(Adds German and French ministers, Switzerland talks)
By Annika Breidthardt and Ingrid Melander
LUXEMBOURG, June 20 The European Union on Friday
moved to close a loophole that has allowed multinational
companies to reduce their tax bills by exploiting differences in
national tax rules, ending months of negotiations and
potentially boosting EU states' tax revenues.
Corporate tax avoidance has become a hot issue in
industrialised nations. Campaigners have drawn support from
public anger at companies avoiding taxes at a time of austerity.
"The aim is to close a loophole that currently allows
corporate groups to exploit mismatches between national tax
rules so as to avoid paying taxes on some types of profits
distributed within the group," finance ministers said in a
The change in the so-called parent-subsidiary directive
addresses "hybrid loan arrangements", a combination of equity
and debt often used as a tax-planning tool.
Some member states classify profits from such tools as a
tax-deductible debt; others do not. That has prompted some
multinational companies to open subsidiaries in other member
states so they pay little or no tax.
"Using an (EU) directive that was based on common sense -
avoid double-taxation - a few cunning devils had managed to pay
no tax at all," French Finance Minister Michel Sapin said,
welcoming the move. "That will mean a bit more money in state
coffers, which as you know we're quite keen on."
All EU tax law requires unanimity among member states, and
getting all states on board has been an uphill struggle. Europe
has been torn between the demands of small countries fiercely
resisting change to low-tax regimes that attract foreign
investment, and others wary of driving away big employers.
Earlier this month, the European Commission increased
pressure on Ireland, the Netherlands and Luxembourg over their
corporate tax practices, saying it would investigate deals they
cut with Apple, Starbucks and Fiat.
Member states will have until the end of 2015 to turn the
change into national law.
German Finance Minister Wolfgang Schaeuble said the EU
should go even further and tackle what he said was the growing
abuse of patent boxes -- countries adopting lower taxation for
companies to commercialise their patents and R&D.
Governments which offer them say they encourage innovation
and high-value jobs in research and development. Critics see the
scheme as government-sanctioned tax avoidance.
"We have to decisively move forward on this in Europe or we
will not live up to our own expectations," he told reporters.
In another move towards more cooperation on tax issues, the
Swiss government reaffirmed on Friday its willingness to abolish
some corporate tax regimes, such as the different treatment of
domestic and foreign revenues. Disagreements over corporate
taxation have strained relations between the EU and Switzerland
for almost a decade.
"In return, the EU member states confirm their intention to
lift corresponding countermeasures as soon as the regimes in
question have been abolished," it said.
(Additional reporting by Ingrid Melander in Luxembourg and
Katharina Bart in Zurich; Editing by Larry King)