Thursday

29th Feb 2024

EU unveils plans to go after tax 'freeloaders'

  • Semeta - no more time for tax 'freeloaders'

The European Commission Monday (25 November) unveiled plans to clamp down on tax 'freeloaders' in its latest bid to target corporate tax avoidance.

Officials plan to re-write rules on the tax status of parent and subsidiary companies to prevent firms from setting up 'letter-box' companies in different countries to evade tax.

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The EU's Parent-Subsidiary directive, which was last revised in 2003, was originally designed to ensure that companies would not be taxed twice within the EU, by exempting dividends and other profits passed from subsidiary to parent companies.

However, the EU executive is now concerned that the directive has been manipulated by firms to avoid paying tax in any country.

EU taxation commissioner Algirdas Semeta stated that "businesses need to make their fair contribution to public finances."

"We can no longer afford freeloaders who reap huge profits in the EU without contributing to the public purse," he said.

However, Semeta commented that while the proposal would "ensure that the spirit, as well as the letter, of our law is respected" it was also "business friendly."

It specifically targets the use of 'hybrid loans' which can be classified by companies as either debt or equity for tax purposes.

Under the current rules, governments have to give parent companies a tax exemption from dividends they get from subsidiaries in other countries. The proposal also includes an 'anti-abuse' clause allowing governments to tax firms on the basis of economic activity in their country.

Clamping down on corporate tax avoidance has clambered up the political agenda in recent years as cash-strapped governments look at ways to increase their tax take. An estimated €1 trillion in tax revenues are lost in the EU each year as a result of tax avoidance and evasion.

The EU executive also wants governments to strengthen their double tax conventions and to adopt a common general anti-abuse rule (GAAR). The GAAR would allow governments to tax on the basis of actual economic substance and ignore any artificial tax avoidance arrangements.

For example, coffee shop giant Starbucks paid UK corporation tax of £8.6 million between 1998 and 2011 on sales of over £3 billion. Meanwhile, software giants Apple and Google also pay between 2 and 2.5 percent tax rates on their profits made outside the US by using subsidiaries.

However, the rules, which are primarily targeted at Ireland, Belgium, Luxembourg and Cyprus, all of which have low corporate tax rates in a bid to attract firms, will require the unanimous support of EU countries to become law.

Sven Giegold, the German Green MEP likely to be tasked with drafting Parliament's position on the bill, described it as "an important step to addressing the chicanery by unscrupulous multinationals."

He warned that the plans would "only be effective as part of a wider EU approach on corporate tax avoidance and dumping," calling on governments to agree on a minimum rate of corporate tax.

The plan was also welcomed by accountancy groups.

The proposal would "help clarify the rules for companies and also help governments collect the taxes they are due,” said Michael Izza, chief executive of the Institute of Chartered Accountants.

European states still cutting corporate taxes

European governments cut corporate taxes in 2010, continuing years of decline in taxation on capital and a shift towards taxes on consumption, and, to a lesser extent, labour.

New storm over corporate tax in new member states

French finance minister Nicolas Sarkozy has said that countries rich enough to charge a low corporate tax rate should not be eligible for EU regional funding, again putting pressure on new member states.

EU supply chain law fails, with 14 states failing to back it

Member states failed on Wednesday to agree to the EU's long-awaited Corporate Sustainable Due Diligence Directive, after 13 EU ambassadors declared abstention and one, Sweden, expressed opposition (there was no formal vote), EUobserver has learned.

Opinion

Joined-up EU defence procurement on the horizon?

Disputes between member states, notably Germany, highlight the lack of coordination among national industrial capabilities for a European Defence Industrial Strategy — which may include the EU's first ever defence commissioner.

Latest News

  1. Podcast: Hyperlocal meets supranational
  2. Von der Leyen appeals for 'new EU defence mindset'
  3. EU supply chain law fails, with 14 states failing to back it
  4. Joined-up EU defence procurement on the horizon?
  5. Macron on Western boots in Ukraine: What he really meant
  6. Amazon lobbyists banned from EU Parliament
  7. MEPs adopt new transparency rules for political ads
  8. EU nature restoration law approved after massive backlash

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Stakeholders' Highlights

  1. Georgia Ministry of Foreign AffairsThis autumn Europalia arts festival is all about GEORGIA!
  2. UNOPSFostering health system resilience in fragile and conflict-affected countries
  3. European Citizen's InitiativeThe European Commission launches the ‘ImagineEU’ competition for secondary school students in the EU.
  4. Nordic Council of MinistersThe Nordic Region is stepping up its efforts to reduce food waste
  5. UNOPSUNOPS begins works under EU-funded project to repair schools in Ukraine
  6. Georgia Ministry of Foreign AffairsGeorgia effectively prevents sanctions evasion against Russia – confirm EU, UK, USA

Join EUobserver

EU news that matters

Join us