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Modern EU Policies: Integration in Action/Publications series Vol. 5. EU Taxation Policy and Law: new approaches (2014-16), Part II. Corporate taxation: new trends.
Part II. Corporate taxation: new trends
The Commissioners initiated an orientation debate (at the end of May 2015) on
measures to make corporate taxation in Europe fairer, more growth-friendly and
transparent. It was agreed that a new EU approach to corporate taxation is
needed to successfully address tax abuse, ensure sustainable revenues and
foster a better business environment in the internal market.
In the
Commission’s Political
Guidelines adopted in July 2014, President Juncker stated that the EU
member states needed more fairness in the internal market’s development. While
recognising the competence of the EU states for their taxation systems, the
Commission would step up its efforts to combat tax evasion and tax fraud, so
that “all contribute their fair share”.
The
Commission is rapidly delivering on the commitments made in its Work Program to
clamp down on tax evasion and tax avoidance, and ensure that companies pay tax
where they generate profits.
Short
history. On 18 March 2015, the Commission proposed a Tax Transparency Package to create more openness and cooperation among the EU member states on
corporate tax issues. A key element in the Package was a proposal for the
automatic exchange of information on tax rulings.
This
proposal received unanimous political support from the EU finance ministers at
the Informal ECOFIN meeting during Latvian Council Presidency in Riga in April
2015.
Presently,
the EU member states are discussing the package at technical level with the aim
of reaching agreement by the end of 2015.
In the Tax
Transparency Package, the Commission also announced that it would present
before the summer “a detailed Action Plan on corporate taxation, which will set
out the Commission's views on fair and efficient corporate taxation in the EU
and propose a number of ideas to achieve this”.
Vice-President Valdis Dombrovskis, responsible for the
Euro and Social Dialogue, said that the EU wanted corporate taxation to be fair
and growth-friendly. Every company, big or small, must pay its share of tax at
the place where it makes its profits. Although corporate taxation is EU states’
responsibility, the EU must set a clear and renewed framework for fair and
competitive corporate taxation.
Pierre
Moscovici,
Commissioner for Economic and Financial Affairs, Taxation and Customs, added
that The EU’s current approach to corporate taxation no longer fits today's
realities. The member states are using outdated tools and unilateral measures
to respond to the challenges of a digitalised and globalised economy. For
fairer taxation and less fragmentation in the Single Market, the EU needs a fundamental
review of corporate tax framework: big, small and medium sized companies should
be able to benefit from the internal market on an equal footing.
Tax evasion as a priority. President Jean-Claude Juncker has
made the fight against tax evasion and avoidance a top political priority of
the present Commission. The key objective is to ensure that companies are
taxed where their profits are generated and cannot avoid paying their fair
share of tax through aggressive tax planning.
An
important first step was taken in March 2015 when the Commission presented a
first package of measures to boost tax transparency
in the EU.
The College
agreed to take a more comprehensive approach to improve corporate taxation in
the EU, also taking into account ongoing international reforms in this field.
The orientation debate (Brussels, 27 May 2015) will feed into an Action Plan in
June 2015, which will include a strategy to re-launch the works on the
introduction at the level of the EU of a Common Consolidated Corporate Tax Base
(CCCTB), to implement measures against tax avoidance which are being developed
at international level within the OECD, and to further strengthen tax
transparency while taking into account the necessity to reinforce the
efficiency of the tax environment for businesses in the internal market.
Reference: eng/legislation/?doc=106760&ins_print;
Public consultations on new corporate taxation
rules in the EU. The European Commission intends through public
consultations identify key measures to re-launch Common Consolidated Corporate
Tax Base (CCCTB). The CCCTB main focus is on facilitating EU and third-country
businesses, primarily those active in more than one EU state. It would reduce
administrative burden and compliance costs for business; besides, the CCCTB
would function as an effective tool against aggressive tax planning.
The call
for feedback comes as part of the implementation of the Commission's Action Plan for
Fair and Efficient Corporate Taxation which was presented in June 2015. A
wide range of views is sought from businesses, civil society and other
stakeholders. The Commission intends to come forward with revised legislation
somewhere in 2016.
Reacting to
the start of consultations, Pierre Moscovici, Commissioner for Economic
and Financial Affairs, Taxation and Customs underlined that “the CCCTB was
the best instrument for fighting cross-border tax abuse and tax fraud and for
easing the administrative burden on companies operating in the EU”.
He stressed
that the Commission hoped that the views collected in this public consultation
would assist the member states and EU institutions to present in 2016 a revised
proposal that would be balanced and beneficial to all.
Consultations
for an effective CCCTB. This consultation wants to gather views, in
particular, on the extent to which a CCCTB could function as an effective tool
against aggressive tax planning without compromising its initial objective of
making the Single Market a more business-friendly environment.
Feedback is
also welcomed on the proposed 'two-step approach' of the initiative and on the
criteria that could determine which companies should be subject to a mandatory
CCCTB.
The
consultation will also look at ideas on how to address the 'debt bias' and the
type of rules that would best foster Research & Development activity. The
public consultation remained open until 8 January 2016.
The
Commission strategy to re-launch its proposal for the CCCTB rests on the belief
that companies operating across borders within the EU could benefit from a far
simpler way to calculate their taxable profits. Under a CCCTB, businesses
would have to comply with just one EU system for computing their taxable
income, rather than the current situation where they have to comply with
different rules in each EU member state in which they operate.
The aim of
the strategy is to kick-start negotiations in the Council which have stalled
largely because of the scale of the original proposal back in 2011.
Step-by-step
approach. For this reason, a new proposal for a CCCTB would
consist of a step-by-step approach. First, the Commission will
propose a common tax base without consolidation. This should make the proposal
easier for the EU member states to agree.
Second,
once the common base is secured, consolidation will be introduced with the aim
of securing that the EU member states would be allowed to tax their share of
the base at their own corporate tax rate.
Therefore,
the main focus of the CCCTB is on facilitating EU and third-country business,
primarily those active in more than one EU member state. In addition to
creating a business friendly environment by reducing the administrative burden,
compliance costs and legal uncertainties for companies, the CCCTB would also
function as an effective tool against aggressive tax planning.
