals in 2012 by a U.K. parliamentary committee when it emerged that Starbucks had paid just £8.6-million ($12.2-million) in tax in 10 years despite making sales of £3-billion.

Starbucks had done nothing illegal in the U.K. but in an extraordinary climb-down it agreed to voluntarily contribute £20-million to the U.K. Exchequer. What this shows is not just the extraordinary lengths companies will go to to avoid tax but also how inadequate are national rules to collect the tax due from large international companies. Companies are able to shift profits from one country to another by establishing subsidiaries in tax havens that charge huge royalty fees to operating companies in high-tax countries or by making loans at high interest rates.

But public tolerance of tax avoidance is moving close to zero. In a recent research paper in the Journal of Economic Perspectives, Gabriel Zucman of the London School of Economics exposed the sheer scale of the problem. Using a balance of payments analysis, he reckons that a fifth of of U.S. corporate profits are now earned and held in tax havens such as Netherlands, Singapore, Luxembourg, Ireland, Switzerland and Bermuda.

Zucman reckons that the average rate of tax paid by the U.S. holding companies in tax havens is 3 per cent, a figure that tallies with his research into Microsoft's tax disclosures. The software giant disclosed in 2014 filings that it had $92.9-billion in accumulated profits offshore relating to subsidiaries in Puerto Rico, Ireland and Singapore.

Were Microsoft to repatriate the money to the U.S., the tax liability would be $29.6-billion, equivalent to a tax rate of 31.9 per cent. If Microsoft repatriated the profits, it would be able to deduct foreign taxes paid from the U.S. corporate tax rate of 35 per cent. Therefore, Microsoft may be assumed to be enjoying a 3.1-per-cent tax rate on its non-U.S. profits.

How Microsoft will invest its billions offshore is an interesting question but we can assume that it has no plans to donate any of it to the IRS or indeed any other tax authority. Zucman reckons the use of foreign tax havens has caused the effective U.S. corporate tax rate to fall from 30 per cent to 20 per cent between 1998 and 2013, a loss to the U.S. government that in a single year in 2013, would have been equal to $200-billion. For any American angered by the size of his personal tax bill, the sum forgone overseas is large and a source of concern.

There is no solution to this problem that does not involve international agreement. Aggressive and predatory national tax collection is counterproductive as India found to its cost when its politically charged tax raids on foreign multinationals caused an investment drought. The Indian High Court recently ruled in favour of Shell in a case over alleged illegal transfer pricing, a signal that the new government may be backing off. When profits are shifted from one country to another through royalty or management charges, it is almost impossible to give an objective value of the service provided. What is the value of a Google algorithm, the Coca-Cola recipe or management consultancy?

For this reason, some argue that corporation tax should be abolished. Far better to impose higher taxes on dividends and capital gains; these are received by the company owners, the ultimate beneficiaries of corporate profit.

However, corporation tax was originally invented to pierce the corporate veil and stop shareholders from hiding money in corporations and hiding corporations in tax havens. According to Zucman, more than a fifth of the world's cross-border equities have no identifiable owners. The reason may be apparent from Swiss National Bank statistics, which reveal that the wealth held by foreigners living in Switzerland totalled $2.5-trillion in 2014, a sum that dwarfs Switzerland's national income of $650-billion.

The solution, reckons Zucman, is to establish a global registry of ownership of equities that would help in linking the earning of corporate profits with the recipients of dividends. That might have seemed like a pipe-dream, were it not for recent extraordinary developments in the campaign against bank secrecy. If Switzerland has finally agreed to exchange information on the ownership of bank accounts with legitimate foreign tax authorities, there are grounds to believe that such a registry is not impossible.

And as with the case of the Swiss banks, those countries that chose to opt out of an international share ownership disclosure regime might soon find that the risk of being shut out of the major capital markets in Europe and America was not a price worth paying.