EU proposes common tax rules to close avoidance loopholes

October 25, 2016 9:32 AM EDT

The European flag flies outside of the La Canada shopping centre in Marbella, southern Spain January 23, 2013. REUTERS/Jon Nazca


Get the Pulse of the Market with StreetInsider.com's Pulse Picks. Get your Free Trial here.

By Huw Jones

LONDON (Reuters) - Multinational companies would have to calculate their tax liabilities according to one set of rules across the European Union under proposals on Tuesday aimed at stopping them shifting profits to avoid taxes.

To close the loopholes offered by different national tax rules, the European Commission has proposed a mandatory common tax base for multinationals with total group revenues exceeding 750 million euros ($816 million) a year.

Tax experts said this threshold would snare low margin businesses that pose little tax risk, while more complex companies escape.

However, the EU executive sees benefits.

"We are proposing a system which can simultaneously support business, attract investors, promote growth and stop large-scale tax avoidance," EU Economic and Financial Affairs Commissioner Pierre Moscovici said.

Member states would be required to allow the same rate of depreciation for an asset and the same types of expense would be tax deductible.

The Commission said the proposal could lift investment in the EU by 3.4 percent, and growth by up to 1.2 percent if companies saved money by filing a single tax return for all their EU activities, cutting tax avoidance, Brussels said.

This is the second attempt at introducing a common tax base.

Brussels proposed a voluntary common consolidated corporate tax base (CCCTB) in March 2011, but it ran into opposition from countries like Britain and Ireland, who saw it as a forerunner to a common corporate tax rate.

"Member states will continue to decide their own corporate tax rates, as is their sovereign right," the EU executive said.

The latest proposal would be mandatory across the EU, and the consolidation element added at a later date.

EQUITY BENEFIT

Consolidation allows companies to set off earnings in one country against losses in another to reach a net profit or loss number, which would then be taxed according to the common base.

But it is politically sensitive as a formula linked to the location of assets, jobs and sales would be used to divide up the tax receipts among EU states where the company operates.

Chas Roy-Chowdhury, head of tax at the ACCA, an accounting body, said the formula will be hotly contested by EU states worried about losing revenues, while a push for different formulas for different industry sectors was likely.

The new proposal will require unanimity among EU states to go ahead.

Brussels is also proposing an "allowance for growth and investment" to even out the current tax benefit companies get from raising funds from debt rather than shares.

The proposal offers a tax deduction for companies that issue new shares or retain profits to chime with the EU's broader Capital Markets Union project to raise more funds for companies from markets rather than using bank loans.

Separately, the European Commission also proposed a better way of resolving "double taxation" disputes, and proposed measures to stop companies exploiting differences between EU and non-EU tax rules.

(Editing by Greg Mahlich/Ruth Pitchford)



Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In






Related Categories

Reuters

Related Entities

Earnings

Add Your Comment