Bosses condemn EU plan to crack down on cross-border tax avoidance

They say EU countries should be competing with each other to have lower tax rates

London's financial district, known as the Square Mile, is dominated by sky scrapers on February 18, 2014 in London, England. (Getty)

Bosses have criticised a plan by the European Union aimed at cracking down on cross-border tax avoidance within the bloc.

The European Commission, the EU’s executive arm, says companies that operate in more than one EU country tend to pay less tax because they can shift their profits around to low-tax jurisdictions.

To fight this, they propose to harmonise some tax regulations across the bloc so that it is more obvious where money is actually owed by companies.

“The rules that govern corporate taxation in the EU today are out-of-step with the modern economy. Uncoordinated national measures are being exploited by some companies to escape taxation in the EU,” the Commission said in a statement.

“This leads to significant revenue losses for Member States, a heavier tax burden for citizens and competitive distortions for businesses that pay their share.”

The plan does not propose actually harmonising corporate tax rates but instead closing loopholes and stricter rules on tax havens.

The Commission says the current corporate tax rules in the EU date from the 1930s and that a company operating across borders in the EU pays on average 30 per cent less tax than a company operating in only one.

But the Institute of Directors, a group representing UK businesses, said the proposal would “hamper healthy tax competition between member states”.

“The attempt to relaunch the stalled Common Consolidated Corporate Tax Base (CCCTB) project smacks of unhelpful political populism. Each European government faces different economic pressures and corporate tax is an important tool in helping them adjust to changing circumstances,” said Stephen Herring, head of taxation at the IoD.

“The EU should not be trying to impose a straightjacket on its members, particularly as it will almost certainly increase the level of tax for business.”

The European Commission is currently presided over by Jean Claude Juncker, a federalist conservative. Cracking down on tax avoidance featured in his presidential programme.

“We need more fairness in our internal market. While recognising the competence of Member States for their taxation systems, we should step up our efforts to combat tax evasion and tax fraud, so that all contribute their fair share,” he said in a statement shortly after his election last year.

A poll conducted in March by YouGov found that most British people believe that legal tax avoidance was just as wrong as illegal tax evasion.