No deal between EU finance ministers on tax clampdown

26 May 16

European Union finance ministers yesterday failed to agree on rules to crack down on tax avoidance by multinational companies.

The rules, which were proposed by the European Commission in January, would have worked to counter corporations’ complex schemes to substantially lower their tax bills in a way that is legal but largely seen as unjust and against the spirit of the law.

Tax planning by multinational companies is estimated to cost the EU €70bn per year.

Jeroen Dijsselbloem, Dutch finance minister and president of the Eurogroup, said that it is hoped the ministers can reach a decision on the proposal next month.

He explained that objections to the proposal, which requires the unanimous approval of all 28 finance ministers to pass, were the cause of the delay.

“We could strike a deal very quickly. We could have done it by simply giving in to objections of different ministers. But that’s not the way we are doing this. We need an effective deal, not just a deal,” the EU Observer quotes him as saying.

The rules would have included EU-wide controls on interest deductibility, rules to prevent the diversion of profits from the EU into low-tax jurisdictions and changes to how parent companies and their subsidiaries operating in different jurisdictions are treated for tax purposes.

However, at the same meeting ministers did adopt new rules on multinational corporations’ reporting of tax information.

The directive, also part of the commission’s January 2016 anti-tax avoidance package, implement the recommendations of the OECD’s Base Erosion and Profit Shifting (BEPS) project, which aimed to overhaul the international tax architecture to prevent corporate tax avoidance.

The rules will establish a harmonised, EU-wide system for country-by-country reports for multinational companies with a total revenue of at least €750m from 2016 onwards.

Even if the parent company is not an EU tax resident, any subsidiaries it has in EU jurisdictions will have to report on their operations. This “secondary reporting” will be optional this year but mandatory from 2017.

Those companies will now have to produce detailed reports on their activities in every jurisdiction in which they operate, containing information on revenues, profits, taxes paid, capital, earnings, tangible assets and the number of employees.

Tax authorities within the EU will then automatically exchange this information between them.

This increased transparency will make it much harder for multinationals to exploit technicalities or mismatches between tax systems in order to reduce or avoid paying their dues in full.

Ministers also resolved to step up the fight against VAT fraud, which costs the bloc at least €60bn every year, and decided to maintain the EU-wide minimum VAT rate at 15% for two more years, until December 2017.

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