The European Commission has announced it will work to close a tax loophole that allows large multinational corporations to set up "letterbox" companies in countries with lower tax rates.

The EU’s Taxation Commissioner Algirdas Semeta is proposing that the union introduces an anti-abuse clause in its corporate tax legislation, aimed at companies that are trying to shift money to a subsidiary abroad to cut their tax bill.

These companies, which include huge multinationals such as Google, Amazon, Apple and Starbucks, are very careful not to commit tax evasion, calling it rather "aggressive tax planning."

Netherlands as a tax haven

The Netherlands is one of the countries in the EU that these companies call home, thanks to its favourable tax climate. Its rates of taxation are sufficiently low that the Netherlands has been labelled a tax haven.

A report from earlier in 2013 revealed that 91 of the 100 largest companies in the world are active in the Netherlands, with at least 60 of them operating here only for the purpose of aying lower taxes.

These multinationals funnelled at least 57 billion euros through the Netherlands in 2011, paying little tax on their business activities in the process, with Google, IBM and ENI the worst offenders.

Fairer tax laws

In announcing the proposal, Semeta quotes a survey which said that 90 per cent of EU citizens wanted to see big firms taxed fairly.

"When our rules are abused to avoid paying any tax at all, then we need to adjust them," he said.
"[This] proposal will ensure that the spirit, as well as the letter, of our law is respected."

Slow progress

Real action may not be seen for some time, however. The EU has to negotiate between the competing demands of small countries, like the Netherlands, Luxembourg and Ireland, who do not want to change their low-tax regimes, as they attract foreign investment, and larger states like Britain and Germany, who lose out on much of this tax income.

Further, Semeta’s suggestion for a Common Consolidate Corporate Tax Base, which would include a standard way to calculate tax breaks, is also not making much progress, with countries like Ireland worried it would lead to a single EU tax rate.

Sources: Reuters, The Independent