Brussels, 10/09/2015 (Agence Europe) - In Luxembourg, this Friday 11 September, the European finance ministers will hold a debate on the question of minimum effective taxation.
Talks have already been held at expert level on 2 September, but the Luxembourg Presidency of the Council of the EU wanted to hear the ministers' views before deciding on the next steps. It emerged from these technical debates that the delegations plan to move away from theoretical discussions and frame the question in a concrete proposal.
In a Presidency note dated 7 September, of which EUROPE has had sight, the concept of minimum effective taxation is defined as “a possible protective measure to ensure that profits do not leave the internal market (external dimension) or are not shifted to another member state (internal dimension) untaxed or taxed at a level which may be considered low, in particular when appropriate economic substance is not generated in that third country or member state”.
The Presidency notes that some member states expressed concern that jurisdictions within the EU may be used as gateways to third-country tax havens. This risk is high with regard to intangibles, particularly intellectual property assets such as royalty payments.
Some member states argue that low taxation is harmful, whereas others are in favour of tax competition in terms of competitiveness, both within the EU and towards the rest of the world, the Presidency explains. It goes on to state that the level of taxation is indeed an important parameter for investment decisions by multinationals. Several states are also reported to have stressed that direct taxation of multinationals is a matter of national sovereignty, and therefore question the legal compatibility of any European minimum effective taxation clause with the Treaties and the fundamental freedoms they provide.
The Presidency stresses that the tools currently available to the states are limited. Recourse to the rules on controlled foreign companies, which aim to prevent the shifting of profits to low-tax jurisdictions, has been hobbled by the case-law of the court of justice in the EU, in the context notably of the freedom of establishment (as was the case in the 'Cadbury Schweppes' judgment of 2006: (see EUROPE 9263). Anti-abuse rules target arrangements set in place to secure a tax advantage and which cannot be considered genuine (see EUROPE 11240). Lastly, there is a peer review-based Code of Conduct group.
What is the way forward? The Luxembourg Presidency plans to focus the debate on concrete, short-term measures. As France has been calling for for several months, it believes that the revision of the 'interest and royalties' directive provides an excellent opportunity to go into the subject in greater depth. Readers may recall that in June, France and other states opposed a split of this directive, specifically to ensure a discussion of the issue of effective taxation (see EUROPE 11339). The Commission had also pledged to tackle the issue in the context of this directive (see EUROPE 11332). A clause could be brought in to make use of this directive in the event of low taxation. It could be duplicated in the 'parent/subsidiary' directive. According to the Presidency, talks on including a clause of this kind confirmed the gulfs between the delegations, some of which are open to a clause of this kind as long as it is accompanied by other criteria (economic substance, etc), and others opposing any such rule on the basis of national sovereignty.
Another possible dossier is the common consolidated corporate tax base (CCCTB), which includes proposals for common rules on controlled foreign companies. The ministers will be asked about both options. They will also be asked whether they consider that the external dimension of tax optimisation and profit shifting should be examined more closely at Council.
FTT. On the sidelines of the Ecofin meeting, on Saturday 12 September, the 11 states participating in the work on the financial transactions tax (FTT) are to meet. “To make progress in the political negotiations”, said the Austrian Minister, who is chairing the work at ministerial level. Those hopeful for an agreement on Saturday fear that Belgium, Spain and Italy may block it (see EUROPE 11385). Spain has denied any link to the elections. Belgium is bound by its governmental agreement. The Belgian Finance Minister, Johan Van Overtveldt, said on Wednesday evening that the texts on the table did not guarantee safeguards for the real economy and would directly affect the pension savings funds. (Elodie Lamer)