Brussels, 19/12/2006 (Agence Europe) - the Commission has launched an “EU-coordinated approach in direct taxation”, the Commissioner for Taxation, Lásló Kováks said on Tuesday 19 December. The aim is to make national taxation systems compatible one with the other and with the treaty. The Commissioner presented three communications: one transverse on coordination of Member States' direct taxation systems in the internal market and the two other specific documents on cross-border loss relief and on exit tax. The Commission justifies its initiative by the fact that Member States are becoming increasingly aware of the need to remove tax barriers to cross-border activities, in the light particularly of EU Court of Justice (EUCJ) caselaw, and through the retention of unanimity in decision-making on tax issues at European level. Certain that the only systematic way to combat these difficulties is to allow multinational groups to be taxed on a Common Consolidated Corporate Tax Base (CCCTB), a legislative proposal for which is expected in 2008., it nevertheless believes it necessary to adopt targeted measures to deal with the most urgent problems in the short and medium term. The success of these initiatives will depend on the will of Member States to find common solutions, said Mr Kováks, determined to show there was added value in working at European level in this area.
The Commission set out three key objectives of a coherent and coordinated tax approach: 1) removal of discrimination and double taxation; 2) prevention of unintended non-taxation and abuse, and 3) reduction of the compliance costs associated with being subject to more than one tax system. It says coordination initiatives can be part of Member States' unilateral action, bilateral action under a Community instrument, these two options being useful in the event of double taxation or non-taxation. The removal of tax discrimination, a fundamental requirement of Community law, forbids a Member State from imposing different treatments in cross-border situations from national situations, except if different treatment is justified by a difference in the situation of the taxpayer. Numerous tax rules contradict the treaty, according to the Commission, which has drawn up a list of targeted areas: taxation of “added value”, “dividends”, “groups”, “branches” and “combating tax evasion”. As a starting point, it proposes to establish guidelines on the principles deriving from recent caselaw and on the way they apply to the main areas of direct taxation. The Commission intends to examine, with Member States in a working group, the issue of abuses and the prevention of non-taxation. Speaking about a joint forum on transfer prices, it also wants to examine ways of reducing the costs of bringing things into conformity related to cross-border activities and simplifying procedures for taxpayers.
Other joint solutions are to be considered for combating tax evasion (e.g. controlled foreign companies), qualification of debts and own funds by Member States, use of hybrid entities, taxation of branches and rights of succession. Mr Kováks also spoke of anti-abuse rules, which will be announced in a specific communication in 2007, as well as withholding tax at source. The Commission also proposes to study, with Member States, the scope of a binding mechanism for resolving litigation to deal with problems of international double taxation within the EU.
Exit tax. In the Lasteyrie du Saillant ruling (Case C-9/02), the Court said that the fact that residents are imposed on the basis of capital gains and expatriate residents on the basis of assets accrued shows differentiated treatment that amounts to an obstacle to free movement (see EUROPE 8665). A national tax authority cannot tax added value not made on assets held by a taxpayer - in particular a company - solely because that taxpayer has transferred his/her tax residence to another Member State. Neither can it make taxpayers subject to disproportionate requirements such as a banking guarantee or the designation of a tax representative in order to ensure recovery of the tax due at the time of asset transferral in such cases. The Commission notes that double taxation can occur if the exit State calculates added value of fictitious sales at the time when the taxpayer leaves the country, and that the new State of residence imposes all the added value between acquisition and the effective sales. Moreover, different national methods for calculating the assets base of companies could produce a double tax or an obligatory non-payment of taxes. Information exchange between Member States as well as their cooperation to determine the best method for working out taxes are decisive for preventing any mistakes in taxes being made. The Commission is therefore recommending to Member States to “fully use the possibilities on offer” under the directives on “mutual assistance” (77/799/ECC) and the “recovery of debts” (76/308/ECC). The same recommendations apply to the exit or transfer of assets to EEA/EFTA countries. The Commission, however, considers that “in situations where a lack of administrative cooperation (with third countries) prevents Member States from safeguarding their fiscal debts, the latter should be allowed to take appropriate measures when assets are shifted or transferred”.
Cross-border compensation of losses. “The absence of exoneration for any losses constitutes a barrier to cross-border activities”, affirmed Mr Kovacs. In the majority of Member States, national losses could be compensated though other profits made in the same Member State. But in the absence of a cross border deduction for losses, compensation of losses is generally limited to profits made in the Member State where the investment was made. Almost always, a group made up of a parent company and subsidiaries, and active in several Member States can pay taxes for an amount that is above the totality of its results at an EU level. In the “Marks & Spencer” decision (C-446/03), the European Court of Justice ruled for the first time that the refusal to authorise a parent company from reducing its taxable profits through losses that it has suffered through its subsidiaries in other Member States and which are not active in the Member State where the parent company is established, constitutes a barrier to the freedom of establishment (EUROPE 9088). In light of this jurisprudence, the Commission is proposing that Member States provide ideas about how cross-border compensation for losses that are incurred can be made: 1) within the same company (that losses suffered by a branch or an establishment belonging to the company in another Member State); 2) within a group of companies (losses suffered by a member of a group in another Member State). According to this, any specific measure aimed at a group of companies should be limited to “vertically ascending situations” (“subsidiary branches” towards “parent company”) and involves an obligation to expend compensation possibilities that subsidiary company has in a Member State where it is established. This, however, only constitutes a “temporary solution while waiting for adoption of CCCTB”). (mb)