EU Plans to Close Down ‘Hybrid Mismatches’

European Union finance ministers have agreed new rules to crack down on big multinational companies that are not paying their fair share of tax. The aim is to stop them exploiting different tax and tax deduction regulations in the countries where they operate to drastically reduce what they pay.

The new rules, due to go into effect in 2020, should help the EU recoup revenues from companies that cut their tax bills by declaring profits in countries with low or no taxation, Euronews reported.

The Brussels jargon phrase for those tax rate differences is “hybrid mismatches” and Malta’s Finance Minister Edward Scicluna, who chaired the Ecofin meeting, explained: “We have agreed on the proposal aimed at closing down hybrid mismatches with the tax systems of third countries. This directive, is the latest of a number of measures designed to prevent tax avoidance by large companies, preventing them from exploiting disparities between two or more tax jurisdictions to reduce their overall liability.”

Scicluna called this a “bold step” and to reassure businesses also said there would be new proposals in coming months to make sure that corporations will not pay double taxes under the new system.

Britain is part of this process but the rules will come into effect after it is due to leave the EU and so far there is no commitment from the UK government to stick with them and not shift the economy towards low regulation and taxation.

Tax reduction schemes used by Apple, Amazon, Google, Starbucks and other companies are legal under current laws but have fueled public outrage with European governments being deprived of billions in much-needed revenue.

 Tax Haven

The finance ministers also made progress on defining what is a tax haven so they can compile a EU common list of countries that qualify.

The setting up of a common list has become more likely after several revelations of massive tax avoidance in countries such as Panama or the Bahamas. EU sanctions could be imposed on countries on the list.

The list should be finalized by the end of this year. So far, letters have been sent to 92 countries, including the United States, to start a screening of practices that could be seen as facilitating tax avoidance.

Slightly embarrassing for Malta, which holds the current six-month rotating EU presidency, as it has been accused of being a tax haven which it has denied.