New EU proposals aimed at introducing rigid rules to close legal loopholes used by multinationals to avoid tax may have a negative impact on Malta’s thriving financial services industry.

“Although it is still early days and the rules will need to be agreed by all EU member states, the proposals are definitely not in favour of Malta’s industry which depends on its tax advantages,” a senior accountant active in the industry said yesterday.

The Commission’s ‘Anti-Tax Avoidance Package’ includes legally-binding measures to block the most common methods used by companies to avoid paying tax and a recommendation to member states on how to prevent tax treaty abuse.

Billions of euros are lost every year to tax avoidance

The Commission also presented a proposal for member states to share tax-related information on multinationals operating in the EU, actions to promote tax good governance internationally and a new EU process for listing third countries that refuse to play fair.

According to a study by the Commission, big corporations legally avoid taxes of up to €70 billion every year in the EU. Global losses from such schemes range between €100 to €240 billion.

Most of the tax avoidance comes from reporting profits made in one high-tax country in another with lower tax bands.

“Billions of euros are lost every year to tax avoidance. This is unacceptable and we are acting to tackle it,” EU Commissioner for tax Pierre Moscovici said.

Among the Commission’s proposals is one to allow EU member states to tax profits generated in their territories even if transferred somewhere else, provided the effective tax rate in the country where the profits are transferred is less than 40 per cent of that of the original country.

Loopholes that allow companies to use dividends or capital gains to skip taxation would be closed and national mismatches in the tax treatment of some complex instruments would also be eliminated, the Commission said.

Ceilings would also be imposed on the amount of interest a company can deduct from its taxable income.

Currently companies can shift debt to subsidies based in countries that allow higher deductions.

The Commission’s proposals reflect the current global and economic approach to corporate taxation. Last October, OECD countries agreed on measures to limit tax base erosion and profit sharing.

The European Parliament has also developed recommendations on corporate tax avoidance.

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