EU Moves to Close Profit-Shifting Tax Loophole
The European Parliamentary Research Service has estimated that corporate tax-dodging costs the EU between $54.5 billion and $76.4 billion a year.
The European Commission has proposed a package of measures to clamp down on corporate tax avoiders that would close a loophole companies have used to shift profits to low-tax countries.
The EU’s executive body said the Anti-Tax Avoidance Package would open up “a new chapter in its campaign for fair, efficient, and growth-friendly taxation” by, among other things, changing accounting rules and boosting reporting requirements so that companies pay tax in the countries in which they ostensibly earn their profits.
“Billions of euros are lost every year to tax avoidance. This is unacceptable and we are acting to tackle it,” EU tax commissioner Pierre Moscovici said in a news release.
The European Parliamentary Research Service has estimated that corporate tax-dodging costs the EU between 50 billion euros ($54.5 billion) and 70 billion euros ($76.4 billion) a year, much of it from profit-shifting.
The new rules would limit the deductibility of interest expenses and impose exit taxes on companies that move their domiciles to lower-tax jurisdictions. Currently, companies can shift debt to subsidiaries based in countries that allow higher deductions.
The commission also proposes making it harder to vest intellectual property in a corporate subsidiary in a low-tax jurisdiction to reduce the tax bill on profits arising from those patents or copyrights.
“The proposed measures aim at turning into binding rules some of the voluntary guidelines against tax avoidance, known as anti-BEPS (base erosion and profit shifting), agreed by the G20 group of the world’s largest economies and by members of the Organization for Economic Co-operation and Development,” Reuters said.
The EU “cannot be alone in its corporate tax reform,” Moscovici said.
One member of the European Parliament said the measures would close a number of “scandalous loopholes,” but Markus Beyrer, head of the lobbying group BusinessEurope, warned they could hurt business.
“The EU must not act as lone front-runner in implementing the BEPS agreement, and must not undermine the competitiveness of EU industry or damage the EU’s attractiveness as an investment location,” he said.