On
public consultation see:
http://ec.europa.eu/taxation_customs/common/consultations/tax/relaunch_ccctb_en.htm
and
Reference: European Commission, Press release
IP-15-5796, Brussels, 8 October 2015. In: http://europa.eu/rapid/press-release_IP-15-5796_en.htm?locale=en
Commission’s efforts to increasing tax accountability
for large multinationals.
The Commission has started in April 2016 a new “campaign” towards
greater corporate tax transparency by introducing public reporting requirements
for the largest companies operating in the EU. Once adopted, the new Directive
would have to be transposed into national legislation by all EU states, within
one year after the entry in force.
In June
2015, the Commission launched a broad assessment into the impact of potential
measures to introduce public reporting requirements on multinationals operating
in the EU. This involved an in-depth analysis of different policy options, as
well as targeted consultations, in order to weigh up the objectives, benefits,
risks and safeguards of further transparency on corporate income tax. Present
proposal reflects the outcome of this work.
See: COM (2015) 610 final, 27 October
2015 and COM (2014) 910 final, 16 December 2014.
The
proposal is closely linked to the revision of the Administrative Cooperation
Directive, politically agreed by EU states in March 2016, which requires
certain multinational enterprises to submit a CBCR to EU tax authorities. This
revision implements the OECD's
BEPS Action Plan endorsed by G-20 leaders in Antalya in November 2015.
Present
proposal (12.04.2016) will amend the Accounting Directive (Directive
2013/34/EU) to ensure that large groups publish annually a report
disclosing the profit and the tax accrued and paid in each EU state on a
country-by-country basis. This information will remain available for five
years.
Contextual
information (turnover, number of employees and nature of activities) will
enable an informed analysis and will have to be disclosed for every EU country
in which a company is active, as well as for those tax jurisdictions that do
not abide by tax good governance standards (so-called tax
havens). Aggregate figures will also have to be provided for operations in
other tax jurisdictions in the rest of the world. The proposal has been
carefully calibrated to ensure that no confidential business information would
be published. Commission initiatives against tax avoidance see in IP/16/159.
The
proposal for a Directive is now submitted to the European Parliament, the Council
of the EU and the Commission; the latter hopes that the proposal will be
swiftly adopted in the co-decision process. Once adopted, the new Directive
would have to be transposed into national legislation by all EU states, within
one year after the entry in force.
Introducing
information sharing between tax authorities. Present Commission’s
proposal builds on the EU work to tackle corporate tax avoidance; it is
estimated to cost the member states about € 50-70 billion a year in lost tax
revenues.
The
proposal requires multinationals (MNCs) operating in the EU with global
revenues exceeding € 750 million a year to publish key information on where
they make their profits and where they pay their tax in the EU on a
country-by-country basis. The same rules would apply to non-European
multinationals doing business in Europe. In addition, companies would have to
publish an aggregate figure for total taxes paid outside the EU.
This
proposal is a simple, proportionate way to increase large multinationals' accountability
on tax matters without damaging their competitiveness. It will apply to
thousands of large firms operating in the EU, without affecting small and
medium-sized companies.
The
proposal also provides for stronger transparency requirements for companies'
activities in countries which do not observe international standards for good
governance in the area of taxation. Commission’s proposal is build on the
External Tax Strategy with the aim of establishing the first common EU list of
such tax jurisdictions as rapidly as possible.
Commission’s
comments. Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue underlined that combating
tax avoidance had been a key priority of the new Commission, as close
cooperation between tax authorities must go hand in hand with public
transparency.
He said
that Commission intends to make information on income taxes paid by
multinational groups readily available to the public, without imposing new
burdens for SMEs and with due respect for business’ confidentiality. Hence, by
adopting new proposal, the EU is demonstrating its leadership in combating tax
avoidance.
Member
states’ economies and wellbeing depend on a fair tax system, which would apply
to both individuals and business.
He added
that by using complicated tax arrangements (often called “tax planning”), some
multinationals can pay nearly a third less tax than companies that operate only
in one country. Thus, the new proposal to increase transparency will help make
companies more accountable; besides, it will promote fairer competition between
companies regardless of their size.
In his
remarks on tax transparency rules for multinationals (Strasbourg, 12 April
2016), he acknowledged strong College support for the proposal requiring all
large MNCs operating in Europe to publish information on the tax they pay,
country-by-country.
The EU-28
already reached an agreement on the automatic exchange of tax rulings among the
states and reached a deal (in March 2016) to allow the automatic exchange of
tax information received from large multinationals between tax administrations.
Mandatory
public country-by-country reporting will enable citizens to scrutinize MNCs tax
behavior, which in turn, would encourage companies to pay tax where they make
their profit.
This
reporting will also support efforts to gain a better insight into EU states'
tax systems and help identify existing loopholes and mismatches, thereby
shedding more light on the causes and consequences of corporate tax avoidance.
Additional
information is on the following websites:
- MEMO on public tax transparency rules for multinationals;
- Communication on public tax transparency rules for multinationals;
- Impact assessment for public tax transparency rules for multinationals; - Information on the Anti-Tax Avoidance Package;
- MEMO on the Anti-Tax Avoidance Package;
- Information on the
political agreement on CBCR between tax authorities;
-http://ec.europa.eu/finance/consultations/2015/further-corporate-tax-transparency/index_en.htm
- http://europa.eu/rapid/press-release_IP-16-1349_en.htm
EU tax
transparency principles. The Panama papers have not changed EU agenda;
on the contrary, “the case” has strengthened determination to make sure that
taxes are paid where profits are generated. So the present proposal
builds on the work taken by OECD to require the sharing of information related
to corporate income tax between tax authorities. Commission’s proposal goes a
step further and will require the biggest multi-nationals to make key
information public.
It can help
the public see whether companies are acting in the best long term interests of
their shareholders from a reputational point of view.
In
developing this proposal for greater tax transparency, the Commission was
guided by a number of principles:
- to be
consistent with international work by the OECD and endorsed by the G-20;
- to stick
to major reforms already taken by Commissioner Pierre Moscovici to increase
transparency and fight tax avoidance;
- to bring
forward measures that will affect all biggest MNCs operating in Europe, not
just European businesses; and
- to be
proportionate in two main respects: first, not to undermine the position of
European businesses against their global competitors; and second, not to burden
European SMEs, which are typically operate only in one country.
