Tuesday

16th Jul 2019

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

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 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.

News in Brief

  1. Ansip's ex-cabinet chief to head EU cybersecurity agency
  2. Malta starts trial of journalist murder suspects
  3. Full text of von der Leyen candidacy speech to MEPs
  4. Von der Leyen open to further Brexit delay
  5. Von der Leyen promises carbon border tax
  6. Brexit: both UK PM candidates say Irish backstop is 'dead'
  7. Mogherini: Iran's nuclear enrichment 'reversible'
  8. Report: Selmayr to leave 'next week'

Opinion

Weber: Six proposals in wake of Spitzenkandidat process

I will not lament the decision-making process that resulted in a package deal on the new leadership in Europe. I respect this result, which was in accordance with the treaties and therefore not undemocratic, albeit unsatisfactory.

Stakeholders' Highlights

  1. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  2. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  3. Nordic Council of MinistersNo evidence that social media are harmful to young people
  4. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  5. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  6. Nordic Council of MinistersEducation gets refugees into work
  7. Counter BalanceSign the petition to help reform the EU’s Bank
  8. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  9. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  10. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  11. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  12. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North

Latest News

  1. Son: Malta trial for murdered journalist 'not enough'
  2. Von der Leyen's final appeal to secure top EU post
  3. EU talks tough on Turkey, but arms sales go on
  4. The Abortion Exodus - more Poles and Croats going abroad
  5. Poland's ex-PM loses EU parliament chair again
  6. Von der Leyen reaches out to left and liberal MEPs
  7. Farmers among new MEPs deciding on EU farming money
  8. Von der Leyen's EU vote far from sure

Join EUobserver

Support quality EU news

Join us