Ever since the revelations of the Luxembourg Leaks or the Panama Papers, it has been a well-known fact that some companies exploit gaps in the various national tax systems to minimise their tax base. Six measures, which are to clamp down on these practices, are part of a Commission Directive. This draft has now been debated and voted on in the Committee on Economic and Monetary Affairs, with the result that a small majority has demanded stricter rules than those proposed by the Commission.

Commission Proposal

After the competent Committee and the Plenum of the European Parliament had adopted the Directive on the Automatic Exchange of Information in the Field of Taxation, this week, the Committee on Economic and Monetary Affairs debated and voted on the second part of the Anti Tax Avoidance Package. This Directive includes the following points:

1. Corporations shall only have the option of deducting interest of their tax base up to a certain amount;
   
2. The move of locations and/or assets to low tax rate countries shall be burdened with an appropriate tax;
   
3. Income generated abroad, shall be taxed if the previous tax rate set up in another country falls below a certain percentage;
   
4. General regulations to prevent misuse of laws shall be introduced;
   
5. Regulations for controlled foreign companies;
   
6. A hybrid regulatory framework regulation shall be introduced to make it evident which legislation applies to taxation.

Broad majority in the Committee?

The competent rapporteur of the S&D faction sees a significant problem in the unfair tax competition between the Member States. He pointed out that harmonising European tax policy would have priority. This includes measures such as a Common Consolidated Corporate Tax Base. Companies shall pay tax where they generate their profits. The rate of depreciation for income tax should be reduced to 20 percent and limited to a period of five years, transfer pricing within corporations must not be misused, a black list of tax havens shall be introduced and the switch-over clause should be set at a value of 15 %. This was supported by the Greens and GUE factions.

However, representatives of the EPP and ECR factions criticised that the report and the proposals associated with it exceeded the scope of the OECD Agreement. Important points and compromises will not have a clear majority if the required threshold values are not revised. Apart from that, they accuse the rapporteur of raising taxes for companies with his proposals.

Vote

The report and the legislative text with the adopted amendments was adopted with a slim majority and forwarded to the Council of the European Union.

Council of the European Union still divided over Commission proposal!

In contrast to the European Parliament, some competent ministers have voiced their dissatisfaction with some points in the Commission proposal. Even though a compromise proposal had already been on the table, some Member States voiced concerns in respect of the regulations regarding controlled foreign companies (profits generated by foreign subsidiaries are added to the domestic company) and interest rate restrictions. Due to the fact that unanimity is required, some ministers wanted additional time to negotiate.

Further information:

Committee documents

The fight against tax fraud enters the next phase!

Commission raises the stakes in the fight against tax dumping