In the light of the international corporate tax reform agreed in early October at the OECD (see EUROPE 12808/2), EU Council experts are finalising a revision of the 1997 Code of Conduct for Member States to limit harmful national corporate tax practices.
In addition to tackling very low or zero tax rates, the Code of Conduct will cover generally applicable tax features of a Member State which create opportunities for double non-taxation or that can lead to multiple use of tax benefits, in connection with the same expenses, amount of income or chain of transactions.
When assessing whether a tax feature of general application of a Member State is harmful, the following two cumulative criteria will be taken into account and the existence of a direct causal link between them determined: (1) this feature is not accompanied by appropriate anti-abuse provisions or other adequate safeguards and as a result, leads to double non-taxation or allows the multiple use of tax benefits in connection with the business activity; (2) this feature affects in a significant way the location of business activity in the Union.
This extension of the scope of the Code of Conduct will be effective when the directive transposing the provisions on minimum taxation (pillar II) of the OECD agreement is in force, in any case no later than the beginning of 2023, and it will focus on measures enacted or amended after 2022.
Member States will be encouraged to promote at international level the principles underlying the dismantling of harmful tax practices, including through the EU list of non-cooperative jurisdictions for tax purposes.
In addition, the Code of Conduct will be somewhat more binding on Member States in terms of information sharing. Thus, they will have to communicate to the other EU countries, by the end of each calendar year, any tax measures falling within the scope of the Code.
Most importantly, a State will be able to bring to the attention of the EU Council’s Code of Conduct Group any tax measure that the EU country that introduced it has not spontaneously notified.
The revision of the Code of Conduct is currently the subject of reservations by Hungary and Estonia, the Commissioner for Economy, Paolo Gentiloni, said, on Tuesday 30 November, during an exchange of views with the European Parliament’s subcommittee on tax issues (FISC). It could be adopted at a forthcoming Ecofin Council.
See the draft recommendation: https://bit.ly/3D1SsU0 (Original version in French by Mathieu Bion)