The Council of the EU published its latest report, summarized and referenced herein:
- The US complies with all the EU Member States re: Automatic Exchange of Information (AEOI) due to its double tax treaty network, FATCA, etc.
- Guidance on notional interest deductions who wish to adopt a similar method, as not harmful by the Group (no safe harbor; general criteria)
- Delisting certain non-cooperative jurisdictions
- Monitoring implementation of commitments by jurisdictions
- Identification of new preferential regimes
- Further defensive measures for non-cooperative jurisdictions
- Treatment of partnerships re: substance
- The way forward; future monitoring, etc.
This is important guidance, as it provides transparency into the tax measures adopted, or not adopted, by various jurisdictions. It also provides potential measures to incentivize non-cooperative jurisdictions.
Click to access 2019G_005707-19Gbl_EU%20Code%20of%20Conduct%20Group%20issues%20update%20report%20-%20new%20guidance.pdf
The EU, now recognized as the accelerator of BEPS for its Member States, have issued a roadmap of priorities and objectives for the near future. A link to Deloitte’s World Tax Advisor is provided, and the attached article therein.
I have highlighted certain parts of the roadmap worth watching:
- Country-by-Country reporting (will there be a consistent EU standard?)
- Hybrid mismatch arrangements
- Code of Conduct activities, including alignment of transfer pricing outcomes with value creation, an extension of BEPS Actions 8-10. (Note Sweden and UK are already using such Actions re: clarification of existing transfer pricing policy)
- Payments from an EU to non-EU country
- The EU Arbitration Convention is mentioned, although it’s practical effect on mitigating dispute resolution is limited
Click to access dtt-tax-worldtaxadvisor-160226.pdf
Dutch presidency issues EU-BEPS roadmap
The Netherlands, which currently holds the presidency of the council of the EU, issued an ambitious EU-BEPS “roadmap” on 19 February 2016 that sets out plans to move forward with previous EU proposals, as well as future efforts on areas relating to the OECD’s base erosion and profit shifting (BEPS) project. The roadmap includes the following:
- Preparing EU guidance on aligning transfer pricing outcomes with value creation, in accordance with BEPS actions 8-10;
- Identifying potential issues that arise when payments are made from the EU to a non- EU country;
- Assessing the opportunity for developing EU guidance for implementing the conclusions on BEPS action 12 (the disclosure of aggressive tax planning), notably, with a view to facilitating the exchange of information between tax authorities; and
- Developing guidelines on the conditions and rules for the issuance of tax rulings by EU member states.Additionally, the High Level Working Party on Taxation may discuss the current situation regarding the EU arbitration convention that allows the settlement of transfer pricing disputes.
The EU Parliament’s resolutions were passed by a vote of 508 to 108, with 85 abstentions. The proposals call for mandatory country-by-country (CbC) reporting, a common consolidated corporate tax base (CCCTB), defined tax terms and transparency / exchange of tax rulings. A summary press release and the full report are provided for reference:
- Welcomes the EU Parent-Subsidiary Directive amendments, effective at year-end 2015, for a general anti-abuse rule and hybrid mismatches.
- EU Commission has breached its obligations under Article 108 of the Lisbon Treaty by not launching state aid investigations previously.
- EU Member States should respect the principle of profits taxation where they are generated.
- Promote good practices on transfer pricing and the pricing of loans and finance fees in intra-group transactions.
- Commission to further investigate restrictions of deductions for intercompany royalty payments (i.e. counter profit shifting).
- All rulings that have an impact on other Member States to be presented in the CbC report, and shared with the Commission and tax administrations. Rulings to be publicly disclosed in accordance with confidentiality requirements.
- Mandatory CCCTB, with a deadline for the consolidation element and without any further impact assessments.
- Develop measures to tackle cross-border VAT fraud.
- Reform of the Code of Conduct on business taxation.
- New State Aid guidelines by mid-2017.
- EU to be a global leader in tax transparency.
- More extensive CbC report, with intra-group transactions.
- Accelerate European Tax Identification Number project.
- Aggressive tax planning is incompatible with Corporate Social Responsibility (CSR).
- Outgoing financial flows from EU are taxed at least once (i.e. withholding tax).
- Transition period for developing countries to align with Global Standard on Automatic Information Exchange.
This report is compelling, far-reaching and a resource that will be used worldwide, as most non-EU countries will attempt to follow the ever-increasing EU intensity and propensity for changes in the international tax arena. Thereby, it is a must read and a learning tool for non-tax executives in multinational organisations, as well as tax advisors, tax administrations and other interested parties.
My prior post of 30 May 2015 revealed that the European Commission would be developing a new Action Plan, the contents of which are hereby revealed.
The objectives of the new Action Plan are:
- Re-establish the link between taxation and where economic activity takes place
- Ensuring that Member States can correctly value corporate activity in their jurisdiction
- Creating a competitive and growth-friendly EU tax environment
- Protecting the Single Market and securing a strong EU approach to external corporate tax issues, including BEPS measures, to deal with non-cooperative tax jurisdictions and to increase tax transparency
The new Action Plan is provided for reference:
Click to access com_2015_302_en.pdf
5 Key Action Areas:
- Mandatory Common Consolidated Corporate Tax Base (CCCTB), with the consolidation component included as a second step.
- Taxation of profits where they are generated (“However, it is clear that the current transfer pricing system no longer works effectively in the modern economy.”)
