EU agrees new rules to tackle multinationals tax avoidance

Publication Date: Feb 21, 2017

​By Francesco Guarascio | BRUSSELS


European Union finance ministers agreed on Tuesday to close loopholes multinational corporations use to skip taxation on dividends, part of a drive to stop them from parking profits where they pay the least tax.
The new rules, due to go into effect in 2020, should help the EU recoup revenues from companies that cut their tax bills by declaring profits in countries with low or no taxation.
Tax-saving schemes used by Apple, Amazon, Google, Starbucks and other companies - all legal under current laws - have raised public pressure for EU-wide rules to close these loopholes.
"We have reached a general approach," Finance Minister Edward Scicluna of Malta, which holds the current six-month rotating EU presidency, said after the deal was reached.
He called it a "bold step" to reduce these tax differentials, known in EU jargon as hybrid mismatches.
"The agreement reached today will ensure that hybrid mismatches of all types cannot be used to avoid tax in the EU, even where the arrangements involve third countries," the EU Commission said in a statement.
The deal postponed application of the new rules by one year to January 2020 because some countries noted possible negative consequences on competitiveness if changes were too quick. In some limited cases, the new rules will apply from 2022.
Last December, the finance ministers failed to agree on the issue after some of them said a proposal by the then Slovak presidency and backed by Britain would water down the plan..
In a bid to quell multinationals' concerns, Scicluna said there would be new proposals in coming months to make sure that corporations will not pay double taxes under the new system.
Ministers also found a compromise on the criteria to define a tax haven. Attempts to have a common EU list of "non-cooperative jurisdictions" have so far failed as several EU countries preferred to maintain their own, often empty, listing.
But the idea of setting up a common list has gained traction after several revelations of massive tax avoidance in countries such as Panama or the Bahamas. EU sanctions could be imposed on countries on the list.
Ministers agreed that countries that apply zero tax rates will not automatically be considered a tax haven, but they will be subject to checks against other criteria, such as their level of cooperation with the EU on tax matters or the existence of off-shore structures in their jurisdictions.
"It's welcome that the EU now accepts that a zero percentage tax rate is potentially harmful," said the anti-poverty charity Oxfam. But without a blanket ban on zero tax rates, it added, "Oxfam is worried that the likes of Bermuda and Bahamas might slip through the net".
The list should be finalised by the end of this year. So far, letters have been sent to 92 countries, including the United States, to start a screening of practices that could be seen as facilitating tax avoidance.
(Reporting by Francesco Guarascio; Editing by Tom Heneghan)

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