Finance ministers to focus on tax avoidance

A proposal to close a loophole in EU corporate tax rules has won the support of all member states except Malta, which has the power to block an agreement.

European Union finance ministers are today (20 June) expected to clamp down against aggressive tax planning by multinationals. The aim is to amend EU rules on taxing profits cycled around companies within the same group. But they will need to secure Malta’s approval first.

While Malta  says it supports closing a loophole in EU rules that allows profits to move untaxed between certain EU member states, it is objecting  on principle to wording that, it claims, impinges on national sovereignty.  The proposal in its current form would, in Malta’s view, amount to  the imposition of a general obligation on all EU member states to tax. Sweden also had objections to the proposal, but dropped them after the Commission clarified how the rules would be applied.

Under EU law, the scope for tax legislation is particularly limited. Any measure needs the unanimous approval of all EU member states. And the European Parliament has no legislative power over matters of direct taxation.

The Commission proposal, presented in November 2013, envisaged tightening the rules on parent-subsidiary transfers, often known as hybrid loan arrangements. It would also have widened member states’ powers to reject contrivances put in place by companies to avoid paying tax.

EU member states decided to split the proposal,  to deal quickly with hybrid loans.  Negotiations are still under way on the more general proposal to tackle abusive tax arrangements.

The European Commission will also brief the council on the progress made in drawing up new rules to implement banking union – the scheme to bring all eurozone banks and some non-eurozone banks under the same regulatory system. It will also be an opportunity for the Italian finance minister to outline Italy’s main priorities on matters of economic and financial affairs when it assumes the rotating presidency of the Council of Ministers on 1 July. There is an expectation that Italy will use its presidency to re-open the debate on EU rules on public spending, with an eye to allowing national governments greater flexibility.