Indeed, the
Commission’s intention has been to protect the SMEs’ competitive position:
smaller companies, which are not able to shift their profits, or cannot afford
clever tax advice to minimize their bills, should not lose their competitive
advantage to big multi-nationals.
Businesses
should be concentrated on their customers, on service, on product innovation,
on true competition - rather than on “creativity competition” among tax
advisers.
Proposal’s
essence. It would require larger multinationals, i.e. those with annual global revenues
above €750 million (which is in line with the OECD approach) to publish
information publically in seven key areas. This definition will cover about 6.500 businesses and 90% of
multinational revenues. On a
country-by-country basis, they would need to publish: = the nature of their
activities; = how many staff they have; = their net turnover; = their profit
before tax; = the amount of tax due based on yearly profits; = the amount of
tax they actually paid in that same year; and = their accumulated earnings.
This
information is already collated and provided to national tax administrations.
MNCs will also be required to report (as well as the country-by-country
reporting within the EU) on the total tax they pay outside the EU.
And, if
they pay taxes outside the EU in countries or jurisdictions that don't abide by
international good governance standards on tax, MNCs would have to publish the
same detailed information as for a European country. So if large multinationals
active in Europe are paying tax in somewhere like Panama (to take an example)
they’d need to make that public.
Taken
together, this information will give a clear idea of whether a large MNC is
paying tax where it makes its profits. It would be made available for five
years on the company’s website; anyone interested could see where MNCs pay
taxes (as well as whether there is a level playing field for smaller
businesses).
To make
sure European companies are not disadvantaged, these rules would apply to the
subsidiaries of non-European multinationals doing business in Europe, as well
as large European multinationals.
European
banks already have a specific transparency regime in the Capital Requirements
Directive so that they will not be affected by the proposal. The only
change will be that large banks established outside the EU, but doing business
inside it, would now be required to publish a country-by-country report.
In drawing up this proposal, the Commission consulted widely all interested parties and taking into consideration OECD's work; that makes the proposal simple and proportionate while increasing accountability. The next step will be to work with the EU states and the European Parliament to make quick progress and having a more informed debate about where companies pay tax, in order to promote fairer competition between companies regardless of their size.
Reference: http://europa.eu/rapid/press-release_SPEECH-16-1365_en.htm?locale=en
Introducing
public country-by-country reporting for multinational enterprises. In
Commission’s Questions
& Answers paper
(Strasbourg, 12 April 2016) more
detailed information was published concerning the new proposal.
= Since the
beginning of its mandate at the end of 2014, the Juncker Commission has pursued
an ambitious agenda to ensure fair taxation, meaning that companies should pay
their fair amount of taxes in the country where they generate their profits.
Fighting against tax avoidance and aggressive tax planning has been a political
priority for the Commission too.
An
environment of complex tax rules and fiscal secrecy has allowed some
multinational enterprises to exploit non-transparent loopholes and mismatches
in tax systems within the EU. According to the European Parliament, it is
estimated that countries in the EU lose € 50-70 billion each year to corporate
tax avoidance. Some recent investigations have shed light on the low taxes paid
by certain multinationals and triggered public concern regarding the efficiency
and fairness of the tax system.
See more: COM (2015) 610 final of 27 October
2015 and COM (2014) 910 final of 16 December 2014. And a web link to: Bringing
transparency, coordination and convergence to corporate tax policies in the
European Union; Assessment of the magnitude of aggressive corporate tax
planning.
Combating
corporate tax avoidance has been in the European and global agenda in the past
years. The EU is already leading the way internationally when it comes to tax
transparency by having adopted binding measures to prevent the concealment of
offshore funds. The recent press investigations, known as the Panama Papers,
confirm once again the importance of this agenda, and the Commission will
continue to pursue it with determination and with particular focus on tax
transparency. The EU states agreed to the Commission’s proposal for
transparency on tax rulings and other important corporate tax reforms. See: IP/15/5780.
In November
2015, G-20 leaders in Antalya endorsed the OECD Base Erosion and Profit
Shifting (BEPS) Action Plan, which introduces, among other actions,
country-by-country reporting to be submitted by multinational firms to a
relevant tax authority, information which is then exchanged between tax
authorities. In January 2016, the Commission proposed to introduce this
provision in the EU and make it legally binding, through an amendment to the
Administrative Cooperation Directive in follow-up to the Tax
Avoidance Package (ATAP).See: IP/16/159; in
March 2016, the ECOFIN Council reached a political agreement on this proposal.
The
Commission will pursue its ambitious agenda for fair and effective taxation,
with a number of other important proposals, including the re-launch of the common
consolidated corporate tax base (CCCTB).The new proposal will
strengthen this work with additional transparency measures.
With the
new proposal, the Commission is responding to the intense public demand to
combine openness on company accounts and the level of taxes actually paid with
the need to safeguard the competitiveness of EU businesses. Particular
attention is also paid to tax information relating to countries that do not
respect good governance standards. Public transparency on tax is also an
important part of companies’ corporate social responsibility.
Commission’s
proposal: expected effects. The proposal pays particular attention to tax information relating to
countries that do not respect good governance standards. The
European Commission is proposing to require large MNCs to disclose publicly the
income tax they pay within the EU, country by country. In addition, they would
be asked to disclose how much tax they pay on the business they conduct outside
the European Union. For those tax jurisdictions that do not abide by tax good
governance standards (so-called tax havens), this information will need to be
disclosed on a disaggregated basis.
Any MNC
(both European and/or global), which is currently active in the EU’s single
market with a permanent presence in the Union and that has a yearly turnover in
excess of € 750 million would have to comply with these additional transparency
requirements.
Some
additional information apart from tax paid is needed to put the tax information
into context. The information to be disclosed on a country-by-country
basis would include: = the nature of the activities; = the number of
employees; = the total net turnover made, which includes the turnover made with
third parties as well as between companies within a group; = the profit made
before tax; = the amount of income tax due in the country as a reason of the profits
made in the current year in that country; = the amount of tax actually paid
during that year; and = the accumulated earnings.
This
information would have to be disclosed for every EU country in which a company
is active, as well as for the so-called tax havens. Aggregate figures would
also have to be provided for operations in other tax jurisdictions in the rest
of the world. Reporting should also include explanations on discrepancies
between the amounts of income tax actually paid and income tax accrued.
