Multinationals still favored by governments, new EU tax investigation reveals
The European Commission has today opened a state aid probe into a UK tax scheme that exempts multinational companies with specific types of subsidiaries in tax havens from an important anti-tax avoidance measure, known as Controlled Foreign Company (CFC) rules.
Reacting to the news, Oxfam’s EU policy advisor on inequality and taxation, Aurore Chardonnet, said:
“The European Commission has shown yet again how EU governments grant unfair tax schemes to powerful multinationals. Tax avoidance is one of the most persistent barriers to eradicating poverty. EU member states must not grant automatic tax exemptions to companies shifting profits to tax havens or to countries with harmfully low tax rates.
“Strong Controlled Foreign Company rules against profit-shifting are needed so multinationals pay their fair share of tax. Last year, several EU member states lobbied to weaken EU minimum standards for this anti-tax avoidance measure. All EU member states must now make sure they translate existing EU legislation into robust national law to stop companies from dodging taxes at the expense of citizens worldwide.”
- The European Commission has launched today a new investigation into a tax scheme, the UK's Group Financing Exemption, operated since 2013. This scheme exempts from reallocation to the UK, and hence UK taxation, financing income received by the offshore subsidiary from another foreign group company.
- According to the European Commission, the exemption from an anti-avoidance provision could grant a selective advantage only accessible to multinationals companies.
- This new investigation follows earlier Commission decisions on tax deals by Luxembourg with Amazon and Fiat, Ireland with Apple as well as the Netherlands with Starbucks.The European Commission has also declared illegal selective tax advantages granted by Belgium under its "excess profit" tax scheme, which has benefitted at least 35 multinational companies. The European Commission is currently investigating Luxembourg’s tax deals with McDonald’s in December 2015, and with ENGIE in September 2016.
- Controlled Foreign Company (CFC) rules are a crucial measure against profit shifting into low-tax jurisdictions. If the income of a company’s subsidiary abroad is taxed at a low effective rate or not taxed at all, then CFC rules apply and the tax authority of the company’s home country taxes the income of the foreign subsidiary. The main aim of CFC rules is to discourage profit shifting to tax havens which should benefit both developed and developing countries.
- In July 2016, the EU adopted new rules addressing some of the practices most commonly used by large companies to reduce their tax liability, including Controlled Foreign Company rules (CFC rules). At the time, Oxfam denounced the fact that member states watered down measures that could have deterred companies from shifting profits to tax havens.
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