Download PLATFORM FOR TAX GOOD GOVERNANCE Consultation

EUROPEAN COMMISSION
DIRECTORATE-GENERAL
TAXATION AND CUSTOMS UNION
Direct taxation, Tax Coordination, Economic Analysis and Evaluation
Company Taxation Initiatives
Brussels, 25 November 2015
TAXUD D1
Doc: Platform/17/2015/EN
PLATFORM FOR TAX GOOD GOVERNANCE
Consultation Document on
Commission Anti-Tax Avoidance Package
Meeting of 30 November 2015
Contact:
Secretariat Platform, Telephone (32-2) 29.55.762
E-mail: [email protected]
The Single Market is one of Europe’s greatest achievements, designed to allow goods, services,
capital and people to move more freely. It reduces red tape for professionals and businesses
operating cross border. It provides greater choice and lower prices for consumers. It enables people
to travel, live, work and study wherever they wish. But these opportunities do not always
materialise, because Single Market rules are not known, not implemented or simply jeopardised by
unjustified barriers. The Commission has therefore made it a priority to build a deeper and fairer
Internal Market, which is fundamental to delivering a thriving economy that benefits all.
One of the central pillars of a healthy Single Market is fair, efficient and growth-friendly corporate
taxation, based on the principle that companies should pay taxes in the country where profits are
generated. Corporate tax avoidance is damaging for the majority of companies operating in the
Single Market. Businesses that do not engage in aggressive tax planning suffer a competitive
disadvantage compared to those who do. Tax avoidance by multinational companies distorts price
signals and allows companies that avoid taxes to enjoy lower capital costs, disrupting the level
playing field in the Single Market. Small and medium sized businesses are particularly affected by
this phenomenon.
Meanwhile, Member States suffer significant revenue losses due to the aggressive tax planning of
certain companies. And as Europe emerges from a long and difficult economic crisis, citizens
understandably resent having to carry a heavier tax burden while certain corporations avoid paying
their fair share.
Member States and Businesses alike want a stronger and more competitive Single Market. Taxation
cannot be left aside in this process. The Commission is clear that a coordinated approach to
implementing growth-friendly tax systems and tackling cross-border problems is essential for a wellfunctioning Single Market, a successful Capital Markets Union and to attract inward investment to
the EU Member States acknowledge this and have called for an EU approach to tackling corporate tax
avoidance, covering both internal measures and common provisions against external base erosion
threats.
European Member States have been focused on this issue for some time, though their work in
Council, in the Code of Conduct on Business Taxation, Joint Transfer Pricing Forum and the Platform
Group. The Commission's June Action Plan aimed at intensifying EU efforts on tackling aggressive tax
practices, and highlighted the need for a holistic approach to this issue, namely the Common
Consolidated Corporate Tax Base (CCCTB). It also proposed a number of short term measures aimed
at ensuring effective taxation, building a better tax environment for business, making progress on tax
transparency, and enhancing EU tools for coordination.
Since then, the OECD reports on base Erosion and Profit Shifting (BEPS) were published in October
2015 and Member States are now expected to implement many of these recommendations in an EU
law compliant manner. Many Member States have stated that they intend to implement these
solutions as soon as possible, but others are prevaricating, and some have interpreted the reports as
indicating that they do not need to take any action at all.
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The Commission believes that this is not sufficient. The lack of a unified approach to these issues will
lead to distortions in the Single Market and could undermine the effectiveness of the rules of others.
The problem of tax avoidance is best addressed in a coordinated manner given the importance of
addressing competitiveness considerations and of ensuring that measures taken in different
countries do not themselves lead to double taxation. Action at EU level is necessary to ensure that
anti avoidance measures are implemented in a clear and coherent way that strengthens Member
States' collective stance against tax avoidance, while also safeguarding the Single Market, Treaty
Freedoms and EU competitiveness.
Do stakeholders agree that aggressive tax planning is a serious issue affecting the Single Market
which requires a coordinated EU response?
1. OECD BEPS ACTIONS
The OECD reports recommend action in a number of different areas:
Hybrid arrangements: The OECD report sets out a common approach will help to prevent double
non-taxation by eliminating the tax benefits of mismatches and to put an end to costly multiple
deductions for a single expense, deductions in one country without corresponding taxation in
another, and the generation of multiple foreign tax credits for one amount of foreign tax paid.
