Brussels, 23/06/2014 (Agence Europe) - EU28 finance ministers promised on Friday 20 June to examine EU tax systems by the end of this year that make use of “patent boxes”. They adopted conclusions from report on company tax codes of conduct, but Luxembourg commented on interpretation of Criterion 3 (identifying damaging aspects of patent boxes).
The code of contact expert group did not reach consensus on how patent boxes should be interpreted, despite examining three separate approaches. Most member states favour the third approach, a “modified nexus approach” whereby the tax advantage is directly connected with the level of expenditure on R&D in the country in question. Luxembourg would prefer the transfer price approach on the grounds that “the transfer pricing approach is more based on having some sort of establishment in the country i.e. if a company sets up an office in the member state (even if that office is not doing much at all), that is considered enough to make it eligible for the tax credit”.
Although the Ecofin Council is expected to endorse this question without debate, Luxembourg took advantage of the opportunity to issue a statement. The Greek Presidency allowed it to do so, and Germany and France followed suit. Luxembourg cast doubt on the compatibility of this approach with European law and the rules governing the single market. Luxembourg called for a written study from the Council of Ministers' legal department. Germany and France are said to have then intervened to say that the matter was urgent because the credibility of the EU was at stake, but they agreed that certain legal niceties needed to be respected. The code of conduct expert group said in its report that it had sought the view of the Council's legal service and had also asked the Commission to prepare a draft assessment of these measures in the light of other criteria.
As guardian of competition, the European Commission has asked several member states for information about their patent boxes in order to decide whether they amount to unlawful state aid. On 11 June, it announced that it was referring Luxembourg to the European Court of Justice for refusing to supply information about its patent boxes and other tax practices.
Taxation Commissioner Algirdas Semeta welcomed the fact that ministers had decided to press ahead. “Member states tax incentives should never be used to lure profits away from where they should rightfully be taxed”, he said. German Finance Minister Wolfgang Schaüble said: “We Europeans must deliver and an overriding topic is the growing abuse of patent boxes”.
EU28 finance ministers endorsed the signature of a draft agreement with Switzerland. In 2011, the code of conduct expert group identified five damaging Swiss tax measures. After dialogue between the European Commission and Berne, Switzerland has shown willingness to remove the measures in question. In a written statement added to the Ecofin Council minutes, “Member states agree that the Memorandum of Understanding does not prevent Member States from introducing countermeasures against new Swiss tax regimes unilaterally”. (EL)