European Commission to Propose New Tax Rules

MEDIA ROOM

By the end of January 2016, the European Commission will have proposed a new set of rules to mitigate corporate tax avoidance, as part of its strategy to fight illegal or dubious taxation practices carried out by multinational companies. EU Commissioner Pierre Moscovici informed European lawmakers that the new tax measures will be put forward on the 27th of January.

Moscovici wants to implement stricter rules on taxation applicable to controlled foreign companies and hybrid financial products which, due to their complex nature, may avoid being taxable. Some of the new proposals, known as BEPS, will bind EU member states to accept a set of voluntary guidelines and incorporate these in their national law, with the aim of closing existing gaps in current international taxation rules. Going beyond BEPS, The European Commission is also planning interest deductions applied by multinationals. The guidelines recommend that corporations link deductions to the economic activities of each group entity, instead of moving debt among national branches.

In addition, the new proposals will also include a close look at deals made between multinational corporations with individual EU states that are considered to be harmful to competition. Recently, an EU executive ordered Belgium to reclaim around €700 million in unpaid taxes from 35 large companies collectively. These taxes had not been paid due to a taxation model that gave multinational companies a preferential treatment over smaller firms. Similarly, last October the Commission ruled that Starbucks Corporation and Fiat Chrysler Automobiles evaded taxation as a result of illegal deals struck with Dutch and Luxembourg authorities. Each country was ordered to recover from these companies €20-€30 million in tax revenue.

Due to such occurrences, Amazon’s tax arrangements with Luxembourg and Apple’s arrangements with Ireland are being investigated. In order to deter similar events from happening in the future, EU finance ministers agreed last October that as of 2017, information on agreements struck by member states with multinational companies will immediately be exchanged.