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Pressure is mounting on companies which artificially shift profits to tax havens or low-tax jurisdictions, following months of revelations about the very low tax rates enjoyed by some groups at a time when cash-strapped governments across Europe are struggling to boost revenues.
The Commission is recommending that Member States adopt a common, tougher definition of what constitutes a tax haven, and then scrap or suspend existing double taxation agreements with such countries, meaning that companies would no longer be able to use them to avoid taxes.
The tougher definition is based on the EU’s code of conduct for business taxation, whose criteria for identifying tax havens include not just lack of transparency and refusal to exchange information, but also practices such as offering certain tax benefits only to non-resident companies.
The Commission is also recommending two further steps intended to make it harder for companies to arbitrage the gaps between different tax codes. The first is that Member States should include a “general anti-abuse” clause in their national legislation which would allow tax authorities to disregard any corporate arrangements deemed to serve tax purposes rather than commercial purposes.
The second is that, in order to prevent “double non-taxation”, Member States should insert a clause into their double tax agreements specifying that one country is precluded from taxing income only if that income is taxed in the other contracting state.
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