Annexes to COM(2015)302 - Fair and Efficient Corporate Tax System in the EU: 5 Key Areas for Action - Main contents
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This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2015)302 - Fair and Efficient Corporate Tax System in the EU: 5 Key Areas for Action. |
|---|---|
| document | COM(2015)302  |
| date | June 17, 2015 |
In addition, there are a number of other measures which can also be pursued to re-establish the link between taxation and economic activity, in order to ensure fairer taxation in the EU. The Commission will consider how to ensure effective taxation of profits, while taking into account the need for a competitive and growth-friendly corporate tax environment.
The Commission will explore concrete measures to ensure that these objectives are achieved, starting, for example, within the Code of Conduct for Business Taxation. The Commission recommends that the Code criteria be modified so that the Group can give high priority to ensuring effective taxation.
The Commission will also consider how to ensure that EU corporate tax legislation aimed at preventing double taxation does not inadvertently lead to double non-taxation. The ongoing recast of the Interest and Royalties Directive is the earliest opportunity for the Council to action. It should amend the legislation so that Member States are not required to give beneficial treatment to interest and royalty payments if there is no effective taxation elsewhere in the EU. Based on the outcome of this negotiation, and as a second step, the Commission could align the Parent Subsidiary Directive with the recast Interest and Royalties Directive.
The ultimate effect of any such measures should be to safeguard Member States' rights to tax revenues generated in the Single Market and reduce the capacity of certain companies to escape taxation altogether.
2.2.Improving the Transfer Pricing framework in the EU
Transfer pricing rules are aimed at ensuring that the price of intra-group transactions matches a comparable market price and that profits are fairly divided between jurisdictions in which a multinational enterprise operates. However, it is clear that the current transfer pricing system no longer works effectively in the modern economy. Both businesses and tax administrations find the current system complex. Furthermore, the system can be manipulated by businesses to shift profits to low or no tax jurisdictions.
The OECD BEPS project is bringing forward guidelines intended to bring the Transfer Pricing outcomes in line with value creation. These guidelines will be fairly broad, however, to reflect the needs of the wider OECD/G20 membership.
Therefore, the Commission will begin work with Member States and businesses to build on these rules and develop coordinated and more concrete implementation within the EU, reflecting the economic reality of the Single Market. For example, recent OECD and EU proposals aiming at increasing transparency will provide new information which could help tax administrations identify intragroup transactions which require further investigation. The Commission could provide guidance and propose specific tools on how this information could be best used by tax administrations.
2.3.Linking preferential regimes to where value is generated
Certain preferential tax regimes are perceived to facilitate tax avoidance rather than genuinely encouraging the economic activities for which the tax benefit is offered. For example, a company may locate its intellectual property in a different country to its real R&D activities, in order to avail of the preferential tax treatment, in particular patent boxes.
In 2014 the Code of Conduct for Business Taxation Group agreed that, in order to address this problem, preferential regimes, such as patent boxes, should be based on the "modified nexus approach 10 ". This means that there must be a direct link between the tax benefits and the underlying research and development activities.
The Commission will continue to provide guidance to Member States on how to implement patent box regimes in line with the new approach so as to ensure that they are not harmful, and will carefully monitor this implementation. If, within 12 months, the Commission finds that Member States are not applying this new approach consistently, it will prepare binding legislative measures to ensure its proper implementation.
3. ADDITIONAL MEASURES FOR A BETTER TAX ENVIRONMENT FOR BUSINESS
Any review of the corporate tax framework in the EU must have a firm focus on creating an environment which encourages business and fosters growth and jobs in the Single Market. As outlined above, unfettered tax competition which facilitates aggressive tax planning by certain companies creates competitive distortions for businesses, hampers growth-friendly taxation and fragments the Single Market.
In order to create a more favourable business environment in the EU, there must be greater coordination between Member States on tax policy, along with measures to reduce administrative burden, compliance costs and tax obstacles in the Single Market.
A number of the measures set out in this Action Plan contribute to this goal. Revising Transfer Pricing or Permanent Establishment rules to better reflect modern business realities, for example, may bring practical benefits for cross-border companies in the EU.
The CCCTB, as proposed by the Commission, would be a major step towards a better tax environment for businesses. However, if consolidation is to be delayed in the first phase of the new approach to CCCTB, other initiatives should enhance the EU's tax environment for companies and investors. The Commission intends to proceed with two important new initiatives in this respect.
3.1.Enabling cross border loss offset
The Commission will propose that, until full CCCTB consolidation is introduced, group entities should be able to offset profits and losses they make in different Member States. This would remove a major tax obstacle in the Single Market for businesses, by allowing them temporary cross-border loss relief so that they pay tax on their net profits in the EU.
To ensure that one Member State does not definitively carry the burden of losses incurred in another Member State, there would be a mechanism to recapture these losses once the group entity is profit-making again. The Commission plans to include this initiative as one of the stages in its revised proposal on the CCCTB.
