European Commission proposes ‘fair taxation’ measures

The European Commission presented new measures against corporate tax avoidance last week.

The proposals aim for a coordinated EU-wide response to fight aggressive tax practices by large companies and follow the development of global standards against tax base erosion and corporate profit shifting by the Organization for Economic Cooperation and Development.

The Commission’s proposal would align tax laws in all 28 EU countries to combat aggressive tax practices by multinational enterprises.

The package includes legally binding measures to block the most common tax avoidance methods, a recommendation on preventing tax treaty abuse and the proposed sharing of tax-related information on multinationals operating in the EU.

The measures will also include “a new EU process for listing third countries that refuse to play fair.”

Pierre Moscovici, EU commissioner for Economic and Financial Affairs, Taxation and Customs, said, “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. Today we are taking a major step towards creating a level-playing field for all our businesses, for fair and effective taxation for all Europeans.”

OECD Secretary-General Angel Gurría welcomed the Commission’s proposal, which he said marks an important milestone toward the development of a comprehensive, coherent and coordinated approach against corporate tax avoidance in Europe. “Implementing the international standards against base erosion and profit shifting developed by the OECD and the G-20 will help put an end to double non-taxation, facilitate a better alignment of taxation with economic activity and value creation and render many of the most aggressive tax planning structures ineffective.

“We welcome the Commission’s proposal, which is entirely BEPS-compatible, and will help bring about greater transparency, fairer competition and a more certain tax environment for the benefit of all businesses across Europe,” he said.

The European Commission released its proposal one day after 31 countries signed the Multilateral Competent Authority Agreement, which governs the automatic exchange of country-by-country reporting under the BEPS project.

Approved by G-20 Leaders during their November 2015 summit in Antalya, Turkey, the BEPS project provides governments with solutions for closing the gaps in existing international rules that allow corporate profits to “disappear” or be artificially shifted to low/no tax environments, where little or no economic activity takes place.

It is based on a 15-point action plan, structured around introducing coherence in the domestic rules that affect cross-border activities; reinforcing substance requirements in the existing international standards, to ensure alignment of taxation with the location of economic activity and value creation; and improving transparency and certainty for businesses and governments.

The OECD estimates US$100 billion to US$240 billion revenue losses from BEPS annually, or between 4 percent and 10 percent of global corporate income tax revenues.

The Commission’s legislative proposals for the Anti-Tax Avoidance Package will be submitted to the European Parliament for consultation and to the Council for adoption.