THE EUROPEAN PARLIAMENT MAKES STEPS TO PREVENT EXPLOITING EU AND THIRD COUNTRY TAX DIFFERENCES

MEPs Economic and Monetary Affairs Committee has voted certain amendments to the EU’s anti-tax avoidance directive to close loopholes, which allow some of the world’s largest corporations to avoid paying tax on profits by exploiting differences in the tax systems of EU and third countries.

According to the Economic and Monetary Affairs Committee, “hybrid mismatches” are used by the largest companies with the sole purpose of reducing corporate taxation. These mismatches allow corporations established in two jurisdictions (inside and outside the EU) to use the weakness of the flow of information between national tax systems. These corporations enjoy either the same expenditure deducted in both jurisdictions, or have a payment recognized as tax deductible in one jurisdiction but not recognized as taxable income in the other.

The gravity of the issues was shown by the resolution made by the Economic and Monetary Affairs Committee, in which it recommended changes to the EU’s anti-tax avoidance directive, by 44 votes to 0 with 2 abstentions. The report is now subject to the consideration of the Council of the European Union.