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EU takes aim at multinationals' multi-billion tax avoidance

[BRUSSELS] The European Commission proposed on Thursday allowing EU countries to tax corporate profits at home in some circumstances even if the money has been transferred elsewhere to avoid such payments.

Weighing in on a row about business responsibility and fairness, the Commission proposed a set of measures to tackle some of the most common tax avoidance schemes used by multinational companies to reduce their tax bills.

Business warned that the measures could hurt competitiveness and deter investment.

Big corporations legally avoid taxes of up to 70 billion euros (US$76.10 billion) a year in Europe, a study of the European Parliament estimated, with global losses from such schemes ranging between US$100 billion and US$240 billion.

"Billions of euros are lost every year to tax avoidance. This is unacceptable and we are acting to tackle it," the EU tax commissioner Pierre Moscovici said in a statement calling "for fair and effective taxation for all Europeans." Responding to such criticism in Britain, Google agreed last week to pay 130 million pounds (US$185 million) in back taxes, but it was seen by many as too little compared with the profits made by the company in Britain.

Among the Commission's proposals - which would have to be approved by all European Union member states - is one to deter multinationals from shifting their profits from parent companies to subsidiaries in low or no tax countries.

EU countries would be allowed to tax profits generated in their territories after they are transferred somewhere else, provided that the effective tax rate in the country where the profits are transferred is less than 40 percent of that of the original country.

Loopholes that allow companies to use dividends or capital gains to skip taxation would be closed and national mismatches in the tax treatment of some complex instruments would also be eliminated, the EU executive said.

Ceilings would also be imposed on the amount of interest a company can deduct from its taxable income. Currently companies can shift debt to subsidiaries based in countries that allow higher deductions.

The proposed measures aim at turning into binding rules some of the voluntary guidelines against tax avoidance, known as anti-BEPS (base erosion and profit shifting), agreed by the G20 group of the world's largest economies and by members of the Organisation for Economic Co-operation and Development. "These important proposals will close a number of the scandalous loopholes that have enabled companies to avoid and evade tax across Europe," Michael Theurer, an EU liberal lawmaker in charge of tax avoidance, said in a statement.

Corporations will have to reveal their taxes, profits, revenues and other financial data to the administrations of all countries where they operate, which then will exchange data among themselves, the proposed rules say.

By increasing transparency, the measure is expected to deter aggressive tax planning, but it falls short of a fully public disclosure that may have exposed companies to further scrutiny. The Commission did however not rule out that such a measure may be proposed in the future.

Markus Beyrer, head of EU companies' lobby group BusinessEurope, said the proposed measures could hurt business. "The EU must not act as lone front-runner in implementing the BEPS agreement, and must not undermine the competitiveness of EU industry or damage the EU's attractiveness as an investment location," he said in a statement.