Brussels, 15/02/2016 (Agence Europe) - The taxation of interest payments or royalties could be deemed 'minimum effective taxation' if this payment is subject to an effective taxation rate of at least 10% in the member state of the beneficiary. This constitutes a possible starting point to draw up an effective minimum taxation clause modifying the 'Directive on a common system of taxation applicable to interest in royalty payments made between associated companies of different member states', proposed by the Dutch Presidency of the Council of the EU in a session document dated 26 January.
The aim, therefore, would be to opt for an absolute approach (an absolute national rate), rather than a relative approach (a rate compared with that of another member state). The Presidency takes the view that a relative approach would create greater uncertainty and a heavy administrative burden on taxpayers. It also finds that a relative approach would be less in line with the argument justifying an effective taxation clause in the 'interest and royalties' directive in order to prevent competition distortions. “From a single market viewpoint, there is a need for a certain level of minimum effective taxation and not determined by the respective national CIT system of the member state of the payer”, the Presidency writes.
The effective taxation rate would be the rate applicable under the general corporate taxation regime, taking account of any tax exemption, tax reduction or tax credit applied during the tax period in which the payment is made, or the reduced statutory rate applicable under a special tax regime for royalties. The Presidency also raises the question as to whether the scope of this clause should be limited to royalty payments or expanded to include interest. The Presidency also takes the view that a 'transaction-by-transaction' approach would be unwieldy and uncertain and is therefore proposing that the company receiving the payment notifies the payer company of the regime under which the payment is to be taxed and of the rate applicable for this regime (taking account of tax credits and exemptions).
In the light of the discussions at the Council, the Presidency is also planning to include a substance/economic activity test. Proving the effectiveness of this substance/economic activity would be the responsibility of the taxpayer. The Presidency also suggests that it would be worthwhile to stress that in the event of the existence of a 'patent box' (tax regime favourable to intellectual property) which complies with the 'modified nexus approach' of the OECD and the Code of Conduct group (the tax benefit granted is directly related to the level of expenditure on research and development in the country), the royalty payment should automatically pass the economic activity test.
The document goes on to state that the question of third countries has no place in this directive, due to the fact that its scope is limited to payments of interest and royalties within the EU.
However, the Presidency flags up disagreements between states over whether an effective minimum taxation clause as such would be worthwhile. This dossier will require more work at technical and political level, the Presidency stresses. (Original version in French by Elodie Lamer)