EU agrees compromise deal to fight corporate tax dodging

[June 21, 2016]  By Francesco Guarascio

BRUSSELS (Reuters) - Multinationals may find it harder to escape tax after EU states tightened rules on Tuesday to counter tax avoidance.

Public anger has grown since news stories revealed how companies such as Amazon and Starbucks have used legal means to vastly reduce their tax bills and the Panama Papers and Luxleaks scandals exposed the extent of problem.

But after watering down initial proposals due to fears that the crackdown could damage European competitiveness, the EU has settled on a compromise worth no more than "wastepaper", according to an anti-poverty campaign group.

That was not the opinion of the EU commissioner in charge of tax issues.

"Today's agreement strikes a serious blow against those engaged in corporate tax avoidance," Pierre Moscovici said.

The measures include powers for governments to tax profits shifted by companies based in the EU to low-tax countries where they have no real business activity, and to tax assets developed in the EU and then transferred outside the bloc, a trick often used to avoid taxes on intellectual property patents.

The measures will turn non-binding international standards into binding rules and go beyond what has been agreed by the Organisation for Economic Cooperation and Development (OECD), something the accounting industry said was a mistake.

"The EU has gone more than the extra mile" said Chas Roy-Chowdhury, head of tax at ACCA, which represents the interests of the accountancy sector.

But the compromise - which had to be agreed unanimously by the 28 EU states - was reached after some of the most controversial provisions were scrapped or delayed, raising doubts on the effectiveness of the new measures.

"We cannot put a precise figure on how much of the tax will be recovered," a Commission official said, referring to a European Parliament estimate that tax avoidance by multinationals' costs EU states up to 70 billion euros ($76.10 billion) a year.

Oxfam, which says tax avoidance exacerbates global poverty, called the watered-down rules "wastepaper" and said the EU 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 EU countries, that have tax policies designed to attract multinationals, had feared companies could leave if the rules were too severe.

To quell concerns, a proposal known as 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 original proposed.

(Editing by Robin Pomeroy)

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