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Brussels Unveils Plan To Crack Down On Corporate Tax Loopholes

27 November 2013   (0 Comments)
Posted by: Author: The Irish Times
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Author: The Irish Times

Ambitious proposals to block tax loopholes in cross-border financing structures were revealed by Brussels yesterday, in an attempt to force multinationals to pay billions of euros more in corporate taxes to members of the EU.

The crackdown, which would hit one of the most common forms of international tax planning, follows growing public pressure for action against avoidance.

The EU proposals come at a time when international authorities are mounting a concerted attack on "hybrid” structures that allow corporations to exploit mismatches between different countries’ tax systems to escape taxation.

International strategy

Global plans to tackle hybrids have been drawn up by the Paris-based Organisation for Economic Co-operation and Development and are now being circulated around tax authorities.

Cross-border financing structures that rely on hybrids are "key” to many European multinationals’ low tax rates, according to an analysis by Citigroup. In September the bank told investors there was a risk of "significantly” rising tax bills for companies that use hybrid financing schemes.

The plans drawn up by the European Commission will tackle gaps in the taxation of "hybrid” instruments, such as convertible preference shares. The OECD plans will have a wider reach, potentially hitting transatlantic structures used by multinationals such as Tate & Lyle, the sweetener maker, FirstGroup, the transport operator, and Linde, the industrial gases group.

The three companies together could be saving up to $150 million (€110 million) a year by lending billions to their own US subsidiaries and then exploiting legal differences to offset the interest payments against tax in the UK and the US, according to an analysis by the Financial Times. FirstGroup gets an estimated deferred tax benefit of $49 million a year from a structure set up after its acquisition of ­Laidlaw, the Greyhound coach company, in 2007. The firm did not dispute the benefit but said removal of the structure would not make a difference to its cash tax payments in the US.

Tate & Lyle declined to comment on the estimate that it had saved $385 million of tax since 2007 but said full details of the arrangement had been disclosed to, and accepted by, US and UK tax authorities.

Linde declined to comment on the details of its internal financing structure. But the company confirmed it was claiming tax relief in the US on debt used to acquire Lincare Holdings, a homecare service company, last year. – Copyright The Financial Times Limited 2013

This article first appeared in irishtimes.com.


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