European Commission toughens stance on corporate tax avoidance

Feb 03, 2016 12:00 AM

The European Commission has revealed a package on Tuesday to make corporate taxation fairer and more efficient. The package contains several new proposals, the European Parliament has said after its plenary session on Tuesday.

Action Plan to combat corporate tax avoidance and more

The proposals are an EU wide response to corporate tax avoidance and to fight aggressive tax practices by large companies. Corporate tax avoidance costs EU countries EUR 50-70 billion in lost revenue a year, according to the European Commission.

The Commission's action plan on corporate taxation focusses on establishing a common consolidated corporate tax base in the EU as well as making companies pay taxes in countries where they make their profits.

Having a common tax base would involve EU countries agreeing which categories of companies' revenue they would levy their taxes on. It wouldn't necessarily mean taxes would be harmonised, but it would introduce more transparency as companies would be forced to declare their profits where they are created, the EP said in a statement.

The EU executive adopted an Action Plan for fair and efficient corporate taxation in the EU on 17 June 2015.

Five key areas for action have been identified:

  • Re-launching the Common Consolidated Corporate Tax Base (CCCTB) (This action would include (i) making the CCCTB mandatory and (ii) developing a staged approach to implementing the CCCTB)
  • Ensuring fair taxation where profits are generated (This action would include (i) bringing taxation closer to where profits are generated and ensuring effective taxation of profits, (ii) improving the Transfer Pricing framework in the EU and (iii) linking preferential regimes to where value is generated.)
  • Creating a better business environment (Here the measures would include (i) enabling cross border loss offset, and (ii) improving double taxation dispute resolution mechanisms.)
  • Increasing transparency (In scope of this the EC plans to (i) ensure a more common approach to third country non-cooperative tax jurisdictions and (ii) proceed with work on corporate tax transparency, such as country-by-country reporting options.)
  • Improving EU coordination (This action would include (i) improving Member States' coordination on tax audits and (ii) Reforming the Code of Conduct for Business Taxation and the Platform on Tax Good Governance.)


The Commission presented the first measures based on this action plan on 28 January and discussed its plans with MEPs in plenary on 1 February.

Anti-Tax Avoidance Package

The Anti-Tax Avoidance Packagecalls on Member States "to take a stronger and more coordinated stance against companies that seek to avoid paying their fair share of tax and to implement the international standards against base erosion and profit shifting."

Key features of the new proposals include:

  • legally-binding measures to block the most common methods used by companies to avoid paying tax;
  • a recommendation to Member States on how to prevent tax treaty abuse;
  • a proposal for Member States to share tax-related information on multinationals operating in the EU;
  • actions to promote tax good governance internationally;
  • a new EU process for listing third countries that refuse to play fair.


"Collectively, these measures will hamper aggressive tax planning, boost transparency between Member States and ensure fairer competition for all businesses in the Single Market," the Commission said in a statement on 28 January.

Reactions

"Companies must pay their fair share of taxes, where their actual economic activity is taking place. Europe can be a global leader in tackling tax avoidance. This requires coordinated European action, avoiding a situation of 28 different approaches in 28 Member States," commented Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue.

"Billions of tax euros are lost every year to tax avoidance - money that could be used for public services like schools and hospitals or to boost jobs and growth. Europeans and businesses that play fair end up paying higher taxes as a result. This is unacceptable and we are acting to tackle it," added Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs.

"The absurd outcome of Google's tax treatment in the United Kingdom is the best illustration of the necessity to have a single European regime to tax globalized activities," commented Alain Lamassoure (EPP, FR), chairman of Parliament's Special Committee on Tax Rulings.

"This is an important step but it should not be the end," Roberto Gualtieri (S&D, IT), Chairman of the Economic and Monetary Affairs committee, commented on the Anti-Tax Avoidance Package.

"We encourage the Commission to pursue its efforts, notably to further strengthen the country-by-country reporting rules with the upcoming initiative foreseen in spring 2016 and to start its work for a renewed CCCTB proposal which should also include the possibility of a consolidation phase," he added.

"Quick and efficient implementation of proposed measures constitute a good start, but must be followed by other proposals as the current situation not just undermines fiscal position of states, but also are harming internal market, creating unfair conditions at market and harming the credibility of governments," said Ludek Niedermayer (EPP, CZ), co-rapporteur in the field of corporate taxation.

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