Brussels, 18/01/2016 (Agence Europe) - In less than ten days, the European Commission is to present its anti-tax avoidance package ('ATAP'). This is expected to comprise two legislative proposals, a communication on an external strategy towards third countries and recommendations.
The first legislative proposal will be the translation into European law of the OECD action plan to fight base erosion and profit shifting ('BEPS'). The Commissioner for Taxation, Pierre Moscovici, has already announced that the Commission will go further than the OECD. However, a number of observers believe that if the Commission does indeed go further, it will be more in terms of form than substance. What is expected is a directive laying down minimum standards, whereas certain OECD actions constitute best practice or recommendations.
This is of particular concern to the European employers, which are already aware that the American Congress has no intention of implementing certain actions under BEPS. “A uniform implementation of BEPS is extremely important”, Krister Andersson, chair of the fiscal policy group of BusinessEurope, told EUROPE, going on to flag up the risk of competitive disadvantage if the EU applies stricter rules.
These fears have also been exacerbated by the fact that Moscovici told the special TAXE committee of the European Parliament on 12 January that he had no figures to clarify the scale of tax avoidance or the extent to which European initiatives would help to resolve the problem. The proposed directive, anticipated for 27 January, escaped an impact assessment. “We are surprised at this absence of impact assessment”, Andersson told us, explaining that they had called repeatedly for one. Moscovici's comments came at a time when the OECD's Business and Industry Advisory Committee, BIAC, raised concerns over the lack of figures to back up the OECD's BEPS plan to fight tax optimisation, in a position paper of December 2015. “There is great concern that the economic consequences of the (BEPS) recommendations have not yet been fully considered. Countries should be undertaking realistic assessment of the tax revenues they may be due under the consensus reached, rather than assuming that implementation will bring additional tax revenues”, BIAC writes, adding that the possibility that stricter rules will chase economic activity from the countries in question should be taken into consideration.
In a letter to the Commission in December of last year, the associations Oxfam International, Actionaid and the European Public Service Union (EPSU) also said that a “swift and complete analysis of the scale of corporate tax avoidance (would be) vital successfully to fight the phenomenon”.
Theoretically, the text of the Commission's proposal is expected to be very similar to the consolidated text of the previous Luxembourg Presidency of the Council of the EU on the 'BEPS' elements of the common consolidated corporate tax base (CCCTB), a text on which there is already a considerable level of consensus among member states.
As regards action 7 of BEPS, “preventing measures to artificially avoid the status of permanent establishment”, for instance, the definition of “permanent establishment” has been taken from the 'parent/subsidiary' directive and could therefore be taken as it stands into the legislative text of the Commission. However, action 7 in itself may instead be the subject of a Commission recommendation, as it concerns the changes the States would have to make in their bilateral treaties. In view of the reservations expressed by the States, the text of the previous Presidency of the Council puts the provisions on action 7 in brackets.
Another controversial point concerns the rules on controlled foreign companies (CFC), action 3 of BEPS. These aim to prevent profits from being transferred to low-taxation countries. In their joint letter, Oxfam International, Actionaid and EPSU remind the Commission that the OECD is proposing only a set of best practices on the subject and calls upon it to propose rules that also cover intra-EU situations. According to the explanatory note to the text of the Luxembourg Presidency, several delegations made the same request. However, the Presidency stressed, the text would have to be in line with the Treaties and the case-law of the Court of Justice of the EU. The 'Cadbury-Schweppes' judgment of 2006 stated that the British legislation on CFCs could apply only to artificial tax arrangements. The conclusion of the Luxembourg Presidency was that it would be easier to limit these rules to third countries, leaving the member states the leeway to go further. For the remainder, the text is more or less similar to that of the OECD, particularly the definition of the notion of 'control' based on direct and indirect participation of more than 50% of the voting rights or capital. The text of the Luxembourg Presidency of the second half of 2015 states that an effective taxation rate is low if it represents less than 40% of the effective rate of the member state in question. Oxfam International, Actionaid and EPSU point out that according to the OECD, most of the states' existing CFC rules put this threshold at 75% of the statutory tax rate, as in the United Kingdom. The Presidency's text therefore moves towards a comparison in relative terms. Only two member states, one of which is Germany, currently apply a threshold in absolute terms in order to define low taxation. For Germany, for instance, any taxation below 25% constitutes low taxation.
In discussions at the Council, furthermore, a number of delegations had called to be able to apply either these CFC rules, or a 'switch-over clause' (switching from exoneration to tax credit), a provision which is not included in BEPS and which comes from the CCCTB. For its part, the Commission appears to take the view that the two are complementary. According to Andersson, it would make more sense to include the rules on CFCs in the forthcoming proposal on the CCCTB than in an 'anti-BEPS' directive.
As regards the limitation on deducting loan interest (action 4 of BEPS), the threshold for deductible interest is reported not to have been discussed at the Council. The OECD puts this in a range between 10% and 30% of the results of the group before interest, taxation, amortisation and reserves ('EBITDA').
The banking and insurance sector, according to the Presidency's text, will be exempted from this specific provision. As the OECD has not yet come to any conclusions on this point, it remains to be seen whether the Commission will continue along these lines. The banks are calling for it to do so, stressing their specific characteristics. The Presidency's text provides for specific rule for banks and insurance companies. The British Property Federation has written to the British government calling for the full deductibility of interest paid to non-related parties.
For the hybrid mismatches (action 2 of BEPS), the text of the previous Presidency of the Council adopts the approach of the code of conduct group on business taxation. The Commission is reported to have legal issues with this approach and its text could well end up being different.
The Commission is also expected to propose amendments to the directive on administrative cooperation to bring in the exchange of information between the tax administrations on the accounting data submitted by multinationals for each country (country-by-country reporting, action 13 of BEPS). On 8 March, it may propose that certain elements of this reporting are made public.
A communication is also expected, possibly based on a new consolidated list of non-cooperative third countries, aiming to establish specific criteria to define tax havens, and a process of dialogue with these countries. In its recommendations, the Commission may also suggest that the States include provisions on good fiscal governance in their bilateral trade agreements. It could also contain recommendations on limiting the advantages of taxation agreements (action 6 of the OECD). (Original version in French by Elodie Lamer)