Photographer: Simon Dawson/Bloomberg

EU Aims to Fight Tax Fraud by Setting Floor for National Rules

  • Corporate tax proposals to come Jan. 27 from EU Commission
  • EU nations asked to agree on standards by June, officials say

European Union nations need to set common standards that will make it harder for companies to avoid paying their fair share of taxes, EU officials said ahead of proposals due next week on combating corporate-tax fraud.

The European Commission is set to propose two new measures Wednesday that it hopes will find unanimous agreement by June among member nations. One of the proposals would require companies to share their country-by-country tax bills with tax authorities, while the other will ask nations to agree on minimum standards for designing tax rules, so that cross-border firms don’t exploit national loopholes to evade levies altogether.

Both 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, the officials told reporters, asking not to be named because the plans aren’t yet final. The EU aims to go further than the OECD recommendations by including other measures, such as how the proposed European changes would affect treaties between individual countries and with nations outside the 28-country bloc, they said.

By setting a common standard, the EU could make it harder for countries to park profits in a low-tax jurisdiction instead of paying taxes in the locales where the revenue gets generated, the officials said. The EU also wants countries to coordinate so that companies can’t exploit differences in the way debt and equity are treated by booking interest deductions in one place while taking advantage of tax breaks on equity earnings in another.

Special Deals

The EU has sought to crack down on tax evasion as a way to replenish strained government coffers and create a more level playing field among its member states. Special tax deals for companies such as Apple Inc., Starbucks Corp. and Anheuser-Busch InBev NV also have drawn increased scrutiny from the EU, as authorities consider whether nations should claw back lost revenues.

The country-by-country reporting proposal will focus on making sure local tax authorities have the information they need to assess companies fairly, the officials said. This is on a separate track from the debate over how much of that information should be public, they said.

In addition to the two proposed rules, which like all EU tax measures require unanimous approval, the Brussels-based commission also plans to release a report on the tax strategy’s rationale and an externally-commissioned strategy on the types of tax shelters most likely to cause problems.

Also, the commission is set to make two non-binding recommendations: one on non-legislative actions that countries can take to adopt the OECD standards, and another on how nations should revisit their bilateral tax treaties with countries inside and outside of the EU.

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