EU takes aim at multinationals’ multi-billion tax avoidance

Brussels, January 28

European Commission proposed today allowing EU countries to tax corporate profits at home in some circumstances even if the money has been transferred elsewhere to avoid such payments.

Weighing in on a row about business responsibility and fairness, Commission proposed a set of measures to tackle some of the most common tax avoidance schemes used by multinational firms to reduce their tax bills.

Business warned that the measures could hurt competitiveness and deter investment.

Big corporations legally avoid taxes of up to 70 billion euros ($76.10 billion) a year in Europe, a study of the European Parliament estimated, with global losses from such schemes ranging between $100 billion and $240 billion.

“Billions of euros are lost every year to tax avoidance. This is unacceptable and we are acting to tackle it,” the EU Tax Commissioner Pierre Moscovici said in a statement calling ‘for fair and effective taxation for all Europeans’.

Responding to such criticism in Britain, Google agreed last week to pay £130 million ($185 million) in back taxes, but it was seen by many as too little compared with profits made by the firm in Britain.

Among the Commission’s proposals — which would have to be approved by all EU member states — is one to deter multinationals from shifting their profits from parent companies to subsidiaries in low or no tax countries.

EU countries would be allowed to tax profits generated in their territories after they are transferred somewhere else, provided that the effective tax rate in the country where the profits are transferred is less than 40 per cent of that of the original country.

Loopholes that allow firms to use dividends or capital gains to skip taxation would be closed and national mismatches in tax treatment of some complex instruments would also be eliminated.