BRUSSELS—The European Union will propose on Thursday a new set of rules and common standards aimed at amending corporate tax legislation across the bloc's 28 countries in an effort to thwart avoidance schemes and ensure wealthy multinationals pay their fair share.

The commission's push marks a new attempt by the EU to stop large-scale corporate tax avoidance in Europe, where governments are struggling to close budget gaps in the wake of the financial crisis and assure citizens that large companies are being held accountable for paying their share of taxes. The bloc also is reeling from disclosures that multinational companies struck alleged sweetheart deals in countries such as Luxembourg that allowed them to pay very little tax in the EU.

In response to a public outcry, the EU has launched a series of investigations into special tax deals with multinationals, based on its powers to bar governments from providing aid that favors some companies over others.

The proposals due Thursday from the European Commission, the EU's executive arm, aim to close loopholes that allow large companies to shift profit and avoid footing large tax bills.

The rules also would require multinationals to report their financial results in all the countries in which they operate, building on proposals from the Organization for Economic Cooperation and Development, a group of rich-country governments.

"We are taking another major step to creating a level playing field for all business, that of fair and effective taxation for all Europeans," said Pierre Moscovici, the EU's tax chief. "Our anti-tax-avoidance package will help EU countries to protect their tax bases, to create a stable environment for business and to preserve EU competitiveness."

The European Parliamentary Research Service estimates that corporate tax avoidance results in a loss of tax revenue to the EU of about €50 billion ($54.5 billion) to €70 billion each year.

The new rules also aim at discouraging multinationals from employing so-called "excessive debt financing" to reduce their tax bills—whereby they shift their debt to countries where interest is tax deductible. The commission will propose setting an upper limit the amount of interest a company can claim as tax-deductible.

Under another proposed rule, large companies will be forced to report their revenue, profit and taxes with the relevant authorities in all the countries in which they operate so that they can pay their fair share of tax.

The move is likely to raise concerns among U.S. companies that they are being targeted in Europe. A statement from American Innovation Matters—a group that includes U.S. companies Cisco Systems Inc., Boeing Co., Apple Inc., Intel Corp., and Facebook Inc.—described the EU proposal as "the latest example of the aggressive moves being made abroad in an effort to tax even more American earnings, and use them to pad the coffers of foreign governments."

The EU has struggled for years to close tax loopholes because all EU countries must agree unanimously on tax matters. But over the past two years, regulators in Brussels have found another way around that blockade—by using their powers to enforce the bloc's state-aid rules that prohibit governments from providing aid to some companies and not others.

Those powers have allowed Brussels to open a series of high-profile investigations into alleged sweetheart tax deals for multinational companies including Apple in Ireland and Amazon.com in Luxembourg.

Earlier in January, the EU's competition chief said 35 multinationals, including brewer Anheuser-Busch InBev NV, will be required to pay roughly €700 million in additional taxes in Belgium after European Union regulators ruled they had benefited from an illegal tax break.

Meanwhile, Alphabet Inc.'s Google said on Jan. 23 that it has struck a deal with U.K. authorities to settle a tax dispute and boost its corporate taxes in Britain, part of a broader effort by European governments to wring more out of large firms in the tech sector.

Alongside the proposed new rules, the commission will also make a recommendation on how EU governments should protect their bilateral tax treaties with countries in and out of the bloc from abuse. It will also propose a new EU process for listing third countries with problematic tax regimes that facilitate avoidance.

The proposed legislation needs to be agreed unanimously by the EU's 28 governments before turning into law, a process which can become contentious and can take months or years.

 

(END) Dow Jones Newswires

January 27, 2016 21:35 ET (02:35 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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