How EU plans to clamp down on tax avoidance

The European Commission has come out with a tax transparency package that would make it harder for companies to avoid taxes. The EU is clamping down on corporate tax avoidance after hundreds of leaked Luxembourg pacts last year revealed some international companies effectively lowered their tax bills to less than 1 per cent of profit.

What the proposals mean?

All "sweetheart" tax rulings would now be known, under which profi ts were moved to lower-tax countries and to obscure holding companies that paid little or not tax

Members will have to hand over all cross-border tax rulings to other EU countries every three months; currently, they share information if they consider it "relevant"

No country can refuse any information on grounds of commercial secrecy or public policy

A member-state could request more detailed information

What is corporate tax avoidance?

Unlike tax evasion which is deliberate concealment of income/assets, tax avoidance is mostly associated with companies, rather than individuals. It usually falls just within the limits of the law, but goes against the spirit of the law. Using aggressive tax planning techniques, certain companies exploit legal loopholes in tax systems and mismatches between national rules to minimise their tax bills and avoid paying their fair share of taxes.

Why is the commission proposing new transparency requirements for tax rulings?

A tax ruling issued by one member country to companies can have an impact on the taxing rights or revenue of another member-state. But currently member-states are often unaware of one another's tax rulings as there is no automatic exchange of information. The mandatory sharing will end this.

Enforcement

The commission wants EU nations to approve the tax-ruling plan by the end of this year so it can take effect on January 1, 2016.

Who is impacted the most?

Under spotlight are Luxembourg, Ireland, the Netherlands and Belgium. The MNCs include Pepsi, Amazon, Ikea, Microsoft, Disney, Skype and Fiat.

What more is coming?

A corporate taxation "action plan" will be presented "before the summer". This will include measures to make corporate taxation fairer across the EU’s 28- nation single market, such as plans for a common consolidated corporate tax base and for adopting the OECD’s tax recommendations on base erosion and profit shifting.

Source: BBC, Bloomberg