Wednesday, 8 July 2015

European Union: Action plan released, along with list of tax havens

The European Commission unveiled a corporate tax action plan on 17 June 2015 that sets out a series of initiatives as the next steps in the effort to tackle tax avoidance, secure sustainable revenue and generally improve the corporate tax environment for businesses throughout the EU. The plan also states that the EU needs to consider how best to integrate the result of the OECD base erosion and profit shifting (BEPS) project, taking into account EU factors such as the freedom of establishment and the Eurozone, as well as the goal of maintaining a focus on preventing profits generated in the EU from not being taxed anywhere in the EU.
Accompanying the action plan is a list of the “top 30” tax havens around the world. The action plan includes five key areas for action:

  1. Re-launching the CCCTB (common consolidated corporate tax base) initiative: The European Commission will issue a new legislative proposal in 2016 that would make the CCCTB mandatory for EU multinational enterprises (the previous recommendation would have allowed EU multinationals to opt out of the regime), and all EU member states would be required to apply the same rules for calculating taxable profits of multinationals; a step-by-step approach would be taken for the introduction of the CCCTB. The first step would be for a common corporate tax base, i.e. postponing consolidation, which, according to the commission, has been the most difficult element in negotiations thus far. This should allow member states to progress more quickly on agreeing on a common taxable base; consolidation would be introduced as a second step. (Progress on the CCCTB halted in 2011, generally because of the complexities of harmonizing the corporate tax regimes of the member states.)
  2. Ensuring fair taxation where profits are generated: Measures will be introduced to ensure that there is a connection between taxation and the place where activities are carried out, including changes to the definition of “permanent establishment,” amendments to the EU interest and royalties and parent-subsidiary directives, improvements to transfer pricing regimes of member states and the implementation of the OECD’s “modified nexus approach” to patent box regimes.
  3. Creating a better business environment: Measures will be introduced to eliminate obstacles for businesses operating in the EU, including measures allowing group entities to offset profits and losses they make/incur in different EU member states until full CCCTB consolidation is introduced and proposals to improve existing mechanisms to resolve double taxation disputes in the EU.
  4. Increasing transparency: High priority is given to improving tax transparency in the EU to ensure fairer taxation and prevent abuse. (The European Commission released a tax transparency package in March 2015 as a first step.) A tax transparency public consultation is being launched to assess whether companies should publicly disclose certain tax information, such as disclosure through country-by-country reporting. The commission also has issued a list of the top 30 non-cooperative tax jurisdictions, compiled from the black lists of at least 10 EU member states. These jurisdictions are as follows: Andorra, Anguilla, Antigua and Barbuda, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Brunei, Cayman Islands, Cook Islands, Grenada, Guernsey, Hong Kong, Liberia, Liechtenstein, Maldives, Marshall Islands, Mauritius, Monaco, Montserrat, Nauru, Niue, Panama, Seychelles, St Kitts and Nevis, St. Vincent and the Grenadines, Turks and Caicos, US Virgin Islands and Vanuatu. (The listing of non-cooperative jurisdictions does not have any immediate additional consequences beyond those already applying in the member states concerned.)
  5. Improving EU coordination: The action plan states that cooperation between member states is essential to successfully address tax avoidance issues. The commission will launch a discussion within the “Platform on Tax Good Governance” to determine a strategic approach to controlling and auditing companies carrying out cross-border business, and will develop a proposal to reform the Code of Conduct on Business Taxation to enable it to react more efficiently to harmful tax competition and provide guidance on how to implement non-legislative EU measures against corporate tax avoidance. 

Source: Deloitte