This
information would be made available in a stand-alone report accessible to the
public for at least 5 years on the company’s website. Companies would also have
to file the report with a business register in the EU.
Consultation
history. In order
to determine whether further transparency on income tax information was needed,
the Commission carried out a thorough analysis, which is reflected in the
Impact Assessment accompanying this proposal, and summarised in an Executive
summary. The Commission consulted a broad range of experts and interested
parties from summer of 2015 onwards and it also launched a public consultation.
Over 400 respondents representing firms, industry associations, NGOs, citizens
and think tanks responded to this consultation, a summary of which is available
on the Commission’s website: Factual
Summary of the responses to the public consultation on assessing the potential
for further transparency on corporate income taxes, January 2016.
Legal
basis of the proposal and the need to amend the Accounting Directive (2013). This work has been undertaken to
contribute to the Commission’s overall objective of ensuring that the country
in which a company’s profits are generated is also the country of taxation.
This
Directive does not propose the harmonisation of taxes, but instead refers to
financial reporting obligations as regards income tax information. This is why
Article 50 of the Treaty on the Functioning of the Union, which concerns the
right of establishment and is the regular legal basis for initiatives in the
area of company law, accounting and corporate financial reporting, has been
determined to be the appropriate legal basis. The legal proposal amends the
Accounting Directive (2013/34/EU) and is therefore based on the same legal
basis.
This means
that this proposal is subject to qualified majority voting, not unanimity as is
the case for legislation dealing with the harmonisation of tax rules.
Proposal
and the Panama Papers. Particular opportunities for tax avoidance and tax evasion emerge in tax
jurisdictions which do not respect international tax good governance standards.
If multinationals are active in such jurisdictions, special transparency
requirements will apply. A specific process is being introduced to provide
full, country by country, disclosure within the EU to ensure a higher level of
transparency as regards taxes paid by multinational companies in tax
jurisdictions posing specific tax challenges (those that do not comply with
good governance standards on tax).
Specific
tax challenges relating to this proposal. Panama Papers highlight the relevance of such
lists and their potential to target problematic tax jurisdictions, if properly
employed. Most of the third countries in which the offshore firms were located
already feature on the pan-EU list. In January, the Commission proposed a new
EU screening and listing process to identify and act against third countries
that willingly enable tax abuse as part of its External Strategy for Effective
Taxation. This common EU list will replace the current compilation of the
states' diverse national lists for tax purposes, first published in June 2015.
The common EU list will be based on clear and internationally-justifiable
criteria and a robust screening process. Importantly, the common EU list will
also be backed by counter-measures for listed countries that refuse to comply
with tax good governance standards.
The
application of the internationally recognised tax governance criteria
on which the common EU list will be based, and the cooperation with third
countries on this matter will help us advance the tax governance agenda
internationally. It is therefore crucial that EU states provide unequivocal
political support for the common EU approach, so that it can be taken forward
without delay.
The new
proposal on CBCR uses the same tax governance criteria as the basis for
requiring multinationals to disaggregate data reflecting their activities in
problematic tax jurisdictions. The new EU list will be presented by the
Commission by means of a delegated act, provided for in the proposal. In the
meantime, the Commission is making an initial assessment of all third
countries’ tax systems from a good governance perspective, as set out in its
External Strategy. It will present the first scoreboard results to Member
States in autumn 2016.
Third-country
tax jurisdictions’ assessment. Tax jurisdictions will be assessed based on the following criteria set
out in the Commission's Communication on External Strategy for Effective
Taxation, presented in January 2016:
·
Transparency and exchange of information, including information exchange on
request and Automatic Exchange of Information (AEoI) of financial account
information;
·
Fair tax competition;
·
Standards set up by the G20 and/or the OECD; and
·
Other relevant standards, including international standards set up by the
Financial Action Task Force.
A
pre-assessment of all non-EU tax jurisdictions from a good governance
perspective will be conducted first. The final decision on whether a tax
jurisdiction will be included in the list or not will be taken following a
dialogue with the relevant jurisdictions. Member States' experts will be
consulted by the Commission in the preparation of the delegated acts.
Parliament and Council's experts will have equal access to all meetings and
documents. This list will be regularly reviewed and, where appropriate, amended
to take account of new circumstances.
The
proposal foresees a detailed list of elements that are relevant for citizens to
get a thorough understanding of a company’s activities and taxes paid. Our
analysis concluded that the information required is appropriate to enable the
public to properly scrutinize multinational companies' tax strategies. It will
enable citizens to have detailed insight regarding whether companies pay taxes
in the country where profits are generated and assess whether significant
profits have been shifted outside the EU.
Additional
information beyond taxation. The annual corporate income tax accrued is the key information. It
corresponds to the corporate income tax expense shown in the profit and loss
statement, excluding deferred taxes. The amount of tax paid will ascertain that
the company has actually paid those taxes. Companies are also obliged to
explain in a meaningful way the difference between taxes accrued and taxes
actually paid. Moreover, companies will be obliged to disclose the amount of
accumulated earnings (for example, non-distributed profits).
Undistributed
profits are not actually a problem; however, high levels of accumulated
earnings in tax jurisdictions that do not abide by tax good governance
standards can be seen as an indicator of potential attempts to avoid taxes.
Imposing
reporting obligations on non-EU companies. An estimated 6,000 multinationals active in the
EU would need to disclose publicly their tax-related information.
Medium-sized
or large subsidiaries of non-EU headquartered groups would be subject to the
reporting obligation on behalf of their ultimate parent. To be considered as
medium-sized or large, a company must exceed two of the following criteria: net
turnover of € 8 million (up to € 12 million depending on the state), balance
sheet of € 4 million (up to € 6 million depending on the state), and 50
employees on average; for branches, turnover is the sole size criterion.
If a non-EU
headquartered company does not have subsidiaries, but only branches, these
branches would face similar obligations.
As an
alternative for non-EU headquartered firms, a simpler option is offered: all
reporting obligations on subsidiaries or branches would be lifted if the non-EU
headquarters publishes its country-by-country report on its website, and
entrusts one of its EU subsidiaries to file the report on their behalf with an
official business register inside the EU.
A
subsidiary is a company incorporated in a given country, with legal
personality.
A branch
office opened in the EU is not a separate legal entity from the company that
opened it. If that parent company is located outside the EU, the branch must
file the financial statements of the company in the relevant business register
of an EU state where the branch is located.
