EU agrees on tax avoidance measures aimed at multinationals

European Union member states have struck a deal on new rules designed to eliminate the most common corporate tax avoidance practices.

The measures in the Anti-Tax Avoidance Directive target the main forms of tax avoidance practiced by large multinationals and builds on global standards developed by the Organisation for Economic Cooperation and Development last year on Base Erosion and Profit Shifting.

Pierre Moscovici, European commissioner for Economic and Financial Affairs, Taxation and Customs, said the agreement strikes a serious blow against corporate tax avoiders.

“For too long, some companies have been able to take advantage of the mismatches between different member states’ tax systems to avoid billions of euros in tax,” he said.

Once implemented, the legislation will put an end to the most common loopholes and aggressive tax planning schemes.

The European Commission said, for example, that all EU member states will now have the power to tax profits that are moved to low-tax countries where the company does not have any genuine economic activity. The agreed controlled foreign company rules re-attribute the income of a low-taxed controlled foreign subsidiary to its parent company.

Previously untaxed gains on assets such as intellectual property which have been moved from the EU’s territory can also be taxed under exit taxation rules.

And general anti-abuse rules give EU states the right to target tax avoidance schemes that are not covered by specific anti-avoidance rules.

Another scheme, in which multinational groups finance subsidiaries in high-tax jurisdictions through debt and arrange repayment at inflated interest rates to reduce the tax liability for the group as a whole, is addressed by rules limiting the tax deductible amount of interest that can be claimed each year to 30 percent of earnings.

The directive will ensure that the OECD anti-BEPS measures are implemented in a coordinated manner across the EU, including in seven member states that are not OECD members.

The directive was not uniformly welcomed.

Charity Oxfam criticized the fact that EU member countries were unable to agree an effective approach to counter multinational groups that park profits in tax havens.

Oxfam said companies could avoid paying taxes simply by employing a single person in a tax haven.

Aurore Chardonnet, EU policy adviser on inequality and taxation at Oxfam, said, “Finance ministers destroyed the European Commission’s proposal, turning the anti-tax avoidance directive into wastepaper.

“The Commission proposal currently on the table is not sufficient as it limits the requirement to EU countries and a yet-to-be-determined list of tax havens,” she added.