January 28, 2016 / 3:21 PM / 2 years ago

EU clamps down on corporate multi-billion tax avoidance

European Union (EU) flags fly in front of the European Central Bank (ECB) headquarters in Frankfurt, Germany, December 3, 2015. REUTERS/Ralph Orlowski

BRUSSELS (Reuters) - The European Commission weighed into the row about multinational corporations avoiding tax on Thursday, proposing to clamp down on companies shifting their profits to low-tax countries.

It also said it wanted a step up of rules governing the disclosure of tax data.

Business and banks warned that the measures could hurt competitiveness, deter investment and increase administrative costs.

Big corporations legally avoid taxes of up to 70 billion euros ($76.10 billion) a year in Europe, a study of the European Parliament has estimated, with global losses from such schemes ranging between $100 billion and $240 billion.

A lot of it comes from reporting profits made in one high-tax country in another with lower tax bands.

“Billions of euros are lost every year to tax avoidance. This is unacceptable and we are acting to tackle it,” the EU tax commissioner Pierre Moscovici said in a statement calling “for fair and effective taxation for all Europeans.”

Responding to such criticism in Britain, Google agreed last week to pay 130 million pounds ($185 million) in back taxes, but it was seen by many as too little compared with the profits made by the company in Britain.

Among the Commission’s proposals - which would have to be approved by all European Union member states - is one to allow EU countries to tax profits generated in their territories even if transferred somewhere else, providing the effective tax rate in the country where the profits are transferred is less than 40 percent of that of the original country.

Loopholes that allow companies to use dividends or capital gains to skip taxation would be closed and national mismatches in the tax treatment of some complex instruments would also be eliminated, the EU executive said.

Ceilings would also be imposed on the amount of interest a company can deduct from its taxable income. Currently companies can shift debt to subsidiaries based in countries that allow higher deductions.

The proposed measures aim at turning into binding rules some of the voluntary guidelines against tax avoidance, known as anti-BEPS (base erosion and profit shifting), agreed by the G20 group of the world’s largest economies and by members of the Organisation for Economic Co-operation and Development.

Lawmakers from the main parties in the EU Parliament backed the proposals but some called for more ambitious measures, including an EU-wide common corporate tax.

POSSIBLE LOOPHOLES

Corporations will have to reveal their taxes, profits, revenues and other financial data to the administrations of all countries where they operate, which then will exchange data among themselves, the proposed rules say.

By increasing transparency, the measure is expected to deter aggressive tax planning, but it falls short of a fully public disclosure that may have exposed companies to further scrutiny.

Full transparency is already applied to the mining and banking sector. It prompted a political storm in Britain when it became public that seven of the top 10 investment banks with headquarters in London paid no taxes in Britain.

Moscovici left the door open to a wider disclosure of tax data, but said that analysis are still ongoing to assess whether public access to this information may affect legitimate business interests.

Unions and business, respectively, said the measures did not go far enough and went too far.

“This is a crackdown on tax avoidance with giant loopholes,” Veronica Nilsson, from EU trade union ETUC, said pointing at the limited transparency and the strings attached to tackle profit shifting as “two steps backward”.

Markus Beyrer, head of EU companies’ lobby group BusinessEurope, said the proposed measures could hurt business.

“The EU must not act as lone front-runner in implementing the BEPS agreement, and must not undermine the competitiveness of EU industry or damage the EU’s attractiveness as an investment location,” he said in a statement.

Banks called for waivers to lenders in the application of the proposed limits on interest deductibility.

Additional reporting by Tom Bergin in London; Editing by Jeremy Gaunt

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