Wednesday

1st Feb 2023

Finance ministers baulk at tax-avoidance rules

  • The Dutch finance minister Jeroen Dijsselbloem is fighting efforts to water down the proposal. (Photo: The European Union)

EU finance ministers have failed to agree a scheme to outlaw some of the most common practices used by large companies to avoid paying taxes.

“We could strike a deal very quickly,” said Dutch finance minister Jeroen Dijsselbloem, who chaired the meeting on Wednesday (25 May) and had hoped to sign off the deal.

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“We could have done it by simply giving in to objections of different ministers. But that’s not the way we are doing this. We need an effective deal, not just a deal,” he told reporters.

Dijsselbloem was confident his colleagues would solve outstanding issues in the coming weeks and back the proposal at their next meeting in June, before the end of the Dutch presidency of the Council of the EU.

EU countries came under pressure to crack down on tax avoidance after a massive leak of documents from a Panama-based law firm revealed how companies and wealthy individuals used loopholes and legal practices to dodge taxes.

EU states lose up to €70 billion in revenue every year because of tax avoidance, according to estimates by MEPs.

“We have to deliver. Public support for fighting tax avoidance and aggressive planning is very strong,” Dijsselbloem added.

The draft directive is partly based on recommendations from the OECD (Organisation for Economic Cooperation and Development) on fighting tax planning strategies that take advantage of legal loopholes and shift profits to low tax locations.

But some ministers fear that doing so will hurt their national interests.

One bone of contention is a rule that would stop parent companies from shifting income to subsidiaries in lower-taxed jurisdictions, the so-called controlled foreign company (CFC) rule.

Competitiveness

Ireland and Luxembourg, which have lower companies taxes than most, said the wording was not consistent with European case law, an allegation that was rebuffed by European commissioner for economy Pierre Moscovici.

Some countries raised concerns that competitiveness would suffer if non-EU countries did not take similar steps.

Dijsselbloem hopes an expert committee - the Code of Conduct Group on Business Taxation - will provide guidelines that shed light on what constitutes valid commercial reasons and genuine economic activities.

Another proposal to tax money that comes back to the EU from tax-free or low-tax countries met such opposition that it may be scrapped.

"We still think it's a good idea," Moscovici said. "But we won't let it become an obstacle to adopting the proposal."

Some were also concerned that the proposal would be used by the EU to gain legal powers over taxation. They suggested the commission should sign an annex to deny this was the case.

The draft directive must be approved unanimously, as it concerns tax matters.

The council of finance ministers approved rules on tax reporting by the largest multinational companies, those whose annual revenue exceeds €750 million. It also gave the commission heads-up to make a list of tax havens.

Panama Papers probe

Meanwhile, the European Parliament’s legal service approved members’ efforts to set up a special inquiry on tax avoidance and money laundering.

”We will look at the role of intermediaries - banks, investment funds, tax advisers, the big four accounting firms - in facilitating tax avoidance and money laundering,” Green MEP Sven Giegold told EUobserver.

Parliament wants to know why the commission did not use existing EU rules to control the booming industry.

If the commission failed to apply the law, it could be guilty of contravention and maladministration.

The legal green light to set up the committee came on Tuesday (24 May).

That means MEPs could elect committee members during the next plenary session. The committee is expected to hold a first meeting in June in order to schedule its work after the summer recess.

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