CFCs: The OECD report sets out recommendations in the form of building blocks of effective CFC
rules, while recognizing that the policy objectives of these rules vary among jurisdictions. The OECD
recommendations are aimed at ensuring that jurisdictions have rules that effectively prevent
taxpayers from shifting income into foreign subsidiaries. CFC rules have also been the subject of
extensive discussion within the CCCTB.
Interest limitation rules: The influence of tax rules on the location of debt within multinational
groups has been established and it is well-known that groups can easily multiply the level of debt at
the individual group entity level via intra-group financing. A common approach will facilitate
convergence on limiting base erosion through interest expenses. The CCCTB discussion favours an
EBITDA approach, while the OECD provided some flexibility.
Harmful tax practices: The OECD report sets out a minimum standard based on an agreed
methodology to assess whether there is substantial activity in a preferential regime. In the context of
IP regimes such as patent boxes, consensus was reached on the “nexus” approach. This approach has
been discussed in the Code of Conduct group, which is monitoring implementation of the revised
patent box legislation in Member States.
In the area of transparency, a framework has been agreed for mandatory spontaneous exchange of
information on rulings that could give rise to BEPS concerns. The EU's directive on automatic
exchange of information in relation to rulings, which goes further than these proposals, has achieved
political agreement in Council.
Treaty Abuse: The OECD reports include a minimum standard on preventing abuse through treaty
shopping. The report offers a certain degree of flexibility regarding how to do so, either through a
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limitation of benefits test or via a Principal Purpose Test. These issues have not been previously
covered in EU discussions.
Permanent Establishment: The definition of permanent establishment included in tax treaties is
crucial in determining whether a non-resident enterprise must pay income tax in another State. The
OECD report includes changes to the definition of permanent establishment. These changes address
techniques used to inappropriately avoid tax nexus, including via replacement of distributors with
commissionaire arrangements or via the artificial fragmentation of business activities. These issues
have not been previously covered in EU discussions.
Transfer pricing: The BEPS Action Plan asked for the arm’s length principle to be clarified and
strengthened in relation to transfer pricing. The arm's length principle, which requires that
transactions between associated enterprises be priced as if the enterprises were independent,
operating at "arm’s length", and which is used by many countries, has indeed proven vulnerable to
manipulation by taxpayers. This has resulted in outcomes in which the allocation of profits is not
aligned with the economic activity that produced the profits.
The OECD Report also contains revised transfer pricing guidance which tackle the following issues: a)
transfer pricing issues related to transactions involving intangibles, b) contractual allocation of risks
and the resulting allocation of profits to those risks, and c) certain other high-risk areas. The revised
guidance aims at ensuring that operational profits are allocated to the economic activities which
generate them. At the EU level, transfer pricing issues are dealt with in a comprehensive manner by
the Joint Transfer Pricing Forum.
Disclosure of Aggressive Tax Planning: The OECD argues that a lack of timely, comprehensive and
relevant information on aggressive tax planning strategies is one of the main challenges faced by tax
authorities worldwide. Early access to such information provides the opportunity to quickly respond
to tax risks. Their report sets out specific best practice recommendations for rules targeting
international tax schemes, as well as for the development and implementation of more effective
information exchange and co-operation between tax administrations. This issue has not been
discussed in the EU.
Country by Country Reporting: At present, tax administrations often lack information which might
help them identify whether companies have engaged in artificially shifting substantial amounts of
income into tax-advantaged environments through transfer pricing or similar practices. The OECD
has recommended in Action 13 that countries share more information between tax authorities on a
country-by-country basis. This will ensure that tax administrations get the information needed for
risk assessment and audit, in particular in the area of transfer pricing.
The Commission is currently exploring whether information on country-by-country basis should be
made public, and will publish an Impact Assessment on this issue in early 2016. Although the
outcome of the Impact Assessment is not yet known, there might be a case for including a proposal
for an EU-wide approach on the reporting to tax administrations now in the ATA Package, to ensure a
uniform implementation so that businesses do not have to provide different information in every
Member State, adding to administrative burdens.
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Dispute resolution: Recognizing the importance of removing double taxation as an obstacle to crossborder trade and investment, countries have committed to a minimum standard with respect to the
resolution of treaty-related disputes. In particular, this includes a strong political commitment to the
effective and timely resolution of disputes through the mutual agreement procedure. In addition, a
large group of countries has committed to quickly adopt mandatory and binding arbitration in their
bilateral tax treaties. The EU has committed to bringing forward an initiative on dispute resolution in
summer 2016.