3.2.Improving double taxation dispute resolution mechanisms
Double taxation occurs when different Member States tax the same income. This can be a serious tax obstacle for businesses operating in more than one Member State, creating unnecessary costs and administrative burdens for businesses. Double taxation in the Single Market has a negative impact on cross border investment and leads to economic distortions and inefficiencies. The common base in the CCCTB proposal would eliminate the risk of double taxation in the EU. However, until this is agreed, other solutions are needed.
Most Member States have bilateral tax treaties with each other to relieve double taxation when it occurs, and there are procedures to resolve disputes when they occur. However, these procedures are long, costly and do not always result in an agreement. 11 The multilateral Arbitration Convention, agreed between Member States to solve disputes between Member States, provides some relief. The Arbitration Convention's scope is limited to transfer pricing disputes, and there is no recourse to appeal the interpretation of the rules.
In order to create greater certainty for companies, the Commission will propose improvements to the current mechanisms to resolve double taxation disputes in the EU, by summer 2016. The aim is to create a coordinated EU approach to dispute resolution, with clearer rules and more stringent timelines, building on the systems already in place. This work will review whether the scope of the Arbitration Convention should be extended within the Union and whether turning it into an EU instrument would be more efficient in improving the functioning of the Single Market.
4. FURTHER PROGRESS ON TAX TRANSPARENCY
Transparency is a crucial element in securing fairer taxation, both in the EU and internationally. It is important for tackling tax abuse and ensuring that taxation reflects where economic activity takes place. The Commission has given high priority to improving tax transparency in the Single Market, and has already put forward a number of important initiatives to this end. In particular, the proposal for the automatic exchange of information on cross border tax rulings, presented in March 2015, will ensure greater openness and cooperation between tax authorities and help governments to better protect their tax bases. Member States should quickly adopt this proposal, so that it can be implemented by 1 January 2016 as foreseen.
Meanwhile, the Commission has identified other measures which should be taken forward to further boost transparency, both in the EU and in relation to third countries. These include a common approach to non-cooperative tax jurisdictions, as well as proceeding on impact assessment work on further options.
Furthermore, the Commission is working with other international partners to promote transparency, including through the Extractive Industries Transparency Initiative (EITI). It also stresses the importance of the implementation of the BEPS Action Plan. These initiatives must foster a level playing field for the taxation of multinational corporations, including in developing countries, as we are determined to tackle tax evasion and avoidance globally.
4.1.Ensuring a more common approach to third country non-cooperative tax jurisdictions
In 2012, the Commission issued Recommendations 12 on measures to tackle aggressive tax planning and encourage third countries to apply minimum standards of good governance in tax matters, and committed to report on their application within three years. The aim was to build a common approach to identifying and dealing with non-cooperative tax jurisdictions, which would create a strong EU stance against them. The implementation of these Recommendations has been monitored through the Platform on Tax Good Governance, which was set up for that purpose. On that basis, further measures have been identified to tackle aggressive tax planning and to strengthen the EU approach in tackling non-cooperative tax jurisdictions.
As an immediate first step, the Commission has published an EU-wide list of third country non-cooperative tax jurisdictions, compiled from Member States' independent national blacklists which were discussed in the December 2014 Platform on Good Tax Governance. Those jurisdictions included on the EU-wide list were identified by at least 10 Member States. The list, published on the Commission's website 13 , offers Member States a transparent tool to compare their national lists and adjust their respective approaches to non-cooperative tax jurisdictions as necessary. Going forward, the Commission will amend this list on a periodic basis to reflect changes to Member States' own national lists.
Further work in screening third countries for compliance with tax good governance standards should be performed on the basis of this list. The Code of Conduct for Business Taxation Group would be the most appropriate forum to do this, based on its previous experience in this field 14 . The screening should start with the countries that appear most frequently on Member States' lists of non-cooperative jurisdictions, as listed in the Annex to this Action Plan, with a view to assisting them in improving their good governance standards. The Commission is ready to support Member States in this work, which should be completed within 24 months.
As a second step, the Commission is willing to coordinate possible counter-measures towards non-cooperative tax jurisdictions to address situations of non-compliance with good governance principle in tax matters.
4.2.Proceeding with work on corporate tax transparency, such as country-by-country reporting options
As announced in the March 2015 Tax Transparency Package, the Commission is assessing whether additional disclosure obligations of certain corporate tax information should be introduced. Together with this Action Plan, the Commission is launching a public consultation 15 on various possible options, which will feed into the impact assessment work that will be concluded at the latest in the first quarter of 2016.
5. EU TOOLS FOR COORDINATION
Cooperation between Member States is an essential element in tackling tax avoidance and aggressive tax planning. EU legislation provides for administrative cooperation between Member States' tax authorities, and sets out a series of instruments to help them to cooperate in collecting their due revenues. The Commission believes that the effective use of these instruments is currently sub-optimal, and that Member States could gain advantage from their better exploitation.
There are also a number of different groups that discuss EU taxation issues. These are important tools for ensuring cooperation, coordination and information exchange between Member States and for consulting with various stakeholders on key issues. Two groups in particular, the Code of Conduct for Business Taxation Group and the Platform on Tax Good Governance, have played an important role in EU tax policy. However, they now need to be reviewed to ensure that they make a positive and effective contribution in the future.
