New wide ranging tax proposals from the European Parliament

On 4 September the ECON Committee of the European Parliament published their draft report into “transparency, coordination and convergence” of the corporate tax system across Europe. It can be found here.

The report by co-rapporteurs Anneliese Dodds and Ludek Neidermayer cites studies showing amounts lost to the EU as a result of tax avoidance to be anywhere between EUR 50 billion and EUR 190 billion. Interestingly it doesn’t refer at all to taxes lost to developing nations outside the EU.

The draft report is far-reaching, and here are a few highlights of the proposals:

• Public CBCR, based on the template proposed by the OECD. Clearly this goes further than the OECD and most national governments are calling for, but reflects what we saw voted on in the Shareholder Rights Directive.

• A clear set of criteria for defining a 'tax haven'. On the basis of those criteria, the Commission should put forward a revised list of tax havens, which would replace its interim list as put forward in June 2015.

• Legislative proposals for a catalogue of counter-measures the Union and Member States should apply:

• Companies which use tax havens being banned from accessing state aid or public procurement opportunities at Union or national level, and being banned from accessing certain Union funds.
• Forbidding the conclusion of trade agreements by the EU with jurisdictions defined by the Commission as 'tax havens'

• Legislative proposals to adjust the definition of "permanent establishment" and introduce a Union definition of minimum "economic substance", to form part of a concrete ban on so-called 'letter box companies'.

• Based on the new OECD principles on transfer pricing, specific Union Guidelines setting out how the OECD principles should be applied and how they should be interpreted within the EU context.

• Legislative proposal to either:

• Harmonise national definitions of debt, equity, opaque and transparent entities, harmonise the attribution of assets and liabilities to permanent establishment, and harmonise the allocation of costs and profits between different entities within the same group; or
• Prevent double non-taxation, in the event of a mismatch.

• Binding guidelines that clarify how the Commission will determine instances of tax related state aid, thereby providing more legal certainty for businesses and Member States.

• Following the introduction of a General Anti-Abuse Rule (GAAR) into Directive 90/435/EC, to proceed as soon as possible with the introduction of a GAAR into Directives 2003/49/EC and 2005/19/EC and other relevant Union legislation, including any future Union legislation that covers tax matters or has tax implications.

• Remove the requirement for Member States to give beneficial treatment to interest and royalty payments if there is no effective taxation elsewhere in the Union.

• A legislative proposal to allow the Union to speak with one voice in relation to international tax Arrangements. The Commission should negotiate tax agreements with third countries on behalf of the EU instead of the current practice under which bilateral negotiations are conducted, which produce sub-optimal results.

• Automatic exchange of information on tax rulings to be extended to all tax rulings, not just cross-border ones, including publication of:

• An annual list of companies with which Member States have concluded tax rulings,
• A summary (anonymised) list of the main important tax rulings that have been agreed in the previous year.

• Coordination of national Controlled Foreign Corporation rules, in order to ensure that profits parked in low or no tax countries are effectively taxed and to prevent the diversity of national CFC rules within the EU from distorting the functioning of the internal market.

• Introduction of mandatory CCTB by June 2016, followed as soon as possible and certainly no later than the end of 2017, a mandatory CCCTB. In the meantime, a set of measures to reduce profit shifting (mainly via transfer pricing) including a Union anti-BEPS legislative proposal.

• Protection of whistleblowers who expose misconduct, wrongdoing, fraud or illegal activity in relation to corporate taxation in any Member State in the European Union.

• More effective simultaneous tax audits and controls where two or more national tax authorities decide to conduct controls of one or more persons of common or complementary interests.

• Ensuring that tax authorities have full and meaningful access to central registers of beneficial ownership for both companies and trusts, and that those registers are properly maintained and verified.

• A harmonized methodology that can be used to estimate the size of the direct and indirect corporate tax gaps.

• A new "Fair Tax Payer" label for companies who engage in good tax practices, along the lines of the Fair Tax Mark. 

Although the Finance Ministers of Members States may not welcome all these proposals with open arms, they reflect views of the European Parliament that are unlikely to go away any time soon.