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EU to clamp down on harmful corporate tax systems

Brussels

THE European Commission on Wednesday unveiled plans to clamp down on aggressive corporate tax planning regimes that distort the level playing field of the EU's single market, a move it said would aid Europe's recovery from the coronavirus pandemic.

European Union countries are seeking to shore up public revenues to fund economic recoveries amid a public outcry over tax avoidance by corporations - in particular, multinational digital giants - and wealthy individuals.

With that in mind, the Commission - the EU's executive - said it would expand its tax code of conduct to tackle corporate tax regimes of member states that have broadly harmful effects.

The 1997 code is the EU's tool for blacklisting jurisdictions where tax avoidance or evasion is prevalent and has led to the dismantling of roughly 120 such regimes.

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Currently, the EU can only assess "preferential" regimes, for example if a country levied one tax rate for domestic firms but used a different rate for international companies.

Previous plans to change EU tax rules have been thwarted by member states' power of veto, which allow a single country to block tax reforms.

But the Commission said it is exploring options to sidestep the veto system, possibly by using an article in the EU constitutional treaty which allows tax decisions to be taken by majority if competition is distorted.

EU's plans to retrieve taxes from digital giants suffered a blow on Wednesday when the bloc's second-highest court rejected a Commission order that Apple pay 13 billion euros (S$21 billion) in back taxes to Ireland.

Changes to EU tax rules are still likely to face opposition from member states that say reforms could harm their economies.

The Commission in May identified six EU countries - Cyprus, Hungary, Ireland, Luxembourg, Malta and the Netherlands - as having tax systems which could be used by companies for aggressive tax planning.

The Commission also proposed that member states' tax bodies automatically exchange information on income generated by sellers on digital platforms like Amazon, Airbnb or Uber, in a bid to help countries collect tax from digital firms. REUTERS

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