As a pan-global debate over how multi-national corporations like Google and Amazon should be taxed rages on, the European Commission has weighed in, with a plan to crack down on companies that shift their profits to low-tax countries.
“New rules are needed to align the tax laws in all 28 EU countries in order to fight aggressive tax practices by large companies efficiently and effectively,” the European Commission said in a statement earlier today.
“The European Commission has today opened up a new chapter in its campaign for fair, efficient and growth-friendly taxation in the EU, with new proposals to tackle corporate tax avoidance.”
Almost as soon as the news of the plan was released, media organisations reported business leaders expressing concern that such rules could hit large companies hard, driving up costs and impacting their bottom line.
The European Commission’s announcement of its plans to go after corporate tax avoidance also came just a day after ministers and top tax officials from more than 30 countries were scheduled to sign an international agreement at the OECD that was also aimed at tackling corporate tax avoidance – the so-called Multilateral Competent Authority Agreement (MCAA). This agreement is part of the OECD’s G20 Base Erosion and Profit Shifting Project (BEPS).
‘Billions of tax euros lost’
The European Commission’s statement about cracking down on corporate tax evasion didn’t address theOECD’s BEPS scheme. Instead, Pierre Moscovici, commissioner for Economic and Financial Affairs, Taxation and Customs, said an EU-wide measure urgently needed to be taken because “billions of tax euros are lost every year to tax avoidance – money that could be used for public services like schools and hospitals, or to boost jobs and growth”.
“Europeans and businesses that play fair end up paying higher taxes as a result,” he added.
“This is unacceptable, and we are acting to tackle it. Today we are taking a major step towards creating a level-playing field for all our businesses, for fair and effective taxation for all Europeans.”
A recent European Parliament study estimated that large corporations legally avoid taxes approaching €70bn (US$76.6 bn) a year in Europe alone, employing techniques that include shifting the reporting of profits into company-owned operations in low-tax countries from the higher-tax countries in which they were actually produced.
Key features of the European Commission’s corporate tax avoidance plan include:
• legally-binding measures to block the most common methods used by companies to avoid paying tax
• a recommendation to EU member states on how to prevent tax treaty abuse
• a proposal for Member States to share tax-related information on multinationals operating in the EU
• actions to promote tax good governance internationally
• a new EU process for listing third countries that refuse to play fair
To read more about the European Commission’s corporate tax crackdown plan, click here.