Saturday

25th May 2019

EU struggles to close tax loopholes with new law

  • Oxfam activists mocked up their own Caribbean tax-haven outside the EU commission building in Brussels earlier this year (Photo: Oxfam)

EU states have cleared a deal that aims to close some of the loopholes used by large companies to dodge taxes.

Finance ministers tentatively agreed to an anti-tax avoidance directive last Thursday, pending consultations with capitals. Their representatives gave a final green light on Tuesday (21 June).

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

The outcome received a warm welcome from the European Commission, which had proposed the draft legislation in January.

”Today’s agreement strikes a serious blow against those engaged in corporate tax avoidance,” said Pierre Moscovici, the EU commissioner for economy and taxation.

The commission highlighted that the deal had been reached in record time.

But the EU bloc failed for years to outlaw the practices that large companies use to avoid paying taxes, as all EU countries must agree unanimously on tax matters.

Some member states - such as Ireland and Luxembourg - are low-tax havens for multinational companies that register there. The Netherlands, Belgium and Cyprus provide a wide array of legal options that allow businesses to dodge taxes.

The UK has also declined to extend its tax secrecy laws to overseas its territories, several of which are offshore tax havens.

Growing pressure

Pressure on EU governments to step up the fight for global tax justice grew in the wake of recent scandals.

The Panama Papers leaked, for one, showed how the global elite used offshore accounts to hide their true wealth.

A European Parliament study has estimated that EU states lose up to €70 billion in tax revenue every year due to the practices.

The new EU legislation is based on recommendations from the OECD, the Paris-based club of industrialised states, which will now become enshrined in EU law.

The controlled foreign companies (CFC) rule aims to deter companies from shifting profits to their subsidiaries in tax havens - one of the most popular ways for companies to reduce tax bills.

The directive foresees that a special procedure would be triggered when a controlled foreign company paid half or less of tax the that would be due in the its home jurisdiction.

Another rule aimed to discourage companies from moving intellectual property or patents out of the EU by introducing an exit tax.

The legislation also contains a general anti-abuse clause to counteract aggressive tax planning when other rules don’t apply.

Easy to circumvent

A commission spokeswoman said the bill struck the strongest blow against tax dodgers in the past 30 years.

But Oxfam, the UK-based anti-poverty charity, feared the rules could easily be circumvented.

”Controlled foreign company (CFC) rules are crucial against profit shifting into low-tax jurisdictions,” said Aurore Chardonnet, Oxfam tax policy adviser, but she said the EU directive envisaged exceedingly complicated procedures for recovering taxes from subsidiaries.

”These complex procedures could deter administrations from going that way,” she said.

She added that companies do not have to disclose publicly where they make their profits and where they pay their taxes.

"The text on the table is not sufficient as it limits reporting requirements”, she said.

The finance ministers scrapped several commission proposals, such as the switchover rule which aimed to tax dividends and capital gains that European firms pay to subsidiaries in low-tax or tax-free countries. They also dropped a provision ensuring that money flowing back into the EU from tax-havens would be properly taxed.

Some ministers had feared that these clauses would scare away multinational investors.

"Each member state got their own candy exemption," said Fabio De Masi, a German far-left MEP.

He called the outcome "scandalous".

Most of the new rules will come into effect on January 2019. Some member states, however, can keep their own rules until 2024.

Finance ministers baulk at tax-avoidance rules

Member states will discuss again in June a proposed directive to outlaw practices used by large companies to avoid paying taxes. Meanwhile, the European Parliament makes progress on its probe of Panama Papers.

LuxLeaks whistleblowers fined and put on probation

Antoine Deltour and Raphael Halet, former employees at PricewaterhouseCoopers (PwC) who revealed how corporations hid away profits, were fined and given suspended sentences by a court in Luxembourg.

Apple faces massive Irish tax bill

The EU executive will announce how much the tech giant must pay back to Ireland, two years after it ruled that tax decisions in Dublin amounted to illegal state aid.

EU top court backs Canada trade deal in ruling

The European Court of Justice ruled on Tuesday that the EU-Canada free trade agreement, and its controversial dispute settlement mechanism, is in line with the bloc's rules.

News in Brief

  1. UK's May announces June 7 resignation date
  2. Ireland votes for EU election and divorce referendum
  3. Report: May to announce resignation plan on Friday
  4. Leading politicians: time for EU to have female leaders
  5. Poll: Finland's Green party to surge in EU elections
  6. High demand for postal voting in Denmark
  7. Some EU citizens turned away at UK polling stations
  8. Switzerland unlikely to sign draft EU deal

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  2. Nordic Council of MinistersEducation gets refugees into work
  3. Counter BalanceSign the petition to help reform the EU’s Bank
  4. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  5. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  6. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  7. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  8. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  9. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  10. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  11. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  12. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year

Latest News

  1. Belgium votes in hybrid EU-national election
  2. Irish greens take Dublin in second EU exit poll
  3. EU election results to trigger top jobs scramble This WEEK
  4. Don't tell the Dutch - but Timmermans 'won'
  5. EU says goodbye to May with 'respect'
  6. Strache scandal: how big a hit will Austrian far-right take?
  7. Italy train row exposes competing views of EU
  8. Dutch socialists on top in first EP election exit poll

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic commitment to driving global gender equality
  2. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  3. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  4. Nordic Council of MinistersNordic talks on parental leave at the UN
  5. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  6. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  7. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  8. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  9. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  10. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  11. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  12. Nordic Council of MinistersNordic ministers take the lead in combatting climate change

Join EUobserver

Support quality EU news

Join us