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The European Commission is investigating whether it can launch an unprecedented legal challenge that could limit multinational firms’ abilities to take advantage of business-friendly corporate tax regimes. Eurocrats want to use Article 116 of the EU’s treaty to challenge national systems that are deemed to distort the single market. Such a challenge would be deemed highly provocative by member states who are fiercely protective of their sovereign taxation powers.
The crackdown would likely target countries such as Luxembourg, Belgium, Ireland and the Netherlands.
European diplomats have predicted a fiery fightback from some member states, risking years of lengthy legal battles at the European Court of Justice.
Dutch MEP Paul Tang, the new head of the EU Parliament’s tax committee, told the FT: ‘Bringing Article 116 into play could stop unfair practices in EU tax havens.
“It is a race to the bottom which benefits a small few at the expense of the rest.
“This is unacceptable, especially in difficult economic times.”
Tax avoidance by multinational firms has become a big issue in recent months as the bloc contemplates how to fund its vast economic rebuild after the coronavirus pandemic.
The Commission is planning a new EU digital services tax on technology giants after the US pulled out of international negotiations next month.
Eurocrats have also put forward plans for EU-wide carbon taxes in order to help repay a planned €750 billion debt to fund the bloc’s coronavirus recovery.
An important ruling on Wednesday at the ECJ’s General Court will decide whether the Commission was right to order Apple to pay €13 billion in back-taxes to the Irish government in 2016.
European officials have suggested if decision were to be struck down by judges, it would significantly impact the Commission’s ability to pursue multinationals.
One official said: “If the Commission loses the Apple case then it is running our of tools to go after aggressive tax planning.”
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Taxation power grabs have often been rebuked by member states with more favourable systems.
But unlike previous attempts, Brussels believes the new initiative would only need the support of a qualified majority of the EU’s 27 capital rather than the traditional unanimous support of all countries.
This would limit a single country’s ability to veto the scheme.
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The measure would also need a stamp of approval from the European Parliament.
“This could be the key to unblocking the impasse we’ve had so far,” a southern EU diplomat said.
But another source warned the Commission shouldn’t rush out the plans before securing guarantees that the scheme would not be voted down by a blocking minority of governments.
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