New rules to stop companies using loopholes to avoid paying tax

The European Union today proposed rule changes that would force companies to pay taxes on cross-border hybrid loan payments, so that firms don’t use accounting loopholes to avoid taxation.

EU Tax Commissioner Algirdas Semeta said changes to the EU's parent-subsidiary directive would make sure companies pay tax in at least one country on hybrid-loan payments. The EU also wants countries to adopt a "common anti-abuse rule" to discourage aggressive tax planning. Hybrid-loan arrangements are financial instruments that have both debt and equity characteristics and can be used to minimize or avoid taxes, the European Commission said. European laws currently allow subsidiaries in some countries to take tax deductions on loan payments to their parent companies, and EU law lets parent companies avoid taxes on dividends that they receive from their subsidiaries. Today's plan would require companies to pay taxes on an incoming payment if it has been deducted elsewhere as a debt repayment, the EU said.

“These businesses need to make their fair contribution to public finances,” Semeta said in a statement. “We can no longer afford freeloaders who reap huge profits in the EU without contributing to the public purse.”

Semeta also said he will travel to Australia this week to discuss that country’s upcoming presidency of the Group of 20 nations.

Bloomberg