Brussels, 08/04/2016 (Agence Europe) - Discussions at technical level at the Council of the EU on Wednesday 6 April on the rules on controlled foreign companies (CFC) in the framework of the fight against tax avoidance revealed the degree to which opinions differ.
Readers may recall that these rules reallocate the income of a low-taxed controlled company to its parent company. In this scenario, therefore, the parent company has to pay income tax in the state in which it has its registered office, usually high-taxation countries.
The member states are divided along three lines over the provisions of the proposed anti-tax avoidance directive, which was presented in January of this year by the Commission. In the first group, Malta, Ireland, Estonia and Latvia are reported to have opposed the very existence of this provision in the directive, as in its action plan to tackle tax optimisation ('BEPS'), the OECD provides nothing more than best practice on this point. The UK wants its own approach to be possible under the directive. In the third corner, a group of countries including Germany fear that this approach would lead to watered-down rules on CFCs.
The United Kingdom could therefore scupper the agreement the Dutch Presidency hopes to reach on this text. The British delegation is reported to have stated that it does not wish the agreement to be reached in June, as this would be too close to the referendum on the UK's membership of the EU. The only option for the Dutch Presidency would therefore be to deal with the subject at the May Ecofin Council. Failing that, the dossier would be bequeathed to the Slovakian Presidency.
In the most recent draft compromise dated 8 April, the member states therefore had the choice between two options regarding situations with third countries. The second of these, which has the support of the UK, provides for the member state of the taxpayer to be permitted to include in its tax base only the non-distributed revenue of the CFC “from non-genuine arrangements that serve the purpose of achieving a tax advantage”. The NGOs flagged up this specific point to the finance ministers, arguing that this would be ineffective, given that non-genuine arrangements and their aims are difficult to prove and that identifying these requires significant resources of the tax authorities. (Original version in French by Elodie Lamer)