E.U. Countries Tighten Rules to Counter Tax Avoidance
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BRUSSELS — Multinational corporations may find it harder to escape taxation after European Union states tightened rules on Tuesday to counter tax avoidance.Public anger has grown since news articles revealed how companies such as Amazon and Starbucks have used legal means to vastly reduce their tax bills and since the Panama Papers and the so-called Luxleaks scandals exposed the extent of problem.
“Today’s agreement strikes a serious blow against those engaged in corporate tax avoidance,” said Pierre Moscovici, the European commissioner in charge of tax issues.
The measures include powers for governments to tax profits shifted by companies based in the European Union to low-tax countries where they have no real business activity, and to tax assets developed in the European Union and then transferred outside the bloc, a trick often used to avoid taxes on intellectual property patents.
The measures will turn nonbinding international standards into binding rules and go beyond what has been agreed to by the Organization for Economic Cooperation and Development.
But the compromise — which had to be agreed to unanimously by the 28 European Union states — was reached after some of the most contentious provisions were scrapped or delayed, raising doubts about the effectiveness of the new measures.
The humanitarian organization Oxfam, which says tax avoidance exacerbates global poverty, called the watered-down rules “wastepaper” and said that the European Union had missed an opportunity to fight the problem.“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,” Oxfam said.Several smaller European Union countries that have tax policies intended to attract multinationals had feared that companies could leave if the rules were too severe.
To quell concerns, a proposal known as a switch-over clause was dropped. It would have taxed dividends and capital gains that European firms pay to companies they control in low-tax or tax-free countries to avoid taxation.National governments were also granted leeway on how to apply new measures to reduce deductions on interest payments. States, under certain conditions, will be able to keep their own rules in place until 2024, rather than the 2019 deadline originally proposed.