EU: ‘Tax Transparency Package 2.0’: New EU action plan for fundamental reforms of business taxation in the EU

Bob van der Made

On June 17 2015, the European Commission (EC) presented an action plan setting out a new approach to business taxation, to meet the goal of fairer and more efficient taxation and to effectively tackle corporate tax avoidance. The stated objectives are:

• Re-establishing the link between taxation and where economic activity takes place;

• Ensuring that member states can correctly value corporate activity in their jurisdiction;

• Creating a competitive and growth-friendly corporate tax environment for the EU; and

• Protecting the Single Market and securing a strong EU approach to corporate tax issues, including on implementing OECD BEPS actions, dealing with non-cooperative tax jurisdictions and increasing tax transparency.

A new legislative proposal for mandatory (at least for MNEs) common consolidated corporate tax base (CCCTB) will be presented in 2016. Implementation in two stages: first a common tax base (CCTB), with consolidation to follow at a later stage. If unanimity is not achieved, it is possible that a CCTB could proceed for selected member states under enhanced cooperation.

Consensus on aspects of the common base which are linked to BEPS, such as adjusting the definition of permanent establishment (PE) and improving controlled foreign company (CFC) rules, should be achieved within 12 months and made legally binding before an agreement is reached on the revised CCCTB. Other measures include amending the Interest & Royalties Directive so that benefits will not be granted to interest and royalty payments unless they are effectively taxed elsewhere in the EU. Subsequently, the Parent-Subsidiary Directive could be aligned with the Interest & Royalties Directive.

The EC will build on BEPS TP recommendations and develop coordinated implementation within the EU, for example through guidance to tax administrations on the use of information provided under recent OECD and EU proposals.

The EC will provide guidance and monitor implementation of IP/patent box regimes in line with the modified nexus approach. If it finds member states are not applying the new approach consistently it will introduce binding legislation to ensure proper implementation. The introduction of binding legislation would require unanimity.

Temporary cross-border loss relief will be introduced in advance of a full CCCTB. Losses would be recaptured once an entity becomes profit-making. This would again require unanimity.

The EC will propose improvements to current mechanisms to resolve double tax disputes in the EU by summer 2016, including whether the Arbitration Convention's scope should be extended, or whether an EU instrument, for example a regulation or directive, should be introduced.

The EC has published an EU 'blacklist' of 30 non-EU tax jurisdictions, to be updated periodically and used to develop a common EU strategy to deal with them as a second stage, via coordinated counter measures.

The EC has launched a public consultation on whether all MNEs should have to publicly disclose certain tax information, including country-by-country reporting (CbCR). The consultation ends on September 9 2015 – work is to be concluded in Q1 of 2016.

The EC will promote greater cooperation between member states, and launch a discussion with member states to find a more strategic approach to controlling and auditing cross-border companies, including joint tax audits.

The EC will make a proposal to reform the Code Group to enable it to react more efficiently to cases of harmful tax competition. The EC will prolong the mandate, extend the scope and enhance working methods of the Platform (member states, business, NGOs), to help deliver the action plan, facilitate discussions on tax rulings in light of the proposed new information exchange rules, and provide feedback on new anti-avoidance initiatives.

Bob van der Made (bob.van.der.made@nl.pwc.com)

PwC Brussels

Tel: +31 88 792 3696

Website: www.pwc.com/eudtg