Fresh EU assault on our tax regime in wake of Brexit and Apple ruling
Published 20/10/2016 | 02:30
The EU has launched a fresh assault on the tax regime in Ireland, and other countries with rules favoured by large multinationals.
Radical plans to be unveiled next week include a proposal to ban transfer pricing - a practice that allows big companies like Apple to cut bills by shifting profits through low-tax countries, especially Ireland.
The Government and others have vetoed all previous attempts from Brussels to impose common tax rules.
But a string of scandals including the so-called LuxLeaks, and Britain's imminent departure from the Union, are seen by officials as clearing the way for the more radical common tax plans.
In proposals to be unveiled next week, the European Commission will say that large companies should calculate their corporate taxes in the same way across the bloc.
The idea is known in EU jargon as a common tax base, and would introduce common rules on taxable revenues, deductions and reliefs.
In a second step, the EU will force firms in the group to consolidate those calculations and share out where they pay tax based on their sales, employees and assets in each EU country.
The rule changes would end the practice used by US tech giant Apple of booking all of its European sales through its Irish subsidiaries and paying most of its taxes here.
Under the new EU rules, all revenues would be taxable, except for a portion of dividend payments.
The rules will outlaw the practice of transfer pricing, where companies buy and sell from each other and book the profits and losses where they get the best tax deals.
The rules would only apply to large groups whose combined annual revenue exceeds €750m.
The EU is not setting common corporate tax rates, which remain a matter for national governments.
A spokesperson for Commission tax chief Pierre Moscovici said the rules would make it simpler for large businesses - as they will only have to file one tax return based on a single set of rules.
Businesses will still be able to write off expenses, including research and development costs - which will enjoy a super-deduction of 50pc, and 100pc for start-ups, up to a certain threshold.
However, tax deductions on loan interest payments will be restricted to deter profit shifting to lower-tax countries, while new deductions will be introduced for equity.
Companies will be allowed to carry losses forward indefinitely, without restrictions on the deductible amount per year, and they will enjoy temporary tax relief on losses made by their subsidiaries.
The system will also include rules against tax avoidance similar to those proposed last year by the Organisation for Economic Cooperation and Development.
The EU tried to introduce similar rules in 2011 - but even though they were not mandatory for companies, they failed to garner the requisite support from EU governments.
The Government strongly opposed the previous draft, believing it to infringe on tax sovereignty.
But the EU thinks it can get the proposals through on this occasion - following recent offshore tax scandals in Switzerland, Luxembourg, Panama and the Bahamas, which it said has increased the pressure for change.