EU member states must move towards a “level-playing field” in terms of corporate tax, the EU’s economics chief warned yesterday as he criticised the “avoidance-friendly regimes” in place in some member states.
"Some [member states] have avoidance-friendly regimes. This cannot go on any more," commissioner for economic and financial affairs Pierre Moscovici said, as he announced details of the European Commission's new anti-tax avoidance package yesterday in Brussels.
Although he declined to name specific member states, Mr Moscovici said that some EU countries were being undermined by others who take a more “lenient approach” to corporate tax.
The tax avoidance package represents the latest attempt by the EU to clamp-down on tax avoidance at an EU level.
Among the main proposals in the package is a Controlled Foreign Companies rule which aims to stop companies shifting profits to lower-tax jurisdictions in order to reduce their tax bill.
Repayments on loans
Also included in the anti-tax avoidance directive is a move to limit the amount of interest repayments on loans companies can claim – an attempt to stop the practice whereby companies set up a subsidiary which provides a loan back to the parent company, so that the company can take advantage of tax-deductible interest payments. The new proposal will also oblige countries to tax dividends coming into the EU which have not already been properly taxed.
In addition, a new general anti-abuse rule will give EU states the power to tackle artificial tax arrangements if other specific rules don’t cover it.
The commission also proposed a new “external strategy” to help EU countries deal with countries that do not adhere to good governance standards.
Yesterday’s proposal is only the first step in the legislative process. With tax matters requiring unanimous agreement by EU member states, the package must now go to for approval. EU finance ministers will give their first response to the proposals at the next meeting of finance ministers in two weeks’ time in Brussels.
‘Animated and lively’
Mr Moscovici said he was confident that the proposal could be agreed within six months, adding that he expected an “animated and lively” discussion.
While the commission’s anti-tax avoidance package does not impinge on national corporate tax rates, the proposed EU rules represent a significant step towards harmonisation of EU tax rules.
Unlike last year’s OECD proposals on Base Erosion and Profit Shifting, the new EU proposals will be legislative, meaning they will be legally-binding on EU member states.
Conor O'Brien, partner and head of tax at KPMG in Ireland said that Ireland's corporate tax rate was "in no way called into question by the proposals."
