New Anti-tax avoidance package: A step in the right direction but also only just a start

Today, the European Commission released its Anti-Tax Avoidance Package. It is part of the Commission's ambitious agenda for fairer, simpler and more effective corporate taxation in the EU and follows the final OECD’s 2015 Base erosion and profit shifting (BEPS) package for a reform of the international tax system to tackle tax avoidance. According to CESI, the package is a step ion right direction but can also only be a start for more action to come.

New Anti-tax avoidance package: A step in the right direction but also only just a start

This package, with features both legislative and non-legislative components, contains:

  • an Anti-Tax Avoidance Directive with six legally-binding anti-abuse measures;
  • a revision of the Administrative cooperation directive which includes country-by-country reporting (CBCR) between Member States’ tax authorities on tax-related information on multinationals operating in the EU;
  • non-binding recommendations to the EU Member States on how to reinforce their tax treaties against abuses by aggressive tax planners. They refer to the introduction of general anti-abuse rules in tax treaties and a revision of the definition of permanent establishment;
  • a communication on an External strategy for effective taxation, which sets out a process to create a common EU list of third countries for tax purposes; and
  • a study on aggressive tax planning.

Good to act

CESI welcomes this new package, which is already the third initiative of the Commission within less than a year (after the Tax Transparency Package in March 2015 and its Action Plan on Corporate Taxation in June 2015). This certainly demonstrates its continued commitment to fight against tax fraud and tax evasion.

CESI President Romain Wolff said: “Tax avoidance costs the European society more than €200 billion year after year. Businesses continue to not pay their fair share of tax – but this would be so essential in order to finance public services. Because of austerity measures, tax administration workers also lack the necessary means to effectively perform their role and actually collect what is due. Political and legal measures are now more than ever needed to support them and to provide for fair and effective taxation in all 28 EU Member States.” In this context, CESI welcomes the Commission’s action. CESI welcomes in particular the proposed introduction of a general anti-abuse rules in tax treaties and an envisaged new common list of tax havens outside the EU.

More must be done, more must follow

At a second glance, though, the package is disappointing in several respects. For example, CESI had hoped that the Commission would go further than the BEPS recommendations as laid out in the package. Some of the proposed measures are in fact weaker than those of the OECD. Examples are those concerning the interest limitation and controlled foreign company rules (CFC), which are insufficient because they are to exempt all Member States in which they are entirely artificial. Moreover, the strategy on tax havens is unfortunately not proposed to be binding and is to be not accompanied by sanctions. This will remain at the discretion of the states.

In terms of transparency, CESI welcomes the proposed inclusion of CBCR in the Administration cooperative directive but regrets that the proposed level of required information remains relatively low and is only to be made available to tax administrations. As stated in its answer to the recent consultation by the Commission on corporate tax transparency, public disclosure is an integral part of a necessary democratic control. It would also significantly ease the work of tax administration staff members who are already suffering from a lack of resources. Public CBCR has already proven worthwhile, namely in the banking sector where it helped revealing tax scandals. CESI therefore hopes that the Commission will come up with a public CBCR proposal in early spring after the release of its undertaken impact assessment. Currently, more loopholes are at risk of being created and more must be done than focus on lowest common denominators.

CESI hopes that today’s package will not be the end of the Commission’s activities on fair corporate taxation, especially as regards the re-launch of the Common Consolidated Corporate Tax Base (CCCTB) proposal. Commissioner Moscovici announced 2016 to be the “year of corporate tax reform and fiscal transparency”. If he wants to remain credible, he and his services need to go beyond what has been proposed today.

CESI is confident that the new Dutch Council Presidency – which will lead the negotiations on the package within the Council and with the European Parliament – will take today’s package as an opportunity to send a strong political signal, especially after the recent Starbucks case led to the Dutch fiscal integrity being questioned!

To access the package released today, visit the European Commission’s website.

Picture: © European Commission