Taxes must be paid where profits are made to fight tax evasion by multinationals

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Voting on a proposal by S&D MEP Hugues Bayet, the European Parliament gave the green light in Strasbourg today to a series of measures designed to fight tax evasion by multinational companies.

EU countries suffer between €100-240 billion in lost taxes every year due to aggressive corporate 'tax planning'.

Hugues Bayet, the MEP responsible for steering the legislation through the parliament, welcomed the successful result:

"By backing these proposals, with a very comfortable majority, the European Parliament has once again shown itself to be a major player in the campaign to reform the taxation system for multinationals in Europe since the LuxLeaks and Panama Papers scandals were uncovered.

"By endorsing the principle that taxes must be paid where profits are made, we are sending a clear signal to EU member states about the need for ambitious progress to fight tax evasion. We do not want this Europe of two halves with on the one side the vast majority of citizens who pay their taxes honestly and on the other these economic giants who manage to avoid paying their contribution.

"It's time that everyone contributed in the same way to financing healthcare, jobs for young people, schools and universities, housing and security. Big corporations must not be allowed to opt out of the collective effort simply because they have the means to pay financial and tax specialists whose sole mission is to find creative ways to avoid taxes – specialists whose pay is determined by the sums they divert from the public purse."

This package of measures is designed as the European Union's response to the tax recommendations put forward by the Organisation for Economic Co-operation and Development (OECD). The key provisions include:

  • Precise and binding definitions of the conditions which demonstrate that a multinational company is well established in a country, in order to ensure that companies pay their taxes where they make their profits. Too often today, multinationals arrange their operations to transfer their profits to tax havens without paying any taxes in the countries where they really operate.
  • The creation of a strict blacklist, shared by all 28 EU member states, of tax havens and countries that distort competition through favourable tax regimes – including some EU countries. And thus a shared definition of what constitutes a tax haven.
  • Clarification of the law on patents. At the moment, too many multinationals use the incentives linked to patent registrations to artificially reduce their declared profits. A practice which is also detrimental to truly innovative countries.
  • Ending 'double non-taxation'. The loopholes will be closed that made it possible for multinationals to avoid paying tax anywhere. The complexity of legislation across the 28 EU countries has been exploited by some international companies to hide their profits and the actual amount of taxes paid.
  • More effective control of loans between different entities belonging to the same multinational. Too often, multinationals use a system of loans, nominally to boost investments but in reality to avoid paying tax.