US: EU Seeks To Force Firms To Pay Tax On Hybrid-Loan Payments
26 November 2013
Posted by: Author: Rebecca Christie
Author: Rebecca Christie (Bloomberg)
The European Union 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.
The proposal has the potential to raise "in the magnitude
of billions of euros” in revenues for EU nations, Semeta told
reporters in Brussels today. When asked what it would mean for
Google Inc., Amazon.com Inc. and Apple Inc., whose tax
strategies have attracted international attention, Semeta said
the plan would affect a range of companies.
"It’s a proposal which addresses the problem which exists
not only among the big names, but also there are many other
multinational companies which use such schemes in order to avoid
taxes,” Semeta said.
The EU aims to have the new rules in place by December
2014, EU spokeswoman Emer Traynor said. The proposal requires
unanimous agreement among nations to be enacted.
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
"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
The Association of Chartered Certified Accountants is
"broadly supportive” of the effort to discourage companies
from exploiting exemptions, said Chas Roy-Chowdhury, the trade
group’s head of taxation.
The new rules would clarify tax planning for companies and
also allow countries to collect revenue where due, said Michael Izza, chief executive officer of the Institute of Chartered
Accountants in England and Wales.
"There is a mismatch between what the directive was set up
to achieve, namely preventing companies from incurring extra
costs from operating in more than one EU member state by paying
double-taxation, and what it has resulted in: some companies
escaping taxes altogether,” Izza said.
This article frist appeared in bloomberg.com.