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Europe-wide corporate tax system proposed to clampdown on multinational firms

October 31, 2016

www.despositphotos.com/ © fotoscool
www.despositphotos.com/ © fotoscool

The on-going saga of Apple’s European tax payments – or lack of them – has created a rather heated EU debate on existing tax systems. As we’ve seen in the many news reports on the tech giant’s taxes, current processes mean that firms are able to significantly reduce their payments through what is known as ‘transfer pricing strategies’ – the use of internal financial transactions to lower bills.

These avoidance schemes came to light back in 2014 when the LuxLeak scandal revealed PwC documents detailing hundreds of multinationals who had reduced their corporate tax rates to just 1-2% by routing money through Luxembourg.

As a means of clamping down on these practices, the EU’s economics affairs commissioner, Pierre Moscovici, has announced plans to adopt a common consolidated corporate tax base (CCCTB), a proposal which has previously had little support across the European Union. This new approach would see a standardised way for businesses to calculate their taxable profits across the EU, including how these should be allocated to different parts of their business.

However, there are numerous concerns with the proposals. Some nations have suggested that this move goes too far, while others cited the increase in administrative burdens as a reason not to go ahead with a CCCTB.

According to Moscovici, the latest proposal has been amended from previous submissions in order to make it more relevant for today’s European market. Perhaps the biggest change is a split of the proposal into two draft laws – one to set the common rules on taxable profit calculation and the other to detail where the profits should be taxed.

Despite these suggested amendments to the proposals, many sceptics have raised concerns as to how successful such a move would actually be. Tove Maria Ryding, policy manager with the European Network on Debt and Development was quoted as saying: “Consolidation is the end of transfer pricing in Europe. Without it we risk creating new loopholes.”

Whatever the outcome of these discussions one thing is clear: no one is safe in the global clampdown on tax avoidance. For contractors operating across the globe, the variations in requirements and indeed the constantly changing environment means the world of tax can be difficult to navigate. Why not speak to the team to find out how we can remove the headache and ensure you remain compliant in your chosen location.

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