EU details crackdown on shell companies
FILE PHOTO: European Union flags flutter outside the European Commission headquarters in Brussels, Belgium August 21, 2020. REUTERS/Yves Herman/File Photo
The European Commission Wednesday outlined planned tougher rules on shell companies alongside details of its implementation of an international agreement to impose a minimum 15-percent tax on big multinationals.
The rules have the goal of “tightening the screws on shell companies — or letterbox companies — used as vehicles for tax avoidance or evasion”, EU economy commissioner Paolo Gentiloni told a media conference.
The plan needs final approval from the European Parliament and all 27 EU member states before coming into force with a target date of the start of 2024.
It consists of three benchmarks, looking at a company’s passive income, whether most of its transactions are cross-border, and if its management and administration is outsourced.
If all those boxes are ticked, the firm would be considered a shell company subject to new tax reporting obligations and unable to benefit from tax breaks.
Also, one EU country could require another EU country to carry out a tax audit of a firm with shell company characteristics.
Those characteristics include indications that a company gets more than three-quarters of its global revenue elsewhere than from its business activity, or if more than three-quarters of its assets are in expensive property or high-value dividends.
The European Commission at the same time presented its proposed legislative text to impose a 15-percent minimum tax on corporations as worked out between OECD countries and then approved by the G20.
The EU intends to be the first jurisdiction to implement the agreement and the text provides common rules to be applied by all 27 nations in the bloc.
“The directive we are putting forward will ensure that the new 15 percent minimum effective tax rate for large companies will be applied in a way that is fully compatible with EU law,” Gentiloni said.
Members of the European Parliament and EU countries also have to approve that directive.
