First proposed by the Commission in January, these 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.
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).
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Today's agreement strikes a serious blow against those engaged in corporate tax avoidance. For too long, some companies have been able to take advantage of the mismatches between different Member States tax systems to avoid billions of euros in tax. I congratulate our Member States who are now fighting back and working together to make the changes needed to ensure that these companies pay their fair share of tax. I also thank The Netherlands Presidency for their dedication in achieving this deal."
While some of the measures have been changed owing to issues around implementation in some Member States, the Commission remains convinced that fast agreement on this Directive was imperative if we want quick action to be taken. Since the Parliament has already issued its opinion, the new rules will now soon be formally adopted by the Council.
Once implemented, this legislation will put an end to the most common loopholes and aggressive tax planning schemes currently used by some large companies to avoid paying their fair share of tax. For example, all Member 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 (CFC rules). Previously untaxed gains on assets such as intellectual property which have been moved from the EU's territory can also be taxed (exit taxation rules), 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.
The binding measures agreed today put the EU at the forefront in terms of the political and economic approach to corporate taxation following the agreement among OECD countries on recommendations to limit tax base erosion and profit shifting (BEPS).
The Commission is rapidly making good on President Juncker's promise of delivering on ways to tackle corporate tax avoidance, ensuring a fairer Single Market and promoting jobs, growth and investment in Europe.
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 on Country-by-Country Reporting between EU tax authorities was agreed in March, 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 Member States last October after only seven months.
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 development, Member States have also signalled 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:
Proposal on anti-tax avoidance measures
Memo on the Anti-Tax Avoidance Package
Study on Structures of Aggressive Tax Planning and Indicators
Action Plan for Fair and Efficient Corporate Taxation in the EU