New rules are needed to align the tax laws in all 28 EU countries in order to fight aggressive tax practices by large companies efficiently and effectively.
The European Commission has today opened up a new chapter in its campaign for fair, efficient and growth-friendly taxation in the EU with new proposals to tackle corporate tax avoidance. The Anti Tax Avoidance Package calls 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.
Vice-President Valdis Dombrovskis, responsible for the Euro and Social Dialogue said: "Today we are taking another step to strengthen confidence in the entire tax system, making it fairer and more efficient. People have to trust that the tax rules apply equally to all individuals and businesses. 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. "
Pierre Moscovici, 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."
The package is based around the three core pillars of the Commission's agenda for fairer taxation:
Ensuring effective taxation in the EU
The fundamental principle of corporate taxation is that companies should pay tax where they make their profits. The Package makes specific proposals to help Member States ensure that this happens. The Commission proposes an Anti Tax Avoidance Directive with legally-binding measures to tackle some of the most prevalent tax avoidance schemes. Its Recommendation on Tax Treaties advises Member States on the best ways to protect their tax treaties against abuse, in a way that is compatible with EU-law.
Increasing tax transparency
Transparency is crucial to identifying aggressive tax planning practices by large companies and to ensuring fair tax competition. Today's Package seeks to boost transparency on the taxes that companies are paying, through a revision of the Administrative Cooperation Directive. Under the proposed rules, national authorities will exchange tax-related information on multinational companies' activities, on a country-by-country basis. As such, all Member States will have crucial information to identify risks of tax avoidance and to better target their tax audits. The Commission is also currently looking at the separate issue of public country-by-country reporting, for which an impact assessment is currently underway in view of an initiative to be presented in early spring.
Securing a level playing field
Tax avoidance and harmful tax competition are global problems. Action to prevent them must extend beyond the EU's borders. As Member States work to implement new global standards of tax transparency and fair tax competition, it is important that the EU's international partners follow suit. Developing countries should also be included in the international tax good governance network, so that they can benefit from the global fight against tax avoidance too. Today's Package contains a Communication on an External Strategy for Effective Taxation. Its aim is to strengthen cooperation with international partners in fighting tax avoidance, enhance EU measures to promote fair taxation globally based on international standards and create a common approach to external threats of tax avoidance. This will help to ensure a fair and level playing field for all businesses and countries.
The Package also contains a Chapeau Communication and Staff Working Document, which explain the political and economic rationale behind the individual measures and the Commission's broader agenda against tax avoidance. It is accompanied by a new Study on Aggressive Tax Planning, which looks at the main channels used by companies to avoid taxes.
Today's Package reflects the current global political and economic approach to corporate taxation. Last October, OECD countries agreed on measures to limit tax base erosion and profit shifting (BEPS). The European Parliament has also developed recommendations on corporate tax avoidance.
The Commission is rapidly making good on President Juncker's promise of delivering a comprehensive agenda to tackle corporate tax avoidance, ensuring a fairer Single Market and promoting jobs, growth and investment in Europe.
Major initiatives put forward by the Commission in 2015 to boost tax transparency and reform corporate taxation are already reaping results: the proposal for transparency on tax rulings was agreed by Member States in only seven months and a number of other substantial corporate tax reforms have 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).
The two legislative proposals of the Package will be submitted to the European Parliament for consultation and to the Council for adoption. The Council and Parliament should also endorse the Tax Treaties Recommendation and Member States should follow it when revising their tax treaties. Member States should also formally agree on the new External Strategy and decide on how to take it forward as quickly as possible once it has been endorsed by the European Parliament.
For more information:
Information on the Anti-Tax Avoidance package
MEMO on the Anti-Tax Avoidance package
Factsheet on the Anti-Tax Avoidance package
Communication on the Anti-Tax Avoidance package
Proposal on anti-tax avoidance measures
Proposal on mandatory automatic exchange of information amongst tax administrations
Communication on an External Strategy for Effective Taxation
Study on Structures of Aggressive Tax Planning and Indicators
Staff Working Document
Recommendation on measures against tax-treaty abuse
Action Plan for Fair and Efficient Corporate Taxation in the EU
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