December 6, 2012 / 3:08 PM / 8 years ago

Europe needs joint effort to tackle tax avoidance: EU

BRUSSELS (Reuters) - European governments should coordinate their efforts to root out tax avoidance costing them around 1 trillion euros ($1.31 trillion) every year, the European Union’s executive body said on Thursday.

An employee at the EU council adjusts European Union flags at the entrance of the council headquarters for an European Union leaders summit discussing the European Union's long-term budget in Brussels November 22, 2012. REUTERS/Yves Herman

The European Commission said member states need to share information better, introduce an EU-wide tax identification number and devise common criteria for blacklisting tax havens.

The proposals were part of an action plan detailed by EU taxation policy commissioner Algirdas Semeta on Thursday to deal with inventive and increasingly common tactics used by big companies and others to reduce their tax bills.

“Tax competition must not open the door to fraudulent or abusive tax practices,” Semeta said. A new framework would result in profits being taxed in the state where the “actual economic activity takes place”.

The Commission intends to present its action plan to EU finance ministers next year but is not aiming to persuade member states to pass binding legislation.

The impetus to deal with the problem has grown as several European countries try to increase tax revenues and cut spending to rein in heavy debts.

A number of high-profile examples have hit headlines in recent months, including one involving coffee chain Starbucks (SBUX.O).

A recent examination by Reuters of Starbucks’ accounts showed that the company had reported 13 years of losses at its UK unit, even as it told investors the operation was profitable and among the best performing of its overseas markets.

The chain’s UK unit paid no corporation tax on its income in the last three years for which figures were available.

Starbucks said on Thursday it could pay up to 20 million pounds ($32.18 million) more in tax as it announced plans to change its accounting practices, surrendering to criticism from lawmakers, campaigners and the media.

A Reuters examination of Amazon’s accounts showed how the world’s biggest online retailer had minimized corporate taxes by setting up in Luxembourg, and channeling sales through its units there.

In effect, Amazon (AMZN.O) used inter-company payments to form a tax shield for the group, behind which it has accumulated $2 billion to help finance its expansion. Amazon declined to answer questions from Reuters about its tax affairs.

BusinessEurope, the lobby group that represents companies, said it supported the Commission’s initiative, but also called for a simplification of the tax system across European Union.

Semeta suggested part of the blame lay on tax regimes “artificially designed to steal tax bases or encourage aggressive tax planning”.

He rounded on non-EU state Switzerland as one country whose policies encourage aggressive tax avoidance.

“I can openly say that we consider that several tax regimes in Switzerland, according to our estimations, do not meet criteria of the code of conduct on business taxation,” he said. ($1 = 0.7652 euros) ($1 = 0.6214 British pounds)

Reporting By John O'Donnell; Editing By Sebastian Moffett and Tom Pfeiffer

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