MEPs push for end to hybrid mismatches

MEPs on the economic and monetary affairs committee have voted to close loopholes which they say allow multinationals like Apple and others to avoid paying tax on profits by exploiting differences in the tax systems of EU and third countries

They backed a resolution recommending changes to the EU’s anti-tax avoidance directive by 44 votes to 0 with 2 abstentions. These amendments relate to the different tax rules in third countries which give rise to hybrid mismatches, which can allow firms to escape tax in both jurisdictions.

Olle Ludvigsso, the rapporteur for the resolution, said: ‘These arrangements are frequently used by the largest companies with the sole purpose of reducing corporate taxation. We have seen it in both the Apple case and in the McDonald’s case. It is about time that these corporations pay their fair share of taxes.’

Ludvigsso said these mismatches, for example, allow corporations established in two jurisdictions (inside and outside the EU) to use the lack of coordination between national tax systems either to have the same expenditure deducted in both jurisdictions (so the firm enjoys a double tax deduction), or to have a payment recognised as tax deductible in one jurisdiction but not recognised as taxable income in the other.

One of the committee’s recommendations is that rules on hybrid mismatches should apply automatically whenever a payment comes across the border having been deducted at the paying end, without having to prove a tax avoidance motive. However, those rules should not affect the general features of the tax system of a jurisdiction.

The report now goes to the Council for its consideration.

Details of the recommendations are on the economic and monetary affairs committee website here.

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