After more than a year’s absence, the national experts on taxation issues will, on Wednesday 26 April, discuss a proposed compromise by the Maltese Presidency of the Council of the EU on the proposed ‘interest and royalties’ directive.
Fundamentally, the directive was reopened to include an anti-abuse model on the basis of the one in the directive on parent companies and subsidiaries. France and Germany took the opportunity to call for a minimum effective taxation clause to be included, to ensure that profits are taxed at an appropriate level.
The most recent technical meeting was held in February 2016. The then Dutch Presidency of the Council attempted to propose a definition of this effective taxation clause. This provided for the taxation of a payment of interest and royalties to be considered minimum effective taxation if the payment was subject to an effective taxation rate of at least 10% in the member state of the beneficiary, in other words an absolute approach. The countries most hostile to matters concerning rates then caused the dossier to be shelved until now (see EUROPE 11490).
What is the Maltese Presidency proposing? To start again from scratch. In a working document prepared for a working group meeting on taxation issues, of which EUROPE has sight, the Presidency notes differences of opinions on this dossier and recalls that certain states (such as France) made their approval conditional on an anti-abuse clause and the inclusion of this minimum effective taxation clause.
The Presidency is therefore proposing four things. Firstly, to flesh out article 1 of the directive (on the scope of application). Essentially, payments of interest and royalties in a member state will be exempt from tax on these payments in that state if it is subject, without being exempted, to the income tax from these payments in the other member state involved in the payment.
The second point proposed would be to include a targeted anti-abuse clause based on the one in the parents and subsidiaries directive and a general anti-abuse clause based on the one in the anti-tax avoidance directive.
The third proposal would be to allow the state of origin not to apply the directive on the payment of interest and royalties benefiting from preferential tax schemes in the state of residence (addendum to article 4). Under the Presidency’s proposal, a preferential measure allows a significantly lower level of taxation, including zero taxation, than the levels generally applicable in the member state in question. Lastly, it proposes including all pending amendments proposed by the Commission in 2011.
Preferential schemes within CCCTB. The Presidency also intends to put a proposed compromise before the national experts on the super-deduction for research and development proposed in the directive aiming to introduce a common consolidated corporate tax base (‘CCCTB’).
According to the compromise document to be presented to the member states on Wednesday, of which EUROPE has sight, the aim will mainly be to allow countries to decide to apply a tax credit or a tax deduction, but not both at the same time. That said, tax credits would fall outside the scope of the directive, the Presidency stresses.
The figure of 100% additional deduction permitted for the costs in question up to €20 million has been placed between brackets. (Original version in French by Élodie Lamer)