- Enhance the EU’s tax environment via cross-border loss offset and improving double taxation dispute resolution mechanisms.
- Increased tax transparency via an EU-wide list of third country non-cooperative tax jurisdictions and assessing whether additional disclosure obligations of certain tax information should be introduced.
- Providing EU Coordination Tools to improve Member States’ tax audit coordination and reforming the Code of Conduct for Business Taxation and the Platform on Tax Good Governance.
The European Commission’s Action Plan clearly reveals a large step away from the traditional arm’s-length transfer pricing principle and toward an economic activity based source of taxation. This clear divergence, with the OECD and established legislation in most countries, sets the stage for a new evolution in transfer pricing and a hybrid of different approaches by various jurisdictions in the next several years.
Accordingly, the Action Plan is required reading to appreciate short and long-term objectives of the European Commission to unify the Member States.
The European Commission published a package of tax transparency measures on 18 March 2015. The press release and other documents, linked herein for reference, include a tax transparency communication, Council Directive re: automatic exchange of information and Q and A’s of the comprehensive package. Significant initiatives are included in this package addressing corporate tax avoidance and harmful tax competition in the EU, key components of which are highlighted. http://europa.eu/rapid/press-release_IP-15-4610_en.htm http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transparency/com_2015_136_en.pdf http://ec.europa.eu/taxation_customs/resources/documents/taxation/company_tax/transparency/com_2015_135_en.pdf http://europa.eu/rapid/press-release_MEMO-15-4609_en.htm Press release:
- The concepts of tax evasion, corporate tax avoidance, “pay their fair share,” aggressive tax planning and abusive tax practices are summarily stated, although corollary concepts for avoidance of double taxation and effective dispute resolution are noticeably absent.
- Tax rulings will be automatically exchanged every 3 months.
- Feasibility of public disclosure of certain tax information of MNE’s will be examined.
- The EU Code of Conduct on Business Taxation will be reviewed to ensure fair and transparent tax competition within the EU.
- The Savings Tax Directive is proposed to be repealed to provide efficiencies and eliminate redundant legislation in the Administration Cooperation Directive.
- Next steps: The tax rulings proposal will be submitted to the European Parliament for consultation and to the Council for adoption, noting that Member States should agree on this proposal by the end of 2015, to enter into force 1/1/2016.
- Common Consolidated Corporate Tax Base (CCCTB) proposal will be re-launched later this year.
Tax Transparency proposal:
- Existing legislative framework for information exchange will be used to exchange cross-border tax rulings between EU tax authorities.
- The Commission will develop a cost/benefit analysis for additional public disclosure of certain tax information.
- The tax gap quantification will be explored to derive more accuracy.
- The global automatic exchange of information for tax rulings will be promoted by the EU.
Council Directive (amending Directive 2011/16/EU) re: automatic exchange of information:
- Mandatory automatic exchange of basic information about advance cross-border rulings and advance pricing agreements (APAs).
- Article I definition of “advance cross-border ruling:
- any agreement, communication, or any other instrument or action with similar effects, including one issued in the context of a tax audit, which:
- is given by, or on behalf of, the government or the tax authority of a Member State, or any territorial or administrative subdivisions thereof, to any person;
- concerns the interpretation or application of a legal or administrative provision concerning the administration or enforcement of national laws relating to taxes of the Member State, or its territorial or administrative subdivisions;
- relates to a cross-border transaction or to the question of whether or not activities carried on by a legal person int he other Member Sate create a permanent establishment, and;
- is made in advance of the transactions or of the activities in the other Member State potentially creating a permanent establishment or of the filing of a tax return covering the period in which the transaction or series of transactions or activities took place.
- Automatic exchange proposal is extended to valid rulings issued in the 10 years prior to the effective date of the proposed Directive (Article 8a(2)).
- In addition to basic information exchanged, Article 5 of the Directive should provide relevant authority for the full text of rulings, upon request.
- EU central repository to be established for submission of information by Member States.
- Confidentiality provisions should be amended to reflect the exchange of advance cross-border rulings and APAs.
Q and A’s:
- Corporate tax avoidance, as explained, undermines the principle that taxation should reflect where the economic activity occurs.
- Standard/template information for the quarterly exchange of information includes:
- Name of taxpayer and group
- Issues addressed
- Criteria used to determine an APA
- Identification of Member States most likely to be affected
- Identification of any other taxpayer likely to be affected
- Commission could open an infringement procedure for Member States not following the disclosure obligations.
- Domestic tax rulings are exempt.
- The EU could be a global standard setter of tax transparency.
- The EU Code of Conduct criteria are no longer adequate, and it lacks a strong enough mandate to act against harmful tax regimes.
The EU Tax Transparency Package is required reading for all MNE’s and other interested parties, as it is an ambitious effort to provide globally consistent procedures for the exchange of tax rulings/APAs. Additionally, it is interesting to note the EU’s aggressive actions and timing in its efforts to align, as well as expand, the OECD’s efforts to address BEPS Action Items. These actions are also intended to be a standard for global setting in the new era of international tax transparency. As a Best Practice, the 10-year look-back provision for rulings implies that MNE’s should have a similar central database for prior, and future, cross-border rulings. Additionally, this automatic exchange is another element of consideration prior to formally requesting a tax ruling.