Saturday

16th Feb 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.

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.

News in Brief

  1. Spain's Sanchez calls snap election on 28 April
  2. 15,000 Belgian school kids march against climate change
  3. May suffers fresh Brexit defeat in parliament
  4. Warning for British banks over Brexit staff relocation
  5. Former Italian PM wants Merkel for top EU post
  6. Antisemitic incidents up 10% in Germany
  7. Italy's asylum rejection rate at record high
  8. Hungary will not claim EU funds for fraudulent project

Opinion

Eastern Europe Matters

The foreign ministers of Sweden, Poland and the Czech Republic reflect on 10 years of the Eastern Partnership with Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine.

Stakeholders' Highlights

  1. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership
  2. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  3. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  4. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  5. Nordic Council of MinistersNordic ministers take the lead in combatting climate change
  6. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  7. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  8. Nordic Council of MinistersSeminar on disability and user involvement
  9. Nordic Council of MinistersInternational appetite for Nordic food policies
  10. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  11. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups
  12. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”

Latest News

  1. Sluggish procedure against Hungary back on table
  2. Could Finnish presidency fix labour-chain abuse?
  3. Brexit and trip to Egypt for Arab League This WEEK
  4. Belgian spy scandal puts EU and Nato at risk
  5. EU Parliament demands Saudi lobby transparency
  6. Saudi Arabia, but not Russia, on EU 'dirty money' list
  7. EU agrees draft copyright reform, riling tech giants
  8. Rutte warns EU to embrace 'Realpolitik' foreign policy

Stakeholders' Highlights

  1. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit
  2. International Partnership for Human RightsRaising key human rights concerns during visit of Turkmenistan's foreign minister
  3. Nordic Council of MinistersState of the Nordic Region presented in Brussels
  4. Nordic Council of MinistersThe vital bioeconomy. New issue of “Sustainable Growth the Nordic Way” out now
  5. Nordic Council of MinistersThe Nordic gender effect goes international
  6. Nordic Council of MinistersPaula Lehtomaki from Finland elected as the Council's first female Secretary General
  7. Nordic Council of MinistersNordic design sets the stage at COP24, running a competition for sustainable chairs
  8. Counter BalanceIn Kenya, a motorway funded by the European Investment Bank runs over roadside dwellers
  9. ACCACompany Law Package: Making the Best of Digital and Cross Border Mobility,
  10. International Partnership for Human RightsCivil Society Worried About Shortcomings in EU-Kyrgyzstan Human Rights Dialogue
  11. UNESDAThe European Soft Drinks Industry Supports over 1.7 Million Jobs
  12. Mission of China to the EUJointly Building Belt and Road Initiative Leads to a Better Future for All

Join EUobserver

Support quality EU news

Join us