EU Ministers Endorse Tax Loophole Fix After Winning Over Malta

European Union finance ministers endorsed plans to close a corporate tax loophole after winning over Malta and Sweden, who feared the move would set a precedent for future tax policy.

EU Tax Commissioner Algirdas Semeta assured the skeptic nations that the change -- which aims to make sure companies don’t use cross-border hybrid loans to avoid taxes -- won’t have spillover effects. The EU also set aside a related proposal to create a general anti-abuse rule in order to move forward with the specific fix.

French Finance Minister Michel Sapin said the change was the foremost result of the ministers’ Luxembourg meetings. He hailed Malta, the last holdout, for agreeing to the change by amending the EU’s parent-subsidiary tax directive.

“The previous rules were meant to avoid double taxation but ended up meaning no taxation,” Sapin told reporters. “As you know we’re very attached to fighting all forms of tax fraud and tax optimization and this is an important step, and it will bring a bit more money into state coffers.”

Semeta said the rule change “will block a prevalent form of aggressive tax planning.” To appease Malta’s concerns, the rule change was tweaked so that it “confirms that the adoption of this proposal does not oblige member states to subscribe to any future legislative proposals in the field of direct taxation.”

Maltese Finance Minister Edward Scicluna said “we are satisfied that our concerns were recognized by the commission as legitimate.”

At the Luxembourg meetings, ministers also agreed to move forward with a study on so-called patent box tax breaks.

“Member states’ tax incentives should never be used to lure profits away from where they should rightfully be taxed,” Semeta said. “We must verify that the principles of fair play are not being undermined.”

This study, by a working group that looks at business taxation issues, is separate from an inquiry by EU competition chief Joaquin Almunia.

German Finance Minister Wolfgang Schaeuble said he made clear in the debate among ministers that Europe must do its share in a global struggle to reduce tax avoidance.

“We Europeans must deliver and an overriding topic is the growing abuse of patent boxes,” Schaeuble said. “We in Europe must take decisive action against that.”

To contact the reporters on this story: Rebecca Christie in Luxembourg at rchristie4@bloomberg.net; Mark Deen in Luxembourg at markdeen@bloomberg.net; Karl Stagno Navarra in Luxembourg at ksnavarra@bloomberg.net

To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net Jurjen van de Pol, Alessandra Migliaccio

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