EP re­port against tax avoid­ance to im­pact ser­vices sec­tor

Financial Mirror (Cyprus) - - FRONT PAGE -

A re­port tabled by Euro­pean So­cial­ist MEP, Hugues Bayet, on com­bat­ing tax avoid­ance that in­cludes pro­vi­sions that may dam­age Cyprus as a re­gional busi­ness cen­tre, was dis­cussed on Tuesday in the June Euro­pean Par­lia­ment ple­nary ses­sion in Stras­bourg.

The re­port was drafted after a pro­posal tabled by the Euro­pean Com­mis­sion, as part of the EU anti tax avoid­ance pack­age, in the con­text of the ac­tions of the OECB’s Base Ero­sion and Profit Shift­ing (BEPs).

EU Com­mis­sioner for Eco­nomic and Fi­nan­cial Af­fairs Pierre Mosco­v­isi re­it­er­ated that the EU does not wish to im­pose a sin­gle tax rate or a min­i­mum tax rate. “We do not want a min­i­mum tax har­mon­i­sa­tion but a fair and ef­fec­tive tax­a­tion.”

Apart from a tax heaven black list and a sin­gle Euro­pean tax num­ber, the re­port and the pro­posal in­cludes a so-called switch-over clause which tar­gets types of for­eign in­come, such as profit dis­tri­bu­tions, pro­ceeds from the dis­posal of shares and per­ma­nent es­tab­lish­ment prof­its which are tax ex­empt in the Union and orig­i­nate in third coun­tries, a tax fea­ture used in Cyprus. More­over, the pro­posal pro­vides that a com­pany should be sub­ject to tax­a­tion that is equal to the mar­ket value of the trans­ferred as­sets, at the time of exit, a pro­vi­sion deemed to dam­age Cyprus’ bid to at­tract for­eign cor­po­ra­tions to the is­land.

The Com­mis­sion pro­pos­als comes as OECD es­ti­mates that ag­gres­sive tax op­ti­mi­sa­tion by multi­na­tion­als causes losses to state bud­gets amount­ing to be­tween USD 100 and 240 bil­lion an­nu­ally, rep­re­sent­ing be­tween 4 and 10% of global cor­po­rate tax rev­enues. Fur­ther­more, dis­cus­sions come in the wake the scan­dals of ‘Lux Leaks’ and the ‘Panama Pa­pers’ that re­vealed many bil­lions.

“Even the clean­ing ladies here at the Euro­pean Par­lia­ment pay more tax than Google,” Fabio De Masi, of the Euro­pean Left told the EP ple­nary. MEPs said the Com­mis­sion should move fur­ther from the set­ting a min­i­mum tax rate.

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How­ever Cypriot MEP Lef­teris Christo­forou (EPP-DISY) re­sponded that a healthy com­pe­ti­tion among the mem­ber states on the tax rate can­not be com­pared with tax eva­sion and tax avoid­ance.

“We should not stab the EU in the back,” he said, not­ing that such moves may force cor­po­ra­tions to live the union and opt for tax ju­ris­dic­tions out­side the EU.

“In­stead of cur­tail­ing tax eva­sion and cre­at­ing black lists, we will hit the GDP of our own coun­tries and will give the ad­van­tage to other states such as the US,” he said, not­ing only com­mu­nist regimes im­pose min­i­mum tax rates.

On his part, Costas Mavrides of the Euro­pean So­cial­ists (DIKO) said the EU should pro­ceed fur­ther with the OECD’s BEPs guide­lines and set out a min­i­mum tax rate. “If we go fur­ther we are en­ter­ing un­charted wa­ters,” he added.

He said the Com­mis­sion’s di­rec­tive erodes the mem­ber­states com­par­a­tive ad­van­tage in the con­text of free com­pe­ti­tion and op­er­ates against small is­land states such as Cyprus which have con­sol­i­dated ad­van­tages to the econ­omy stem­ming from the ser­vices sec­tor.

The re­port will be voted on Wed­nes­day.

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