2.ENSURING EFFECTIVE TAXATION WHERE PROFITS ARE GENERATED
Companies that benefit from the Single Market and generate profits there should pay tax on those profits within the EU, at the place of activity. However, certain companies exploit mismatches in national tax provisions to shift profits. They shift profits from where they are generated to Member States offering low tax rates and preferential regimes, and out to third countries, with no link to where the value is created. Based on existing corporate tax legislation 7 , one Member State may be prevented from taxing corporate revenue when it is moved to another Member State. As a result, there is evidence that certain multinational enterprises pay an extremely low level of effective taxation (or no tax at all) at the place of actual economic activity, even if they generate significant profits there.
There has been a growing demand from the European Parliament, Member States and stakeholders to address this issue and ensure that profits generated in the EU are taxed at the place where the actual activities take place. This echoes on-going discussions at international level in the context of the OECD BEPS project.