Companies
established in the EU are already required to disclose certain information in
their individual financial statements. These are filed with business registers,
and therefore can be accessible to the public. However, it can be complicated
and sometimes costly to reconstitute information regarding a group's operations
per country on the basis of financial statements published by different
subsidiaries.
This
proposal will ensure that the information is made available to the public in a
comparable, comprehensive and accessible way: this is an important additional
tool which should incentivize companies to pay tax in the country where their
profits are generated. In short, additional public scrutiny promotes fairer tax
competition in the EU and is good for companies.
The
difference between the information shared between tax authorities and the
information now being made public. Public reporting does not serve the same
purpose as information sharing and reporting between tax authorities.
There are some types of information that are required to be shared
between tax authorities, but that are not part of this latest proposal for
public CBCR. EU tax authorities will receive 12 pieces of
information, whereas public CBCR will consist of just seven
pieces of information. EU tax authorities will receive more granular
data for all third countries in which an EU company is active. They will also
get from companies more complex data relating to the breakdown of a group's
turnover between that made with external parties and that made solely between
group entities, as well as figures for stated capital and a company’s tangible
assets.
When it
comes to public disclosure, it is important that EU citizens get information
about where in the EU companies are paying taxes. Citizens also have a
legitimate interest in knowing whether companies active in the EU are also
active in so-called tax havens. However, demanding publicly disaggregated data
for all third countries could affect companies' competitiveness and divulge
information on key strategic investments in a given country. Similarly, the
disclosure of turnover and purchases within a group poses a threat to
multinationals in that it could divulge key information to competitors.
Public’s
monitoring large multinationals taxation. The reports on income tax information would be
made available to the public on the company’s website. Firms will also be
required to file those reports in the relevant national business registers,
which are also accessible to the public. This will enable a comparison of the
tax paid by similar companies in similar situations or the tax contributions
made to national governments by different companies. It can also help to
identify potential weaknesses or loopholes in national tax systems. Up to now,
it has only been via Parliamentary enquiries that comparable information has
been made available.
Although it
is true that the information will likely be used mainly by individuals and
organisations familiar with accounting and taxation issues, the public at large
will also be able to see how much tax has been paid in their country. Besides,
nothing would prevent multinational companies from providing additional
information to complement these figures.
Reporting
requirements to companies with a consolidated turnover above €750 million. The threshold of a turnover above
€750 million strikes the balance between targeting the most relevant companies
and avoiding unnecessary administrative burdens on smaller players:
·
Firstly, as it is calculated on a worldwide basis it will cover large groups
regardless of whether they are headquartered inside or outside the EU.
·
Secondly, it captures only top-tier companies which, due to their size and
complexity, are best equipped to engage in aggressive tax planning to the
potential detriment of smaller SME competitors. No reference is made to the
number of employees as even companies with only few employees may make
significant taxable profits.
·
Thirdly, the threshold would cover those companies controlling approximately
90% of corporate revenues made by multinationals, according to OECD figures.
·
Finally, the thresholds are consistent with the international approach agreed
by the G-20 leaders as part of the BEPS OECD Action Plan
agreed in November by the G-20 leaders.
Taxes
paid in other tax jurisdictions. The main objective of the proposal is to ensure that companies that have
activities in the EU pay their fair share of tax here. The proposal requires
companies to disclose, for all the information categories, an aggregate figure
for all taxes paid outside the EU. This will enable the public to see if the
share of taxes paid in the EU corresponds to the share of a group's business
within the EU.
In
addition, there are specific requirements relating to taxes paid in certain
jurisdictions not abiding by good governance standards in the area of taxation.
Information relating to such countries must be given in disaggregated form.
Existing
tools, e.g. requirements in the Anti-Tax Avoidance Package (ECOFIN, March
2016), will require firms to provide to EU tax authorities detailed
country-by-country tax information for all countries where they have
activities, both inside and outside the EU.
Requiring
further geographical breakdown of information in a public country-by-country
report would risk undermining the international level playing field and
subjecting companies to increased double/multiple taxation by tax authorities
without efficient mechanisms to arbitrate between companies and tax authorities.
The impact assessment carried out in advance of this proposal determined that
aggregated information as regards other tax jurisdictions in the rest of the
world would be sufficient to meet the intended objectives. Since the proposal
targets multinational companies, many of which have a limited turnover in the
European Union, imposing an obligation to disclose disaggregated information
would mean that a relatively small branch or subsidiary in the EU could be
subject to the disproportionate burden of being obliged to disclose information
relating to a very high number of countries outside the Union. The proposal
strikes the appropriate balance between transparency and administrative burden.
Effects
on SMEs. These companies
are not covered by the proposal; the measure focuses on multinational
enterprises that can afford to engage in tax planning activities, i.e. the
largest ones. There is no need to subject small companies to similar measures
given their inability in general to shift profits from one jurisdiction to
another. The medium-sized or larger subsidiaries of non-EU multinational
companies with turnover exceeding €750 million will nevertheless have new
obligations. If there are no subsidiaries, these obligations will fall on their
branches of a comparable size. This is proportionate and efficient for groups
with a turnover exceeding €750 million.
Creating
a level playing field. This proposal puts EU and non-EU companies on the same footing, as both
types of company would have the same reporting requirements.
It will
also help to create fairer competition between multinational companies and
those trading only in one market. Some say that a cross-border company pays on
average 30 % less tax than a company active in only one country. This new disclosure
requirement will also help to mitigate this disparity. See: Egger, P.,
W. Eggert and H. Winner (2010), ‘Saving Taxes through Foreign Plant Ownership’,
Journal of International Economics. 81: 99–108; Finke, K. (2013), Tax Avoidance
of German Multinationals and Implications for Tax Revenue Evidence from a
Propensity Score Matching Approach.
The
proposal and the revision of the Administrative Cooperation Directive, or
"CBCR to tax authorities". The Administrative Cooperation Directive was
revised as part of the Tax
Avoidance Package, so as to implement corporate CBCR to EU tax authorities,
in compliance with the OECD standards endorsed by the G-20.
The current
proposal ties in with this major initiative on several accounts: in terms of
scope, the same multinational companies would be subject to the obligation to
submit a country-by-country report to their tax authority and to the public. In
terms of content, the information to be reported to the public is less detailed
in terms of the tax data to be provided than the information to be submitted
confidentially to tax authorities.
