EU Tackles Tax Rules in Bid to Get Companies to Pay Fair Share

The European Commission unveiled a new push to make companies pay their “fair share” of taxes by aligning tax rules and increasing disclosure requirements across the 28-nation European Union.

Proposals for an EU-wide common corporate tax base and for companies to disclose more information about where and how they pay are the focus of the tax action plan, released Wednesday in Brussels. The commission also released a list of the 30 nations worldwide that are most often cited as “non-cooperative jurisdictions,” including Hong Kong, Monaco and the Bahamas.

“We rule out minimum tax rates, but corporate profits need to be taxed effectively where they are actually made, not just where the company decides to register itself,” said EU Vice President Valdis Dombrovskis.

EU tax proposals require unanimous approval by all 28 nations to take effect. The EU economic and tax commissioner, Pierre Moscovici, said in March that a corporate tax-base plan for a smaller group of nations would be a “last resort” if negotiations fail to reach a broader deal.

The EU has stepped up its fight against corporate tax avoidance after hundreds of leaked Luxembourg pacts last year showed some international companies effectively lowered their tax bills to less than 1 percent of profit. Regulators are also examining whether some arrangements are illegal state aid and are looking into deals that affect Starbucks Corp., Amazon.com Inc., Apple Inc. and a unit of Fiat SpA.

‘Radical Reform’

“Corporate taxation in the EU needs radical reform,” Moscovici said. “In the interests of growth, competitiveness and fairness, member States need to pull together and everyone must pay their fair share.”

Country-by-country tax reporting by companies is one of the commission’s proposals for stamping out loopholes. The action plan includes a public consultation on tax transparency, with comments due by Sept. 9.

The commission also affirmed its plan to offer an update to a stalled plan for a common corporate consolidated tax base. Due within 18 months, the new version splits the effort into two parts, proposing mandatory changes toward a common corporate tax base while delaying any move to consolidate profits and losses across national borders.

Other elements of the tax plan aim to update rules on transfer pricing, put limits on preferential tax regimes and make it harder for companies to shift taxes to avoid profit. The commission says it wants a stronger link between where companies generate business and where they pay taxes.

“All companies –- big or small, local or global -- must pay a fair share of tax where real economic activity is taking place and where their profits are actually made,” Dombrovskis said. “The EU’s internal market needs new rules for corporate tax to close loopholes and promote real investment into the economy.”

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