The European Commission (EU) has unveiled plans to clamp down on aggressive corporate tax planning regimes that distort the level playing field of the EU’s single market. The plan is a move that would aid Europe’s recovery from the coronavirus (COVID-19) pandemic. EU countries are seeking to shore up public revenues to fund economic recoveries amid a public outcry over tax avoidance by corporations, in particular, multinational digital giants and wealthy individuals.
With that in mind, the commission, the EU’s executive said it would expand its tax code of conduct to tackle corporate tax regimes of member states that have broadly harmful effects. The 1997 code is the EU’s tool for blacklisting jurisdictions where tax avoidance or evasion is prevalent and has led to the dismantling of roughly 120 such regimes. Currently, the EU can only assess ‘preferential’ regimes, for example, if a country levied one tax rate for domestic firms but used a different rate for international companies.
Previous plans to change EU tax rules have been thwarted by member states’ power of veto, which allows a single country to block tax reforms. However, the commission said it is exploring options to sidestep the veto system, possibly by using an article in the EU constitutional treaty, which allows tax decisions to be taken by the majority if the competition is distorted.
EU plans to retrieve taxes from digital giants suffered a blow on Wednesday when the bloc’s second-highest court rejected a commission order that Apple pays 13 billion Euros in back taxes to Ireland. Changes to EU tax rules are still likely to face opposition from member states that say reforms could harm their economies.
The commission, in May, identified six EU countries – Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands – as having tax systems which could be used by companies for aggressive tax planning. A senior EU official said the plan unveiled on Tuesday “has nothing to do with finger-pointing at anyone’’. The commission also proposed that member states’ tax bodies automatically exchange information on income generated by sellers on digital platforms like Amazon, Airbnb or Uber, in a bid to help countries collect tax from digital firms.