The proposal



The directive that has been proposed by the European Commission is based on the principle that taxes should be paid where profits are made. The plans contain six key measures to fight aggressive tax planning and also sets out common definitions of terms such as permanent establishment, tax havens and minimum economic substance. The issue with current legislation is that these terms have been open to interpretation.

The Commission proposed the directive in response to the OECD's action plan to tackle base erosion and profit shifting.

Parliament's position

Parliament is being asked to give its opinion on the draft legislation, although the decision will be taken by the Council, which represents EU countries.

Belgian S&D member Hugues Bayet, who is responsible for steering the legislation through Parliament, said: "It is inconceivable to incessantly ask for ever more efforts from workers, pensioners and small and medium-sized enterprises, while at the same time the wealthy and multinationals evade making their fair contributions to tax."

Welcoming the Commission proposals, MEPs are keen to curb internal lending, which is one of the most common ways for companies to show low profits and avoid paying tax. To tackle this MEPs advocate stricter limits on the deduction of interest payments, which to some extent is the corporate equivalent of the mortgage interest that home owners can deduct from their annual taxable income.