In January, the Commission declared war on the tax fraud committed by multinationals. Pierre Moscovici, the Commissioner for Economic and Financial Affairs, has entered into a dialogue with the European Parliament and the Council of the European Union. Is there a danger of the current proposals being watered down?

What is the Anti Tax Avoidance Package?

The Chamber of Labour already reported on the Directives presented by the European Commission in January of this year. Their objective will be to put an end to tax avoidance by multinationals. The proposals included therein focus on six main areas and are similar to the measures against BEPS (Bode Erosion and Profit Sharing), which were developed within the scope of an International Agreement between OECD member states:

1. Companies shall only have the option of deducting interest up to a certain amount from their tax base;
   
   
2. The move of locations and/or assets to low-tax countries shall be burdened with an appropriate tax;
   
   
3. Income, which has been generated abroad, shall be taxed it the previously tax rate set in the respective foreign country falls below a certain percentage rate;
   
   
4. General regulations to prevent the abuse of law shall be introduced;
   
   
5. Regulations for controlled foreign companies;
   
   
6. The plan is to introduce a framework regulation for the procedure against hybrid creations in order to make it clear, which legislation is in charge of taxation.

Apart from that, the second Directive provides for the introduction of a country-by-country report. Tax authorities shall have a clear overview of important information such as profits, costs, taxes paid by the parent company and its associated subsidiaries; this information is to be shared with other countries, in which these companies are economically active.

Do these measures go too far?

The Commissioner for Economic and Financial Affairs, Moscovici, has now discussed these points with the competent Committees of the European Parliament and of the European Council. The Council agreed that the Directives presented had to be implemented as quickly as possible. However, some ministers are of the opinion that the introduced measures go beyond those of the OECD and therefore only those, which have already been passed, should be discussed. Apart from that, not all countries are OECD members, which means that they did not have any right to participate in the development of the action plan. Another point of criticism voiced by the Council dealt with the issue that the Commission has not reviewed what impact these proposals might have on the competitiveness of the European Union. However, Moscovici argued, among other before the ECON and TAXE Committees of the European Parliament, that these measures would be necessary to close any loopholes for good. From a legal point of view, tax avoidance by multinationals is often committed within a legal framework, as the underlying legal texts enable a certain room for manoeuvre on the one hand; however, originated from a bilateral tax treaty dates back to the 1920s on the other.

On the other hand, do they not go far enough after all?

This gives the impression that, as things develop, respective amendments will water down the measures presented by the Commission. However, the AK has been demanding for quite some time that tax fraud can only then be effectively tackled, if, with regard to this Package, the Common Consolidated Corporate Tax Base - a common system for calculating the tax base of businesses operating in the EU - will at last be driven forward by the Commission. Apart from that, a common minimum tax rate would make a major contribution to ending the tax race to the bottom.

Further Inforation:

Commission raises the stakes in the fight against tax dumping

 

 

Measures by the Commission

Common Consolidated Corporate Tax Base