Business Irish

Tuesday 16 September 2014

EU seeks to close loophole for multinationals to cut tax bills

Colm Kelpie in Luxembourg

Published 20/06/2014 | 14:39

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Minister for Finance Michael Noonan
Minister for Finance Michael Noonan

EUROPEAN finance ministers today moved to close a loophole that has allowed multinational companies cut their tax bills by exploiting different rules in different countries.

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The EU Council agreed to an amendment to European tax rules to prevent the double non-taxation of big companies.

The move is separate to the in-depth investigation announced last week by the European Commission into tax arrangements involving Ireland and Apple.

''The aim is to close a loophole that currently allows corporate groups to exploit mismatches between national tax rules so as to avoid paying taxes on some types of profits distributed within the group,'' ministers said in a statement.

Current rules were intended to ensure that profits made by companies operating in different European countries are not taxed twice, and that those companies are not put at a disadvantage compared with home-grown firms.

It means countries can't tax profits made by a parent company from a subsidiary based in another country.

The amendment to the Parent Subsidiary Directive is aimed at preventing cross-border companies from exploiting the law and planning their operations to avail of double non-taxation.

Some member states classify profits as a tax-deductible debt; others do not. That has prompted some companies to open subsidiaries in other European countries so they pay little or no tax.

Following today's political agreement, the move will have to be signed off at the next Council session and countries will have until the end of next year to enshrine it in national law.

The move is separate to the in-depth investigation being taken by the European Commission into Ireland and the tax arrangements offered to Apple. Investigations are also underway involving Starbucks in the Netherlands and Fiat and Finance in Luxembourg.

Finance Minister Michael Noonan yesterday said he was confident that Ireland will be found not to have breached state aid rules.

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