Brussels, 04/05/2016 (Agence Europe) - The text of the future anti-tax avoidance directive (ATAD) is gradually stabilising at technical level, with the Dutch Presidency of the Council of the EU hoping for a general approach at the Ecofin Council of 25 May.
The Commission proposed this directive in January of this year, to transpose certain points of the 'BEPS' action plan of the OECD to fight aggressive tax optimisation into EU law. In order to bolster its text, the Commission has also included certain elements of its initial proposal for a common consolidated corporate tax base (CCCTB).
The sixth draft compromise on the ATAD, which was put together for a technical meeting on 4 May, states, amongst other things, that the French proposal of 25 April aiming to exclude domestic groups from the scope of the limitation of the tax deductibility of loan interest has not been retained. The Dutch Presidency explained that these groups are not immune to risks related to aggressive tax optimisation, but also that there are legal risks in the EU from treating them differently from transnational groups.
The United Kingdom has finally clarified its position on the rules on controlled foreign companies (see EUROPE 11531). These rules reallocate the income of a low-taxed controlled subsidiary to its parent company. In this scenario, the parent company must therefore pay tax on that income in the state in which it has its headquarters, generally high-taxation countries. A British delegation document, prepared for the meeting of 4 May, proposes to include an option in this provision for the member states to apply threshold or exemptions limited to situations in which “observable facts and circumstances indicate that there is no significant risk of artificial diversion, in order to reduce” the administrative burden on the states and taxpayers. The other changes proposed by the British relate more to the vocabulary than to the substance.
The approach proposed by Germany at the end of April, to ensure that intra-EU situations are treated correctly, does not have the support of many member states (see EUROPE 11538). In the text of the Dutch Presidency, the British approach, whereby a member state may only include the non-distributed income of a controlled foreign company (CFC) in its tax base which “stems from non-genuine arrangements which have been set in place essentially with the aim of obtaining a tax advantage” for situations concerning third countries (see EUROPE 11528), remains between brackets, but the member states could have the choice between this approach or one based on types of income, rather than a combination of the two. In a new feature introduced to the text, it may also be possible to waive the approach based on types of income if the taxpayer can establish that a CFC has been set up for valid commercial reasons and that it is pursuing economic activities supported by staff or assets which justify the income allocated to it.
The Commission sees the switchover clause (moving from exoneration to tax credit) as an addition to the CFC rules. Austria would prefer this to be an option and has made a proposal to this effect. The Presidency has also prepared an alternative for the provision on hybrid mismatches, which is along the lines of the recent UK proposal.
A number of delegations, however, feel that the work is moving too quickly and cannot promise to be able to rubber-stamp the text by 25 May. A Council source explained that the technical problems are being resolved a few at a time and that the issues still on the table are mainly political. For instance, various states are still opposed to the merest mention of provisions on CFCs in the directive. (Original version in French by Elodie Lamer)