MULTINATIONALS TO PAY TAXES WHERE PROFITS ARE MADE

Corporations often use loopholes to avoid paying taxes, by shifting profits to EU countries with lower taxes. New EU rules would put an end to this, since on 15 March 2018 members of the European Parliament voted in favour of the plans to establish a common consolidated corporate tax base. Companies operating in the EU could use such common consolidated corporate tax base to calculate their taxable profits instead of having to follow different rules for each EU country they are located in. The European Commission proposes to introduce a common consolidated corporate tax base in two phases. The first phase will be the introduction of a common corporate tax base, which is one set of rules to calculate companies’ taxable profits in all EU countries. As for now companies operating in different EU countries calculate subsidiaries’ profits according to different tax codes. Then the first step would be followed by the introduction of a common consolidated corporate tax base in phase two. This would allow companies to add profits and losses of all their subsidiaries in the EU and to come up with a net profit figure to be taxed.

Profits would be taxed in the EU countries the company operates subsidiaries. Profit sharing would be calculated according to a formula, taking into account the buildings, machinery, number of employees and sales the company has in different EU countries.

With the new legislation attempting to set up aggressive tax planning schemes, like in the Netherland, Belgium, Cyprus or Luxembourg, artificially drawing fiscal revenues towards some Member States at the expense of others, shall become obsolete.