EU to close tax loopholes for multinationals

The EU is planning to crack down on loopholes in Ireland and other countries that allow huge multinationals to pay little if any tax on their earnings.

They estimate up to €1 trillion a year is lost in revenue to governments, including Ireland, by firms shifting money around the globe.

The European Commission will release plans to tackle this on Dec 5 as pressure is stepped up on Ireland and the Netherlands in particular by countries including Britain, France, and Germany.

Multinationals are able to move profits around the world and an increasing amount of the economy coming from intellectual property and e-commerce have made the old tax rules obsolete, according to the commission’s taxation spokeswoman, Emer Traynor.

For instance, Google Ireland reported revenues of €10.1bn in 2010, but paid €7.2bn of this to a second Irish Google subsidiary as “licensing fees”, and from there via a Dutch company to Bermuda, where it pays no tax. After other expenses and payments for their 2,000 workforce, just €16.8m was subject to tax.

Using what is known as the “double Irish”, the technology giant cut its tax rate to 2.4%. The official Irish rate is 12.5%.

With many of the world’s biggest companies offsetting profits in one EU country against loans and losses from subsidiaries or headquarters in other EU states, the real tax rates are often lower than the specified rates.

Ms Traynor said the move was “not an effort to harmonise tax but to create a more co-ordinated EU approach” to close loopholes.

Italy recently settled tax cases for €1.5bn. France asked Amazon for €200m related to the “allocation of income between foreign jurisdictions”. Britain has closed some tax avoidance schemes.

The OECD is also examining the issue, and said different tax systems in different countries allowed companies to deduct the same expense in several countries, to make income disappear between countries, or to artificially generate several tax credits for the same foreign tax.

Last year, the Paris-based research body warned that banks could offset losses made in the financial crisis against tax owed, despite many being bailed out by taxpayers.