CALLS from the European Commission for a European-wide anti-tax avoidance directive was heralded by political figures at the European Parliament yesterday, but MEPs are still pushing for stricter limits against corporate tax avoidance
The EU anti-tax avoidance directive was welcomed by Parliament in a resolution voted on Wednesday in Strasbourg.
However, MEPs want to push through stricter limits on deductions for interest payments and tougher rules on foreign income.
Clampdown on corporate tax avoidance
MEPs called for more transparency for trust funds and foundations, common rules for “patent box” tax reductions on intellectual property earnings, and an EU blacklist of tax havens and sanctions against uncooperative jurisdictions.
The agreed European Commission proposal builds on the principle that tax should be paid where profits are made and includes legally-binding measures to block the methods most commonly used by companies to avoid paying tax.
It also proposes common definitions of terms like permanent establishment; tax havens, minimum economic substance, transfer prices and a number of other terms hitherto open to interpretation.
Further recommendations include:
- Drawing up an exhaustive ‘black list’ of tax havens and countries, including those in the Union, complemented with a list of sanctions for non-cooperative jurisdictions and for financial institutions that operate within tax havens.
- Prohibiting the use of letterbox companies.
- Swiftly introducing of a common consolidated corporate tax base (CCCTB).
- Increasing the transparency of trust funds and foundations.
- Introducing a common method for calculating the effective corporate tax rate in each member state, so as to allow for comparison across the EU.
- A cross-border tax dispute resolution mechanism with clearer rules and timelines, to be introduced by January 2017.
- Creating a harmonised, common European taxpayer identification number (TIN) to serve as a basis for effective automatic exchange of information between member states tax administrations.
- The latest anti-tax avoidance directive reflects the OECD’s action plan to limit tax base erosion and profit shifting (BEPS) and follows a series of recommendations made by European powers to tackle corporate tax avoidance.
Ramping up efforts
In January, the European Commission proposed new rules to restrict companies shifting their profits to low tax jurisdictions as part of a package of measures aimed at curbing multinational companies’ aggressive tax practices.
It called on member states to take a stronger and more coordinated stance against tax avoidance and suggests that tax authorities share tax-related information on multinationals operating in the EU, as agreed by 31 countries in a deal with the OECD.
As dawn breaks on a new financial year, George Bull, senior tax partner at RSM, looks at some of the new challenges ahead for FDs
Global tax system reform is a hot topic, so BDO's Ryan Geluk explores the role innovation has in strengthening global financial transparency
James Burton of Allen & Overy considers the new interest deductibility and hybrid mismatches rules introduced under the OECD’s BEPS initiative and how they apply to different group structures
The Spring Budget 2017 saw Philip Hammond commit to lowering corporation tax - was it a missed opportunity to lower the rate sooner?