EU unveils new proposals to combat sweet tax deals

The package includes an anti-tax avoidance directive to impose coordinated anti-abuse measures to all member states, a recommendation that member states revise their tax treaties and a plan to revise the black list of tax havens outside the EU.

The bloc also is reeling from disclosures that multinational companies struck alleged sweetheart deals in countries such as Luxembourg that allowed them to pay very little tax in the EU.

It follows concerns about the way some global firms move their profits to countries with lower tax rates – and means companies such as Google, Amazon and Facebook must now pay tax in the country where their profits are made.

“Billions of tax euros are lost every year for tax avoidance – money that could be used for public services or to boost jobs and growth”, said Pierre Moscovici, commissioner for economic and fiscal affairs, taxation and customs.

The European Commission on January 28 presented, as a key part of its anti-tax avoidance package, a proposal for a directive laying down rules against tax avoidance practices.

The Commission is hoping that the implementation of the measures put forward in their ATAP will hinder aggressive tax planning practices from large multinationals by increasing transparency between member states. This is created to prevent multinational groups from financing subsidiaries in high-tax jurisdictions through debt and having those subsidiaries pay inflated interest to sister subsidiaries in low-tax jurisdictions.

There is also a rule to end “hybrid mismatches” that allow companies to exploit differences in the tax treatment of certain income across countries, and a general anti-abuse clause to catch any tax loopholes that might crop up further down the line.

“Overall, the proposals suggest that the Commission has missed some vitally important tricks which would help to make multinationals pay more of their fair share both in Europe and in developing countries”.

“What we’re trying to do is to show that no company is given a selective advantage which is not available to the next company”, Vestager said. The UK and Ireland are expected to oppose the measures as the rules will undermine domestic tax laws and regulation.

The commission plans to offer additional proposals by May for countries to make public their country-by-country tax reports. Moscovici says he hasn’t yet received any complaints from the European Union nations that don’t belong to the OECD. As such, all Member States will have crucial information to identify risks of tax avoidance and to better target their tax audits.

Luca Maestri, Apple’s chief financial officer, told the Financial Times that the company is confident that it has not violated tax rules.

The draft rules will have to be approved by all 28 EU governments and examined by the European Parliament before becoming law, in 2018 at the earliest.

Thursday’s proposals seek to incorporate and build on last year’s report on the erosion of tax revenues and profit shifting from the Organization for Economic Cooperation and Development.

Meanwhile, Fianna Fáil has insisted that Ireland shouldn’t increase its corporate tax rate despite pressure from Europe – regardless of who wins the coming election.