EU Seeks to Stamp Out Tax Loopholes So Firms Pay Fair Share

The European Union launched a new salvo in its battle against tax evasion with a slate of proposals that would make it harder for companies to avoid taxes.

Countries would need to share information on cross-border tax rulings every three months under one piece of the tax package, announced in Brussels Wednesday. The European Commission said it also will study new transparency requirements for global companies, take stock of the EU Code of Conduct committee that deliberates on tax measures, and increase efforts to quantify the scope of tax evasion and avoidance.

“Everyone has to pay their fair share of tax,” said EU Commission Vice President Valdis Dombrovskis. “In the coming months, we will put forward concrete actions to tackle such loopholes or overlaps. We are committed to following up on our promises with real, credible and fair action.”

The tax-ruling proposal would “remove the margin for discretion” in how EU countries share information with each other. Under the proposal, its reporting rules would apply to tax rulings issued up to 10 years before the new requirements take effect, if those rulings are still valid.

The EU is clamping down on corporate tax avoidance after the revelation last year of hundreds of leaked Luxembourg pacts 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.

‘Feeble Proposal’

“This feeble proposal fails to confront tax dodging by big business, and does nothing to stop sweetheart tax deals,” said Catherine Olier, EU policy adviser for the advocacy group Oxfam. She said the commission needs to go further in seeking information “on where companies really employ people, hold assets and pay taxes.”

Disclosure won’t guarantee that tax rules are applied fairly, said Ian Young, international tax manager of ICAEW, the U.K.-based chartered accountant trade group. “Disclosure does not automatically equal transparency, and transparency does not automatically lead to fairness, which is the ultimate aim,” Young said.

‘Rock Bottom’

The commission wants EU nations to approve the tax-ruling plan by the end of this year so it can take effect on Jan. 1, 2016. The plan calls for using existing budget resources to handle any cost impact of putting the new rules in place.

“Tolerance has reached rock-bottom for companies that avoid paying their fair share of taxes, and for the regimes that enable them to do this,” said EU Economic and Tax Commissioner Pierre Moscovici. “We have to rebuild the link between where companies really make their profits and where they are taxed. To do this, member states need to open up and work together.”

Moscovici said he was confident the proposal would win unanimous support from EU nations. The commission also seeks to repeal the EU savings directive, which it says has been overtaken by more ambitious rules on sharing information about financial-account information.

A corporate taxation “action plan” will be presented “before the summer,” the commission said. This will include measures to make corporate taxation fairer across the EU’s 28-nation single market, such as plans for a common consolidated corporate tax base and for adopting the Organization for Economic Cooperation and Development’s tax recommendations on base erosion and profit shifting.

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