Connections
with the Anti-Tax Avoidance Package. The ultimate aim of public country-by-country
reporting is to enable public scrutiny on multinational companies' tax
strategies. This is different from the aim of the exchange of information
between tax authorities, which need to enter into the details of compliance with
tax laws and potential business secrets. That is why it would not be
appropriate to require exactly the same set of comprehensive information
submitted by multinational companies to their tax authorities. Moreover,
following the consensus developed within the G20, tax administrations are bound
by their commitment to keep some parts of this information confidential, as
they contain business secrets.
Banks
affected by the new proposal. Since 2015, credit institutions and investment firms established in the EU
(hereafter ‘banks’) have had to publish a stringent sectoral country-by-country
report pursuant to Article 89 of the Capital Requirements Directive. Any bank
in the EU must disclose this report and publish it together with its financial
statements. The report includes country-by-country information on the names,
nature of activities and geographical location, turnover, number of employees
on a full-time-equivalent basis, profit or loss before tax, tax on profit or
loss and public subsidies received. Among these banking groups, those with a
consolidated turnover above €750 million would fall within the scope of
this initiative. In order to avoid multiple reporting, and given the
similarities observed with the country-by-country disclosure obligation applicable
to banks, the Commission proposes to allow these banking groups to continue to
publish solely a country-by-country report in compliance with their sectoral
requirements, as long as this report encompasses all of the group’s operations,
i.e. including operations that may not be subject to prudential reporting.
However,
there are currently no requirements on non-EU parent banks operating in the EU.
In this regard, the proposal complements the existing banking legislation:
these banks will now have to publish a country-by-country report if their
revenues exceed €750 million.
Effects
on extractive/logging industries. These industries in the EU with a turnover exceeding €750 million
will now have to comply with this proposal in addition to their current reporting
obligations.
The
reporting requirements of the two sets of country-by-country reports overlap as
regards the amount of corporate income taxes paid. The reporting obligations on
extractive and logging industries authorises a de minimis threshold of
€100 000 to filter out small payments. No such threshold is proposed in the
country-by-country reporting applying to all industry sectors. In addition, the
sectoral and general country-by-country reports may have differing geographical
coverage and degree of detail. Due to these differences, the same amounts of
corporate income taxes paid will have to be reported in different ways in each
country-by-country report.
The
timelines set out for the country-by-country reports for the extractive and
logging industries and for the proposed public country-by-country report also
differ, as the latter would have to be filed together with the financial
statements, a requirement that does not exist for the former. It is estimated
that those differences will entail no significant additional burden for the
extractive/logging companies.
Proposal’s
connections with the negotiations on the Shareholder Rights Directive. On 8 July 2015, in the framework of
negotiations on the Shareholder Rights Directive, the European Parliament
proposed amendments to the Accounting Directive with a view to introducing
public country-by-country reporting. This amendment sought to extend to all
industry sectors the existing country-by-country reporting which banks started
to publish in 2015; the Commission hopes that these negotiations be concluded
as quickly as possible.
Preparation
and publication of the report on income tax. EU multinational companies with a turnover
above €750 million would be responsible for the preparation of the reports. As
regards multinationals headquartered in non-EU countries, the responsibility
would lie with the members of the administrative, management and
supervisory bodies of the EU subsidiaries or with the person(s) responsible for
carrying out the disclosure formalities for EU branches, as provided for in
Directive 89/666/EEC.
In these
cases, as the report would not have been drawn up by them, their responsibility
would be limited to making sure that, to the best of their knowledge and
ability, the report has been prepared and published according to the reporting
requirements. Companies subject to the publication requirement would have to
submit the report to their external statutory auditors who would check that the
report has been presented in accordance with the Directive, and made accessible
on a website.
Enforcement
at the national level. In case of non-compliance, the penalties already provided in the
Accounting Directive would apply. National competent authorities or courts
would be entitled to impose fines on companies. These penalties would have to
be effective, proportionate and dissuasive. In the case of non-EU multinational
enterprises, penalties could fall on all of their EU medium-sized or larger
subsidiaries; or on their EU branches.
Enhancing
tax transparency. The
4th Anti-Money-Laundering Directive already sets standards to bring
about more transparency and accountability for companies and banks, making sure
that competent authorities have access to relevant information through central
registers. The Directive has introduced in particular an obligation for Member
States to introduce public registers on beneficial ownership. It is now
essential that Member States rapidly transpose these commitments in their
national legal order. The Commission is currently revising this Directive, with
a view to present a proposal under the Dutch Presidency until the end of June
2016. This revision will primarily aim at addressing risks posed by terrorist
financing, but it could also be considered whether additional measures to
strengthen the framework are necessary.
The
Commission will also explore whether EU rules around financial advice may need
to be strengthened to provide stronger disincentives for financial
intermediaries as regards customer advice that may lead to tax evasion.
Source: http://europa.eu/rapid/press-release_MEMO-16-1351_en.htm?locale=en
New EU binding measures to control corporate
taxation. Present agreement among EU member states shows
common approach towards far-reaching new rules to eliminate the most common
corporate tax avoidance practices. It follows the agreement among OECD
countries on recommendations to limit tax base erosion and profit shifting
(BEPS).
First
proposed by the Commission in January 2016, new legally-binding rules were
agreed swiftly to spur global efforts to clamp down on aggressive tax planning.
They are particularly timely given the recent Panama Papers revelations. Since
the Parliament has already issued its opinion, the new rules will soon be
formally adopted by the Council.
The EU new
binding measures (adopted on 21.06.2016) put the member states at the forefront
in terms of political and economic approach to corporate taxation following the
agreement among OECD
countries on recommendations to limit tax base erosion and profit
shifting (BEPS).
It is the
Commission’s reaction to President Juncker's promise to deliver on ways to tackle
corporate tax avoidance, ensuring a fairer Single Market and promoting jobs,
growth and investment in Europe.
Recovering
lost profit. The measures in the Directive target the main forms
of tax avoidance practiced by large multinationals and builds on global
standards developed by the OECD last year on Base Erosion and Profit Shifting (BEPS).
