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EU Tax vocabulary

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Paying taxes can be complicated, but so can the vocabulary that goes with it. Tax avoidance is legal, but tax evasion isn’t and just what exactly is base erosion? In the following lines is enclosed glossary of the terms used by the tax rulings committee:

  • Base erosion and profit shifting

Tax planning strategies that exploit loopholes in the international tax system to artificially shift profits to places where there is little or no economic activity or taxation, resulting in little or no overall corporate tax being paid.

  • Common consolidated corporate tax base

A common set of rules that companies operating in the EU could use to calculate their taxable profits instead of having to follow different rules for each EU country they are located in. They would also be able to consolidate all their profits and losses across the EU. However, national governments would maintain the right to set their own corporate tax rate. Common consolidated corporate tax base was proposed by the European Commission in March 2011, but is currently on hold due to the Council – which represents the national governments – not having made a decision on it yet.

  • Tax avoidance

Using legal instruments in order to pay the lowest amount of tax possible. It is different from tax evasion, which consists of illegal and deliberate acts to pay less in taxes or even no taxes at all.

  • Tax havens

Countries or jurisdictions allowing foreign companies and individuals who simply register there to pay little or no taxes. Tax havens also guarantee not to divulge the identity of their “customers”.

  • Tax ruling

A written statement issued by a tax authority, setting out in advance how a corporation’s tax will be calculated and which tax provisions will be used. They are legal but may, under the EU rules, involve state aid and thus be subject to scrutiny from the European Commission. Tax rulings have sometimes been criticised when multinationals are found to pay less in taxes than ordinary tax payers.

  • Tax transparency initiative

Plans to have member states automatically exchange information on cross-border tax rulings. The Commission proposed Tax transparency initiative in March 2015.

Source: European Parliament

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