5.1.Improving Member States' coordination on tax audits
The Directive on Administrative Cooperation provides for cooperation between Member States on tax inspections and audits, and encourages the exchange of best practices between tax authorities. These instruments are not yet being used to full effect however, and the divergent national approaches to auditing corporations contrast with the highly organised tax planning techniques of certain companies. The Commission will therefore promote greater cooperation between Member States in this area. It will launch a discussion with Member States, within the Platform on Tax Good Governance, to determine how a more strategic approach to controlling and auditing cross-border companies can be taken forward.
5.2.Reforming the Code of Conduct for Business Taxation and the Platform on Tax Good Governance
The Code of Conduct for Business Taxation Group is composed of Member State representatives to deal with harmful tax competition in the EU, in a non-binding way, on the basis of peer pressure. A number of Member States and stakeholders have supported the idea of extending the mandate of the Code and changing the working methods of this Group, to enable it to react more efficiently to cases of harmful tax competition. The Group should also provide guidance on how to implement non-legislative EU measures against corporate tax avoidance. The Commission will make a proposal to introduce these reforms in the Code of Conduct for Business Taxation, in close consultation with Member States.
The Platform on Tax Good Governance is a forum for Member States, businesses and NGOs to consult on tax policy issues, and to review progress on a range of measures, including the 2012 Action Plan on tax fraud and evasion. Its work has been very useful to date. The Commission has decided to prolong the mandate of the Platform, which was due to expire in 2016. It also has expanded the scope of the Platform and enhanced its working methods. As such, the Platform can help to deliver on the new Action Plan, facilitate discussions on Member States' tax rulings in light of the proposed new information exchange rules, and provide feedback on new anti-avoidance initiatives.
Conclusion
This Action Plan provides the foundation on which to build a fairer, growth-friendly corporate tax framework for EU. Measures proposed will contribute to achieving revenue stability, a stronger Single Market, greater corporate resilience and efficiency and a fair and level-playing field for businesses.
This Action Plan has identified the core areas of work for the immediate, medium and long-term future. The harmonisation of corporate tax rates is not part of this agenda. The aim is to coordinate Member States tax systems so that they can better combat aggressive tax planning.
In the short term, some issues related to base erosion and profit shifting can usefully be discussed. The issue of effective taxation of profits in the Single Market also needs to be addressed. The Commission would urge the current and upcoming Presidencies to concentrate their efforts on making progress on these issues in the context of existing legislative proposals and by reforming the Code of Conduct for Business Taxation. The Commission expects good results to be achieved in the EU over the next 18 months, following the BEPS agenda.
In the medium to long term, the revised CCCTB proposal will offer a strong tool to establish fair, predictable and efficient corporate taxation in the EU, including the final objective of consolidation. This will only materialise if Member States are committed and invest sufficiently in the new proposal. Strong political commitment will be necessary to achieve successful results on a post-BEPS corporate tax agenda for the EU.
This Action Plan will be the basis for Commission work on corporate tax policy over the next years. Work will evolve to take account of the input of the European Parliament, contributions of other EU institutions and stakeholders, and outcomes of the OECD BEPS initiative. The Commission will keep progress under review.
Ultimately, the key to reforming corporate taxation in the EU, to make it fairer and more efficient, is in the hands of the Member States. Member States need to overcome their differences for the sake of fairness, competitiveness and efficiency. It is therefore time to move forward.
(1) Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, which was repealed by Council Directive 2011/96/EU of 30 November 2011
(2) Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.
(3) The global dimension, highlighted by extensive work in the OECD/G20, is documented in detail in the Staff Working Document.
(4) COM(2014) 902 final of 28.11.2014, p. 15.
(5) See Annex 4 in the Staff Working Document, regarding links with the OECD BEPS project.
(6) See Annex 4 in the Staff Working Document, identifying links between the actions and ongoing OECD work in the BEPS project.
(7) Parent-Subsidiary Directive and Interest and Royalties Directive
(8) Changes to the definition of Permanent Establishment (PE) are being developed at international level, to prevent the artificial avoidance of PE status in relation to BEPS, including through the use of commissionaire arrangements and the specific activity exemptions.
(9)
Internationally, work is underway to address BEPS using controlled foreign company (CFC) rules. Many countries already have CFC rules, but these rules do not always counter BEPS in a comprehensive manner.
(10) http://www.oecd.org/ctp/beps-action-5-agreement-on-modified-nexus-approach-for-ip-regimes.pdf
(11) For example, see responses to the public consultation on Double Tax Conventions and the Internal Market http://ec.europa.eu/taxation_customs/common/consultations/tax/2010_04_doubletax_en.htm
(12) C(2012)8806 and C(2012)8805
(13) http://ec-europa-eu/taxation_customs/taxation/gen_info/good_governance_matters/lists_of_countries/index_en.htm
(14) The European Commission successfully concluded a dialogue on company tax issues with Switzerland which initiated the removal of five CH tax regimes which were considered harmful. A similar dialogue is currently ongoing with Liechtenstein and Mauritius.
(15) https://ec.europa.eu/eusurvey/further-corporate-tax-transparency-2015/management/test