The OECD
has estimated about $100bn-$240 billion is lost to global profit shifting every
year, equivalent to between 4% and 10% of global corporate tax revenues. The
European Parliamentary Research Service put the revenue lost to corporate
avoidance at around €50-70 billion a year in the EU.
Commissioner
for Economic and Financial Affairs, Taxation and Customs, Pierre
Moscovici, underlined that the new agreement strikes a serious blow
against those engaged in corporate tax avoidance. He added that for too long,
some companies had been able to take advantage of the mismatches between
different EU states’ tax systems to avoid billions of euros in tax. Now, the EU
states are able to strike back and make necessary changes to ensure that these
companies pay their fair share of tax.
While some
of the measures have been changed owing to issues around implementation in some
EU states, the Commission remains convinced that fast agreement on this
Directive was imperative if for taking quick action. Since the Parliament has
already issued its opinion, the new rules will now soon be formally adopted by
the Council.
An end
to aggressive tax planning. Once implemented, new legislation would put an
end to the most common loopholes and aggressive tax planning schemes, which are
currently used by some large companies to avoid paying their fair share of taxes.
For example, all EU states will now have the power to tax profits being moved
to low-tax countries where the company does not have any genuine economic
activity (so-called CFC rules).
Previously
untaxed gains on assets (exit taxation rules) such as intellectual property
which have been moved from the EU's territory can also be taxed, while
countries have also been empowered to tackle tax avoidance schemes that are not
covered by specific anti-avoidance rules (general anti-abuse rule).
During the
negotiations, some amendments were made to the original
proposal: such as the scope of the provision on interest limitations and
its transposition.
Changes made and results achieved.
Major initiatives put forward by this Commission to boost tax
transparency and reform corporate
taxation are already reaping results. The proposal presented by the
Commission in January 2016 on Country-by-Country Reporting between EU tax
authorities was agreed in March 2016, and will oblige large multinationals
based in the EU to provide detailed tax-related information to tax
authorities. The Commission's proposal on the automatic exchange of
information on tax rulings was agreed by the EU states in October 2015 after
only seven months of deliberation.
A number of
other substantial corporate tax reforms have also been launched. The Commission
will continue its campaign for corporate tax reform throughout 2016, with
important proposals such as the re-launch of
the Common Consolidated Corporate Tax Base (CCCTB) still to come. In
another related issues, the EU states have signaled their intention to compile
a common EU list of third country tax jurisdictions that don't conform to
international tax good governance standards.
For more
information, consult the following links:
- Proposal
on anti-tax avoidance measures;
- Memo on
the Anti-Tax Avoidance Package;
- Study
on Structures of Aggressive Tax Planning and Indicators; and
- Action Plan
for Fair and Efficient Corporate Taxation in the EU.
Main
reference: http://europa.eu/rapid/press-release_IP-16-1886_en.htm?locale=en.
Corporate tax avoidance: Council agrees on
anti-avoidance rules. In June 2016, the Council agreed on a draft
directive addressing tax avoidance practices commonly used by large companies.
The directive is part of a January 2016 package of Commission proposals to
strengthen rules against corporate tax avoidance.
The package
builds on 2015 OECD recommendations to address tax base erosion and
profit shifting (BEPS). The directive addresses situations where corporate
groups take advantage of disparities between national tax systems in
order to reduce their overall tax liability.
Corporate
taxpayers may benefit from low tax rates or double tax deductions. Or they can
ensure that categories of income remain untaxed by making it deductible in one
jurisdiction whilst in the other it is not included in the tax base. The
outcome distorts business decisions and risks creating situations of unfair tax
competition.
New
provisions in five areas. The draft directive covers all taxpayers that
are subject to corporate tax in a member states, including subsidiaries of
companies based in third countries. It lays down anti-tax-avoidance rules in
five specific fields:
- Interest
limitation rules. Multinational groups may finance group
entities in high-tax jurisdictions through debt, and arrange that they pay back
inflated interest to subsidiaries resident in low-tax jurisdictions. The
outcome is a reduced tax liability for the group as a whole. The draft
directive sets out to discourage this
practice by limiting the amount of interest that the taxpayer is
entitled to deduct in a tax year.
- Exit
taxation rules. Corporate taxpayers may try to reduce their
tax bill by moving their tax residence and/or assets to a low-tax jurisdiction.
Exit taxation prevents tax base erosion in the state of origin when
assets that incorporate unrealised underlying gains are transferred, without a
change of ownership, out of the taxing jurisdiction of that state.
- General anti-abuse rule. This rule is intended to cover gaps that
may exist in a country's specific anti-abuse rules. Corporate tax planning
schemes can be very elaborate and tax legislation doesn't usually evolve fast
enough to include all the necessary defenses. A general anti-abuse rule
therefore enables tax authorities to deny taxpayers the benefit of abusive tax
arrangements.
-
Controlled foreign company rules, CFC. In order to reduce their overall tax
liability, corporate groups can shift large amounts of profits towards
controlled subsidiaries in low-tax jurisdictions. A common scheme consists of
first transferring ownership of intangible assets such as intellectual property
to the CFC and then shifting royalty payments. CFC rules reattribute the income
of a low-taxed controlled foreign subsidiary to its – usually more highly taxed
– parent company.
- Rules on hybrid mismatches.
Corporate taxpayers may take advantage of disparities between national tax
systems in order to reduce their overall tax liability. Such mismatches often
lead to double deductions (i.e. tax deductions in both countries) or a
deduction of the income in one country without its inclusion in the other.
- Common
EU approach. The directive will ensure that the OECD anti-BEPS
measures are implemented in a coordinated manner in the EU,
including by 7 member states that are not OECD members. Furthermore, pending a
revised proposal from the Commission for a common consolidated corporate tax
base (CCCTB), it takes account of discussions since 2011 on an existing CCCTB
proposal within the Council.
Three of
the five areas covered by the directive implement OECD best practice, namely
the interest limitation rules, the CFC rules and the rules on hybrid
mismatches. The two others, i.e. the general anti-abuse rule and the exit
taxation rules, deal with BEPS-related aspects of the CCCTB proposal.
-
Approval and implementation. The agreement was reached following discussion
by the Economic and Financial Affairs Council. On 17 June 2016, the Council of
the EU reached broad agreement, subject to a silence procedure.
As the
procedure expired without objections being raised, the directive will be
submitted to a forthcoming Council meeting for adoption.