2. BEPS RELATED ITEMS IN THE CCCTB
In addition, discussions in Council have focussed on BEPS related elements of the CCCTB. These
could also contribute to developing a coherent approach to tackling tax abuse in the EU.
Switchover: The CCCTB includes a switchover rule which complements CFC rules. A Switchover rule
would deny an exemption for dividends, capital gains or permanent establishment in tax cases where
economic double taxation would not arise or would be very limited due to the low level of taxation in
the third country. Instead, in these instances, countries should switch from providing an exemption
to taxing the income but then providing a credit for taxes paid overseas.
Exit taxation: Exit taxation is one of the topics that have been identified as a BEPS related item of the
CCCTB. The relevant clauses in the CCCTB lays down some rules aimed at addressing the issues raised
by the cross border transfer of assets from an EU company. According to the current provision in the
CCCTB, exit taxation is levied unless the asset is transferred to a third country which is a member of
the EEA and allows for an adequate exchange of information.
GAAR: The CCCTB also includes a General Anti Abuse Rule (GAAR) intended to help combat
aggressive tax planning and avoid the complexity of many different ones and apply to domestic and
cross-border intra-EU situations as well as situations involving third countries. In addition to
discussing this issue in the context of the CCCTB, in 2011 the EU published a recommendation which
included a proposal for a GAAR, and this has been discussed in the Platform Group.
Which of the above measures require EU action? Would EU action be best achieved via hard or soft
law approaches?
How should the above elements be designed? Do these elements need to be redesigned to meet the
needs of the EU Single Market?
3. EU APPROACH TOWARDS THIRD COUNTRIES ON TAX GOOD GOVERNANCE MATTERS
As discussed in the Platform meeting of 24 September, a new EU approach to tax good governance
vis-à-vis third countries is needed, to complement internal anti-avoidance measures and to ensure
effective taxation within the EU. This external strategy should be comprehensive, strengthening
measures to incentivise and support international partners in applying tax good governance
standards, as well as reviewing how the EU should react to jurisdictions that engage in or encourage
harmful tax practices. Businesses and international partners support the idea of a common, coherent
EU approach to external tax matters, which would create greater clarity and legal certainty.
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Elements that could be included in a new external strategy for tax good governance include:
Updating the tax good governance criteria: EU good governance criteria should be updated to
reflect recent developments and new priorities in corporate taxation, at both EU and international
level. In particular, the criteria should integrate the fact that the automatic exchange of information
is the new global transparency standard and the BEPS measures to create fairer tax competition
internationally have been finalised. The updated good governance criteria should underlie all EU
external policies on tax matters and provide a clearer basis for promoting tax good governance with
international partners.
Launching a common EU process for assessing and listing third countries: The pan-EU list, published
in June 2015, aimed to create more transparency around Member States' listing processes and kickstart a more coherent EU approach to assessing third countries' tax regimes. The pan-EU should be
formally updated in early 2016. However, this consolidated list was just a first step in the move
towards the ultimate goal: a common EU system for screening and listing third countries. A common
EU listing process would have a strong deterrent effect, would give international partners greater
clarity on the EU's expectations in this field and would reduce unnecessary administrative burdens
for businesses.
Strengthening tax good governance clauses in international agreements: The EU needs a more
effective approach to ensuring that tax good governance clauses are included in relevant agreements
between the EU and third countries. In particular, Member States must politically endorse a stronger
and more insistent EU stance on the inclusion of these clauses in agreements. Negotiators should
also be given greater flexibility to develop clauses that best reflect the situation in the third
country/region in question, and all clauses should reflect the EU's updated good governance criteria.
Assisting developing countries on tax good governance matters: The EU has committed to helping
developing countries to secure sustainable domestic revenues and fight off threats to their tax bases,
including from corporate tax avoidance. The Addis Ababa Action Agenda and the 2030 Agenda for
Sustainable Development has called for a new EU approach for supporting domestic public finance in
developing countries. This includes promoting developing countries' contributions in international
tax standard setting, pushing for more inclusive international coordination, providing capacitybuilding in tax policy and administration, and seeking greater international tax transparency.
Do stakeholders agree that a new EU approach to tax good governance vis-à-vis third countries is
needed? Do you agree with the broad elements set out above?
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