Brussels, 07/06/2016 (Agence Europe) - This Wednesday 8 June, the European Parliament is getting ready to vote on a report which is a considerable departure from the text of the anti-tax avoidance directive defined by the ministers.
The report, which was led by Hughes Bayet (S&D) contains, as the rapporteur explained, “specific and obligatory definitions of the conditions that confirm that a multinational is indeed established in a country”, in other words its permanent establishment in the country, and a definition of 'tax haven', but also tougher rules on controlled foreign countries and the limitation of the tax deduction of loan interest. It also includes provisions on patent boxes and a blacklist of tax havens.
The rapporteur seems, therefore, to have set himself the priority of a high level of ambition for the text, which, on occasion, he puts ahead of the need for compromise. Many took the floor during the plenary debate to complain about certain aspects. On behalf of the EPP group, the shadow rapporteur, Ludek Niedermayer, counselled caution in order to avoid ending up with an 'anti-business' directive. However, he called upon the Council to pay more attention to the EP's positions. The Irish EPP members' voices were the loudest, among them Brian Hayes, who said that various rushed proposals could have unexpected consequences. Pointing out that European businesses pay on average 15% more tax than American ones, he called on his colleagues to read the report properly before voting on it. The shadow rapporteur of the ECR group, Belgium's Sander Loones, pointed out with some irony that just a year ago, the EP was discussing the Juncker investment plan and aimed to prioritise investment. With the Bayet, the EP is sending out the “opposite signal”, he said. UK MEP Ashley Fox, also a member of the ECR, said that the group did not support the rapporteur's ambition.
The positions of various ALDE members there were less trenchant, with Cora Van Nieuwenhuizen of the Netherlands, for instance, saying that the EU should not go further than the OECD. “Why negotiate at international level if the EU decides to do its own thing anyway?” she asked.
The text made it through the parliamentary committee by a small majority - 20 votes in favour, 15 against and 21 abstentions - as the EPP group decided to abstain due to last-minute amendments tabled by centre-left groups, the press service explained.
The Greens/EFA group voted against the report in committee, as the provision on limiting loan interest deductions had been relaxed at the last minute. On this point the text has not moved, but the Greens/EFA group has obtained other concessions which will allow it to vote for the report on Wednesday.
The scant majority expected to approve the EP's report would not be enough at the Council, where taxation issues are decided upon unanimously.
Although it welcomes the report, the Commission itself said that various provisions have no place in it, such as the provisions on patent boxes, tax regimes favourable to intellectual property, or the blacklist of tax havens. As regards both of these issues, the Commission anticipates a non-binding approach.
Over at the Council, talks are continuing on the anti-tax avoidance directive. There are still two issues standing in the way of an agreement. On the question of limiting loan interest deductions, Austria would prefer to use targeted measures than the rule laid down in the directive, which is based on a fixed ratio (30% of EBITDA: earnings before interest, tax, depreciation and amortisation). The Austrian finance minister confirmed that the country would rather use targeted measures. One recital of the directive was somewhat ambiguous and seemed to give the member states the leeway to use targeted measures instead of the rule based on EBITDA; this has been amended. Lithuania, Slovenia, Estonia and Belgium also have issues with this provision.
Lastly, bilateral discussions are underway with Ireland to try to lift its reservations on the rules on controlled companies (CFC), which basically gives a state in which a parent company has its headquarters the option to tax income of a CFC based in a third country (and, under certain conditions, in the EU) if the effective tax rate is less than 50% of that of the member state of the parent company. Ireland does not want a minimum effective rate in the directive and is stressing that paragraph 51 of the OECD's recommendations on this issue talks of exemptions to the CFC rules if the third country's rate is “sufficiently similar” to that of the state of the parent company.
As for the idea of an intra-EU application of the CFC rules, which is a red line for some of the states, it would be an issue of not explicitly stating that the rules would be applicable only to wholly artificial arrangements, as provided for by the case-law of the Court of Justice, but of rewording the text in order to obtain the same result. On whether there is a genuine economic activity, a number of reservations remain (such as the fact that this activity must be supported by “commensurate staff”). There will be a meeting of tax experts next week. (Original version in French by Elodie Lamer)