The member
states will have until 31 December 2018 to transpose the directive into
their national laws and regulations, except for the exit taxation rules, for
which they will have until 31 December 2019. Member states that have targeted
rules that are equally effective to the interest limitation rules may apply
them until the OECD reaches agreement on a minimum standard or until 1 January
2024 at the latest.
- Other
initiatives. As concerns the rest of the January 2016
anti-tax-avoidance package, the presidency has set an ambitious timetable. On 25 May, the Council approved: = a directive on the exchange of
tax-related information on multinational companies; and = conclusions on the
third country aspects of tax transparency.
The
anti-tax-avoidance package follows on from a number of EU initiatives in 2015.
These include a directive, adopted in December 2015, on cross-border tax
rulings.
In December
2014, the European Council cited “an urgent need to advance efforts in the
fight against tax avoidance and aggressive tax planning, both at the global and
EU levels”.
More
information on the issue in the following links:
- June 2016 draft directive addressing
common corporate tax avoidance practices;
- Press
release on May 2016 directive on the exchange of tax-related information on
multinationals;
- May 2016
Council conclusions on the third country aspects of tax transparency;
-
Anti-tax-avoidance proposals by the European Commission;
- Press
release on December 2015 adoption of the directive on cross-border tax rulings.
Sources:
Press release 370/16
(21.06.2016), General Secretariat of
the Council: www.consilium.europa.eu/press;
and http://www.consilium.europa.eu/press-releases-pdf/2016/6/47244642953_en.pdf
Competition rules and corporate taxation:
example of ports’ activity in the EU. The Commission probed in July 2016 if corporate
tax exemptions granted to Belgian and French ports are in line with EU state
aid rules and whether they give companies certain advantage over competitors in
other EU states.
The main
activity of ports is the transfer of people and cargo, as well as the provision
of infrastructure to shipping companies, shipbuilders and other companies. This
commercial operation of port infrastructure constitutes an economic activity,
for which ports should pay corporate tax, just like other companies do.
However, ports also carry out certain activities that are linked to the
exercise of essential state responsibilities such as safety, surveillance and
traffic control. Such activities fall outside the scope of EU state aid control.
Commissioner
Margrethe Vestager, in charge of
competition policy, underlined that ports
play a key role in the EU's economy. The EU competition rules allow member
states to support the construction or upgrade of port infrastructure through
investment aid. However, she added that tax exemptions shouldn't distort
competition by giving an unfair advantage to some ports over others in Europe.
A corporate
tax exemption for ports that earn profits from economic activities provides
them with a selective advantage compared with their competitors in other EU
states and therefore involves state aid within the meaning of the EU rules.
Cross-border
competition plays an important role in the ports sector and the Commission is
committed to ensuring a level playing field in this important economic sector.
- Present situation. In Belgium, a number of sea and inland
waterway ports (notably the ports of Antwerp, Bruges, Brussels, Charleroi,
Ghent, Liège, Namur and Ostend, as well as ports along the canals in Hainaut Province
and Flanders) are exempt from the general corporate income tax regime. These
ports are subject to a different tax regime, with a different base and tax
rates, resulting in an overall lower level of taxation for Belgian ports on
their commercial activities as compared to other companies in Belgium.
- In France, most ports, notably the 11 "grands ports maritimes" (Bordeaux,
Dunkerque, La Rochelle, Le Havre, Marseille, Nantes - Saint-Nazaire and Rouen
as well as Guadeloupe, Guyane, Martinique and Réunion), the 'Port autonome de
Paris', and ports operated by chambers of industry and commerce, are fully
exempt from corporate income tax. This self-evidently results in an overall
lower level of taxation for French ports on their commercial activities as compared
to other companies in France.
In January 2016,
following its investigation into the functioning and taxation of ports in EU
states, the Commission asked Belgium and France to bring their corporate tax
law into line with EU state aid rules by abolishing their tax exemption for
ports. As Belgium and France have not agreed to align their tax laws as the
Commission proposed, the Commission has now opened in-depth
investigations to assess whether its initial concerns are confirmed or not.
The opening
of an in-depth investigation gives an opportunity for the two EU states and
interested third-parties – such as beneficiaries or competitors - to comment on
the state aid assessment of the tax exemptions, in particular as to the
assessment of the economic nature of ports' activities and the effect on
competition and trade. It does not prejudge the outcome of the investigation.
- Specific cooperation procedure needed. As both the Belgian and the French
measures already existed before the establishment of the EU in 1958, the state
aid is regarded as "existing aid". This means that the Commission
cannot ask Belgium and France to recover aid granted in the past, nor any aid
granted up until the moment that a final decision is adopted by the Commission.
"Existing
aid", and its assessment, is subject to a specific cooperation procedure between EU states and the
Commission. When existing aid seems to be in breach of EU state aid rules, the
Commission's first step is to inform the state concerned about its concerns. In
light of the reply, the Commission may then propose appropriate measures to the
member state to bring the measures into line with EU state aid rules. If the EU
state does not accept the proposal, the Commission may, as a third step, open
an in-depth investigation to verify the compatibility of the aid; the present
decisions fall into this third category.
- State aid to ports still possible. Removing unjustified tax advantages
does not mean that ports can no longer receive state aid. The EU states have
many possibilities to support ports in line with EU state aid rules, for
example to achieve EU transport objectives or to put in place necessary
infrastructure investment which would not have been possible without public
aid.
In that
regard the Commission has proposed to widen
the scope of its General Block Exemption Regulation to include
non-problematic investment aid to ports and foster strategic investments in
infrastructures that have the potential to create jobs in Europe.
In January 2016,
the Commission required the Netherlands to put an end to the corporate tax
exemption granted to the Dutch public seaports.
The non-confidential
version of the decisions will be made available under case numbers SA.38393
(Belgium) and SA.38398
(France) in the State
Aid Register on the competition
website once any confidentiality issues have been resolved. New
publications of state aid decisions on the internet and in the Official Journal
are listed in the State
Aid Weekly e-News.
Reference: Commission’s press release IP-16-2451 “State
aid: Commission opens in-depth investigation into tax exemption for Belgian and
French ports”, Brussels, 8 July 2016, in: http://europa.eu/rapid/press-release_IP-16-2451_en.htm?locale=en
to be
continued