EU takes aim at avoidance

The Ministers of Finance and Economy of the European Union (Ecofin) reached an agreement at its last meeting to prohibit multinational companies operating in the EU to reduce their tax obligations by taking advantage of differences between the tax systems of the member states and others outside the community. This regulation is part of the package of measures that the European Commission (EC) has proposed to combat tax evasion following the revelations of so-called “papers Panama.”

The aim is to avoid the so-called “asymmetric hybrid mechanisms,” which are situations that result when two jurisdictions have different tax systems that multinationals exploit to evade taxes in their countries or to reduce their tax obligations. The differences in tax systems of the member states are already covered by another directive approved last July, although the European Parliament is still to approve to the new rules. The ministers also resolved to postpone the changes for the banking sector until 2020.

Progress is being made in preparing a European “black list” of tax havens, using criteria of levels of fiscal transparency, the fairness of the tax system and having implemented the recommendations of the OECD on recording and reporting profits in transfers.

The EC has also warned Spain on the severely of its fines on citizens who have undeclared assets overseas, saying they are “disproportionate” and has threatened to take the Spanish government to the European Court of Justice if it continues to ignore the directive. The EU feels the fines may deter businesses from establishing abroad.