EU takes action against corporate tax avoidance
Multinational corporate tax dodgers take heed: The European Union's member states on Tuesday tightened rules on tax avoidance tactics.
Prompted by reports that detailed tax-shifting by companies like coffee giant Starbucks, Fiat Chrysler Automobiles and others, the rules aim to stop the main tax-saving strategies used by large companies with operations around the globe.
The European Commission, the EU's executive arm, said the changes are timely following the recent Panama Papers leaks that detailed other tax-dodging.
"Today's agreement strikes a serious blow against those engaged in corporate tax avoidance," said Pierre Moscovici, the European Commission minister for tax issues. "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."
The action changes international standards into binding rules, empowering EU member states to tax profits that multinationals shift to low-tax countries where the corporations don't have any genuine economic activity.
Previously untaxed gains on companies' intellectual property and other assets that have been moved out of the EU can also be subject to exit taxes under the new provisions.
The rules additionally aim at multinationals that finance business activities in high-tax states by issuing debt, and then arranging to repay inflated interest costs to subsidiaries in low-tax nations. The changes seek to discourage the practice by limiting the total interest the companies may deduct in a given tax year.
In October, the EU ordered the Netherlands to recover millions of dollars Starbucks (SBUX) received via preferential tax treatment and told Luxembourg to recover make similar recoveries from a unit of Fiat Chrysler (FCAU). The EU earlier opened an investigation into suspected tax avoidance by U.S. tech giant Apple and e-commerce conglomerate Amazon.
The companies said they had complied with all European tax laws. However, bowing to EU pressure, Amazon last year agreed to begin paying taxes in four European nations where the company has major business operations. Amazon previously had routed profits from those operations to lower-tax Luxembourg.
Oxfam International, the global anti-poverty confederation of non-government organizations, complained that the rules represent a watered-down version of tougher regulations the European Commission proposed in January. As a result, the crackdown is restricted to EU countries and yet-to-be-determined list of tax havens, the organization said.
"It is outrageous that governments have been unable to agree on an effective approach against parking profits in tax havens while repeated tax scandals are calling for immediate and efficient action," said Aurore Chardonnet, Oxfam's EU policy advisor on inequality and taxation. "Finance ministers destroyed the European Commission's proposal, turning the anti-tax avoidance directive into wastepaper."
Follow Paste BN reporter Kevin McCoy on Twitter: @kmccoynyc