BRUSSELS — European Union finance ministers agreed Tuesday to roll out further measures to prevent multinational companies from exploiting differences in tax rates between countries in the 28-country EU and those outside the bloc.
At a meeting in Brussels, ministers backed the new rules, which will target various practices whereby large corporations can take advantage of loopholes between the tax systems of EU member states and non-EU countries in order to reduce their tax liability.
Critics say these so-called “hybrid mismatches” have been used by many large companies, including the likes of Apple and McDonald’s, to reduce their tax payments — and deprive hard-pressed European governments billions of much-needed revenue. A mismatch could see a firm deducting expenses from income in two jurisdictions with the aim of reducing, or even eliminating, its tax liabilities.
“The possibilities of tax planners to abuse the different legislations will be seriously curtailed,” said Belgian Finance Minister Johan Van Overtveldt. “We cannot tolerate that citizens and small enterprises correctly pay their taxes, while others apply fiscal high technology to avoid paying taxes.”
Tuesday’s measures are the latest effort by the EU to clamp down on tax avoidance by big companies — they build on the anti-tax avoidance directive last summer that set out EU-wide measures against tax avoidance.
“Today is yet another success story in our campaign for fairer taxation” said Pierre Moscovici, the European Commissioner for Economic and Financial Affairs, Taxation and Customs. “Step by step, we are eliminating the channels used by certain companies to escape taxation.”
According to the terms of the agreement, EU member states will have until the end of 2019 to legislate changes into their national law. Britain would by then be out of the EU, should the government’s exit timetable go to plan.
The agreement was welcomed by one of the main groups in the European Parliament.
“These types of arrangements are widespread and result in a substantial erosion of the taxable bases of corporate taxpayers in the EU,” said Olle Ludvigsson, a spokesman for the Socialists & Democrats. “Therefore, it is of utmost importance to lay down rules against this kind of tax avoidance.”
However, Ludvigsson said exemptions granted to the financial sector, such as for financial traders, “are not justified.”