MEPs urge tougher stand on corporation tax

Multinationals should pay a withholding tax before moving their profits out of EU countries to ensure they are being taxed somewhere, according to a draft report from the European Parliament.

MEPs urge tougher stand on corporation tax

The report, seen by the Irish Examiner, deals with the fallout from the Lux Leaks and follows the European Commission’s investigation of possible special tax deals with multinationals including Apple in Ireland.

The 40-page report makes a wide number of proposals, many going further than the European Commission’s proposals designed to reduce base erosion and profit shifting by multinationals, and introduce the first stage of a common consolidated corporation tax base. A group from the 45-member committee visited the countries accused of working with multinationals to help them minimise or avoid paying tax, including Ireland in May. After amendments are received the report will be voted on by the full Parliament in November which they hope will lead to new EU rules.

One of the more contentious proposals deals with taking a withholding tax from companies irrespective of whatever arrangements they have with the EU country in which they are located. This would ensure that outgoing financial flows are taxed at least once, and that the withholding tax would mean that profits could not leave the EU untaxed.

The proposal goes further, saying the system should also protect the single market and maintain the connection between where profits and economic value are generated and where these are taxed.

This emphasis on “ensuring that profits are taxed in the place where the value is created “ cuts across the debate on the CCCTB, which it is envisaged would eventually decide on what share of profits are allocated to countries based on a key of where physical or virtual goods are produced, where they are sold and where the company is headquartered.

The draft said the committee on its fact-finding missions in five EU states and Switzerland found a number of national tax measures that were potentially harmful tax practices.

Among eight they listed is, “diverging definitions of permanent establishment and tax residence, and relationship with economic substance (sometimes allowing taxation in the absence of economic substance or, conversely, no taxation of revenue stemming from real economic activity)” — an issue that could affect Ireland. They propose a definition of minimum effective tax rates given the very big divergence between the actual rates and that paid in many countries. While Ireland has one of the least divergent, in the Apple case under investigation the rate apparently was just 2%.

Another long-running irritant among many member states is the status of so-called dependent jurisdictions especially those belonging to Britain that are known tax havens but over which London says it has no control. The report calls on the European Commission to clarify the status of these regions and investigate what can be done to change the taxation system.

Most contentiously for EU states, the report says that the commission to overcome the veto right on tax issues of countries should use Article 116 of the Treaties that countries can be forced to abandon national rules that distort competition in the internal market.

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