Brussels, 28/10/2014 (Agence Europe) - The Italian President of the Council of the EU hopes to reach a political agreement in the near future on the second part of the parent/subsidiary directive (2011/96/EU), which concerns the general anti-abuse clause, following the adoption in June of this year of the first part of the text, dealing with hybrid loans (see EUROPE 11117).
The aim of the directive is to ensure that the companies in question do not avoid tax by playing on the differences between national legislations in the tax treatment of intra-group payments. The anti-abuse clause aims to allow the member states to ignore artificial arrangements made for the purposes of tax avoidance and to apply taxation on the basis of genuine economic data.
In a document dated 27 October which it presented to this Thursday's Coreper, the Presidency said that at expert level, all delegations were in favour of opting for a de minimis anti-abuse provision. This would leave the member states room to apply national provisions, as long as these are as strict as the de minimis rule.
However, six states (the Netherlands, Luxembourg, Malta, Sweden, Belgium and, to an extent, Ireland) expressed misgivings about two aspects of the Presidency's compromise. Three of these states called for the provisions of this clause to be more in line with the wording of the Cadbury-Schweppes ruling of the Court of Justice of the EU from September 2006 (C-196/04). In this verdict, the Court upheld the position of the Cadbury-Schweppes group, which challenged the UK legislation on corporate taxation. The United Kingdom had taxed the group's Irish subsidiaries on the basis of anti-abuse measures on controlled foreign companies (CFCs). The Court's verdict stipulated that the said UK legislation could be applied only to purely artificial tax arrangements. In order to verify whether a CFC carries out genuine activities, the national authorities must take account of verifiable objective elements by third parties, rather than just subjective considerations (see EUROPE 9263).
The Presidency's compromise states that “an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality”. Four states have an issue with the wording “to the extent that”. Sweden and Malta, for example, are asking how this provision will work in practice. The Presidency takes the view that this wording would be relevant to fight abuses more effectively and would also be proportionate and, therefore, in line with EU legislation. “This has also been confirmed by the Commission's services”, the Presidency writes. Luxembourg continues to have reservations regarding the legal security of the anti-abuse clause, but the Presidency argues that its proposed compromise text guarantees this to a sufficient degree.
Several of the delegations concerned stated that it will probably be possible to remove some of these reservations at this Thursday's Coreper. The Italian Presidency has also called upon the Council to obtain a political agreement with a view to adopting the directive under point 'A' of a subsequent Council. (EL)