Tax loopholes in the EU which led to Bermuda coming under fire as a “tax haven” are to be closed.

The EU has moved to end the practice of firms moving money around member states to avoid tax — a method used by internet giant Google, with billions ending up in its subsidiary in Bermuda, where there is no corporate tax.

Algirdas Semeta, the EU commissioner for taxation, said: “EU tax policy is heavily focused on creating a better environment for businesses in the EU.

“This means breaking down tax barriers and tackling cross-border problems such as double taxation. But when our rules are abused to avoid paying any tax at all, then we need to adjust them.”

And he said the latest proposals, to be introduced at the end of this month, would “ensure that the spirit, as well as the letter, of our law is respected. As such, it will ensure greater revenues for national budgets and fairer competition for our businesses.”

Finance Minister Bob Richards was not available for comment last night.

But at a summit meeting of the Overseas Territories and the UK in London earlier this year, he said that if other countries had tax loopholes, it was up to them to plug them, not Bermuda.

Economics expert Peter Everson said it was important for Bermuda to be able to combat attacks on its standing as an offshore jurisdiction — and that Bermuda gained little from tax arrangements like Google’s.

He added: “What other people say is out of our control — they will say whatever they want to say and on the agenda of items for Bermuda next year is to find a unified voice to respond to this.”

The new rules amend the EU’s Parent-Subsidiary Directive, originally set up to prevent companies based in different EU countries, but owned by the same parent organisation, from being taxed twice on the same income.

An EU statement said: “However, certain companies have exploited provisions in the directive and mismatches between national tax rules to avoid being taxed in any member state at all — double non-taxation.”

The new rules will update the directive’s anti-abuse provision and would insist all EU states to adopt a common anti-abuse rule.

The statement said: “This will allow them to ignore artificial arrangements used for tax avoidance purposes and ensure taxation takes place on the basis of real economic substance.”

The proposals would also ensure that specific tax planning arrangements — like hybrid loan arrangements — would not benefit from tax exemptions.

At present, the Parent-Subsidiary Directive obliges EU states to give parent companies a tax exemption on dividends they get from subsidiaries in other member states.

But in some EU states where subsidiaries are based classify these types of payments as tax-deductible debt repayment — with the result that payments from the subsidiary to the parent are not taxed at all.

The EU statement said: “Under the proposal, if a hybrid loan payment is tax deductible in the subsidiary’s member state, then it must be taxed by the member state where the parent company is established. This will stop cross-border companies from planning their intra-group payments to enjoy double non-taxation.”

The move was sparked by fury in recession-hit Europe after it was revealed that Google minimises tax in the UK — where it pays $6 million a year on a turnover of $395 million — by using its UK operation as an agent of its Irish subsidiary.

The proceeds of sales made in the UK go to Ireland and commission of around 10 percent is paid back to the UK operation, which is taxable once costs have been deducted.

Google Ireland then channels much of the money it makes to its Bermudian operation as a licensing fee, ensuring a large proportion of its cash ends up on the island. The process is legal under current UK tax laws.

A Google spokesman said earlier this year: “We make a substantial contribution to the UK economy through local, payroll and corporate taxes.

“We also employ over a thousand people, help hundreds of thousands of businesses to grow online and invest millions supporting new tech businesses in East London. We comply with all the tax rules in the UK.”

Other firms like coffee chain Starbucks and online store Amazon also came under fire for as using tactics which are legal — but branded “aggressive” and “immoral” — to transfer profits across borders to minimise taxation.

The EU statement said: “The issue of corporate tax avoidance is very high in the political agenda of many EU and non-EU countries and the need for action to combat this was highlighted at recent G20 and G8 meetings.”