The Council of the European Union (ECOFIN) has published its list of uncooperative tax jurisdictions, numbering 17:
American Samoa, Bahrain, Barbados, Grenada, Guam, Korea (Republic of), Macao SAR, Marshall Islands, Mongolia, Namibia, Palau, Panama, Saint Lucia, Samoa, Trinidad and Tobago, Tunisia and the United Arab Emirates
The listing criteria are focused on three main categories: tax transparency, fair taxation and implementation of anti-BEPS measures.
There are potential counter-measures that could be employed by other jurisdictions, and there is the possibility of other countries aligning such countries on a comparable list. This list will be reviewed annually, thereby expanding or diminishing accordingly.
EY’s Global Tax Alert provides historical context for development of this list.
EY’s Global Tax Alert provides recent developments for BEPS by Australia, Austria, Belgium, EU, Germany, Iceland, India, Niger, and Romania.
- Australia: Local File is OECD +, going beyond OECD’s recommendations, including transactional detail. This development is proving that global consistency is a rapidly fading ideal, as countries legislate what they think benefits them the most. Unfortunately, this adds to the cost, time and complexity of preparing global reports.
- Austria: Transfer pricing documentation draft regulations follows the OECD.
- Economic and Financial Affairs Council of the European Union (ECOFIN): EU Member States Finance Ministers, envision adopting the Anti-Tax Avoidance Directive on 17 June 2016, subject to amendments. Legal agreement was also reached on adoption of the Directive on the exchange of non-public country-by-country tax information. Conclusions were also adopted on the European Commission communication on an external tax strategy and tax treaty abuse measures.
- Germany: Transfer pricing technical draft introducing transfer pricing documentation standards as recommended by the OECD. Master File and Local File documentation requirements introduced.
- India: A 6% Equalization Levy (EL) to apply on gross payments for certain digital services received by a nonresident.
- Niger: Thin capitalisation rules introduced.
- Romania: To become a BEPS Associate and participate in the OECD’s framework.
As the above developments note, BEPS guidelines and intent remains very strong in the global community, with many changes already made and many more to come.
The EU Economic and Financial Affairs Council (ECOFIN) has drafted a directive, subject to European Parliament’s opinion, for EU consistency of country-by-country (CbC) reporting.
The proposed EU legal instrument provides for:
- 2016 CbC reporting to the Member State where it is resident
- Optional provision for non-EU parent companies; 2016 reporting is optional via its EU subsidiaries and such “secondary reporting” will be mandatory for the 2017 tax year.
- Automatic exchange of CbC reports between EU Member States
This surprising draft directive will alleviate some concerns by US headquartered MNE’s (as 2016 CbC reports will probably not be required), although only within the EU. To the extent non-EU Member States have CbC reporting obligations for the 2016 tax year, a Surrogate Entity or local filing may still be required for US MNE’s.
The EU is still recognized as a leader in pushing forward BEPS Action items, and this directive would provide much-needed consistency among Member States for CbC reporting. This development is important to monitor going forward, as well as observing other non-EU countries for a follow-the-leader approach.
The EU Council has provided a Directive that would introduce legislation ensuring the EU maintains its leadership role in anti-BEPS recommendations, as well as providing good tax governance for the rest of the world. EY’s summary of the Directive is provided for reference:
- Automatic exchange of tax rulings would be effective 1/1/2017.
- Changes would be introduced for the EU Code of Conduct.
- EU anti-BEPS proposal to include the following BEPS Actions:
- 2: Hybrid mismatches
- 3: CFC rules
- 4: Interest limitations
- 6: General anti-abuse rule (noting its inclusion for the Royalty & Interest Directive, similar to the Parent-Subsidiary Directive)
- 7: PE status
- 13: Country-by-Country (CbC) reporting
- Common Corp. Tax Base (absent later consolidation phase) proposal to be introduced in 2016
The EU continues its pace to maintain its global lead in addressing anti-BEPS concerns, which will impact non-EU countries around the world. Thereby, it provides another set of rules that would be mandated to achieve EU conformity.
The new EU Directive for the automatic exchange of tax rulings now moves forward for approval, with an effective date of 1/1/2017. A copy of the press release is provided:
- Cross-border tax rulings and advance pricing agreements (APAs) will be automatically exchanged between EU Member States.
- The rulings will be stored in a EU central repository, with access available to the Member States.
- Rulings issued from 2012 will generally be included in the exchange of information, subject to de minimis thresholds.
This development is now moving forward with a transparency focus, although what information will practically be exchanged may be different dependent on the respective Member State.
Multinationals should review prior rulings subject to this exchange to avoid potential surprises.
A anti-abuse rule has been proposed by the EU Economic and Financial Affairs Council for inclusion in the EU Parent-Subsidiary Directive (PSD), following implementation of hybrid mismatch rules as summarized in my post of 24 June 2014. The proposal would be required to legislated into law by 31 December 2015, in addition to the earlier hybrid loan rules.
A copy of the communique is attached for reference:
Annex I contains the following language (highlights added for emphasis) for the proposed anti-abuse rule:
Member States shall not grant the benefits of this Directive to an arrangement or a series of arrangements that, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage which defeats the object or purpose of this Directive, are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part. 3. For the purposes of paragraph 2, an arrangement or a series of arrangements shall be regarded as not genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality. 4. This Directive shall not preclude the application of domestic or agreement-based provisions required for the prevention of tax evasion, tax fraud or abuse.”
Annex II provides further reference stating that EU Member States will endeavor to inform each other, and additionally that an anti-abuse provision will be considered in future work addressing the EU Interest and Royalties Directive 2003/49/EC.
This proposal should be closely followed, as it will directly affect transactions between EU Member States. Additionally, this initiative will be followed by other countries in drafting domestic and/or treaty anti-abuse/anti-avoidance rules, possibly resulting in a multi-pronged approach of anti-avoidance / anti-abuse rules in Directives, treaties and domestic legislation.
The subjectivity of this rule will increase complexity, reduce clarity and certainty while being subject to further appeals contesting implementation and/or interpretation of the guidelines, including the “main purpose” test.
The Commission adopted on 27th June 2012 a Communication on the fight against tax fraud and tax evasion. An Action Plan which details concrete proposals to strengthen the fight against tax fraud and tax evasion was adopted on 6th December 2012.
One of the 34 measures contained in the Action Plan is the development of a European Taxpayer’s Code which is described as follows (action 17):
“In order to improve tax compliance, the Commission will compile good administrative practices in Member States to develop a taxpayer’s code setting out best practices for enhancing cooperation, trust and confidence between tax administrations and taxpayers, for ensuring greater transparency on the rights and obligations of taxpayers and encouraging a service-oriented approach.
The Commission will launch a public consultation on this at the beginning of 2013. By improving relations between taxpayers and tax administrations, enhancing transparency of tax rules, reducing the risk of mistakes with potentially severe consequences for taxpayers and encouraging tax compliance, encouraging Member States’ administrations to apply a taxpayer’s code will help to contribute to more effective tax collection.”
In anticipation of this initiative, some points worthy of consideration are:
- Does your company have a Taxpayers’ Code or Best Practices within a Tax Policy or Tax Risk Policy?
- Should the concept of a Taxpayers’ Code be discussed at the beginning of an audit to enhance trust and confidence?
- Will this initiative be helpful in a simultaneous or joint audit?
- Should a discussion be initiated with the auditor to establish a mutual Taxpayers’ Code?
I look forward to your thoughts on this interesting topic.