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Cross-border tax avoidance
02 December 2013
The European
Commission on 25 November moved to clamp down on companies in the European
Union that avoid paying corporate taxes by exploiting differences between
member states' tax regimes.
The
proposal will close loopholes in existing EU rules that are supposed to ensure
that transfers between companies that are part of a single corporate group but
based in different EU member states are not taxed twice.
Some
companies have used the rules, which date back to 1990 and were last amended in
2003 – together with aggressive tax planning – to avoid paying tax altogether.
One common practice involves setting up a ‘letter-box' company in a member
state with a more favourable tax regime.
Another
involves dressing up dividend payments from a subsidiary to a parent company as
loan repayments, which in several member states are not taxed.
The
Commission proposal would allow tax authorities to ignore such "artificial
arrangements" and require them to ensure that so-called "hybrid loan"
arrangements are taxed in either the subsidiary or the parent company's home
member state.
Increased
tax revenues for member states would be "in the magnitude of billions of
euros", said Algirdas Šemeta, the European commissioner for taxation, customs,
statistics, audit and anti-fraud. Companies such as Google, Amazon, Starbucks,
and Apple have courted controversy this year amid allegations that they pay too
little in taxes.
The
Commission will need to win over all member states to stand a chance of being
adopted, since each one holds a veto over legislation affecting such tax.
