New draft law aims to plug tax loop holes frequently used by MNCs in EU

Companies who have re-domiciled better perk up and pay attention. If the European Commission has its way, they will have to bite their tax bullet.

The European Union is preparing a new law under which large companies in every country which forms part of the EU will have a common tax law for revenues and reductions.

The new law is aimed at curbing tax avoidances.

Currently, the EU with its 28 member states has a diverse range of tax exemptions and deductions, which make the task of calculating a common tax base rather intricate and challenging. The new law aims to simplify the process and bring in further clarity to the tax profile of corporates who operate in more than one country.

Differences in national tax laws variations currently allows companies with large accounting departments to exploit these differences and thus reduce their tax profile. This practice has raised public outcry after the emergence of reports which pointed at rich companies and individuals who managed to dodge their taxes by adopting clever accounting methods.

In order to seal this loophole, the European Commission and the European Executive, are proposing a “mandatory” tax base for companies whose total group revenue exceeds $820 million (750 million euros) a year.

“All revenues will be taxable unless expressly exempted,” reads the draft proposal. It also envisages some dividends and proceeds, from the disposal of shares, to be exempted from taxes.

So as to bring about unity midst diversity, the draft states that countries will remain responsible for setting their own tax rates.

According to the agenda of the EU Executive, the European Commission is set to unveil the proposal of a Common Corporate Tax Base (CCTB) later next week.

The draft is still subject to changes.

Before it becomes the law, all of the 28 EU states will have to back the proposals unanimously. Incidentally, in 2011, this exercise of setting a common tax base for companies was tried but was shelved due to vigorous opposition from some EU states.

The point of contention among the EU states is likely to be the proposal to consolidate multinationals’ accounts when they operate in more than one EU country.

Brussels has also proposed the allowing of deductions for the issue of equities, since this form of financing for companies is preferred over debt.

($1 = 0.9117 euros)


Categories: Creativity, Economy & Finance, Entrepreneurship, HR & Organization, Regulations & Legal, Strategy, Sustainability


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