EU Anti-Tax Avoidance Measures

Friday 19 February 2016

EU Anti-Tax Avoidance Measures
The European Commission has recently published an Anti-Tax Avoidance Package including:

  1. a proposed revision to the Administrative Cooperation Directive, which will introduce country-by-country reporting (CBCR) between tax authorities on key tax-related information;
  2. a recommendation on tax treaties; and
  3. a proposal for a new EU external strategy for effective taxation.

Proposal to require country-by-country reports to be shared by multinational groups
CBCR was recommended as a minimum standard in the OECD's final report BEPS, with the first CBCR due to be delivered to tax authorities by January 2017. In order for this to be implemented throughout the EU, the Commission has published the draft Directive (the CBCR Directive) amending Directive 2011/16 regarding mandatory exchange of information in the field of taxation (the Administrative Cooperation Directive), which aims to establish the automatic exchange of information provided under the CBCR procedure between Member States.

The CBCR Directive builds on the Administrative Cooperation Directive published last December, broadening the scope of the automatic exchange of information between Member States to include tax rulings and advance pricing agreements.

To ensure transparency, the CBCR Directive imposes information requirements which are to be provided by MNE groups annually, and for each tax jurisdiction in which they do business. A defined set of basic information will be accessible by Member States based on the information to be provided under the CBCR procedure. The Commission consider that this information will enable tax authorities to make the necessary changes in domestic legislation and/or carry out adequate tax audits to combat aggressive tax planning whilst giving an incentive to MNE groups to pay their fair share of tax in the country where profits are made.

Key aspects
The revised Administrative Cooperation Directive will apply to MNE groups with a total consolidated group revenue equal or higher than €750 million. The MNE groups will be required to file their CBCR documents with the tax authorities of the Member State where the ultimate parent entity of the MNE group is tax resident. Upon receiving the CBCR information from MNE groups, the relevant Member State shall automatically share the CBCR information with any other Member State in which companies of the MNE group are either resident for tax purposes or are subject to tax as a result of business carried on through a permanent establishment.

Next steps The CBCR Directive requires unanimous agreement from all Member States. It is likely that Member States should adopt the laws, regulations and administrative provisions necessary to comply with the CBCR Directive by 31 December 2016 and Member States shall apply the new measure with effect from 1 January 2017.

An agreement was signed by 31 countries on 27 January 2016 to enable automatic sharing of country-by-country reports between the relevant tax authorities. It seems likely that the automatic sharing of country-by-country reports will commence soon, regardless of whether the Member States can agree on the CBCR Directive.

Recommendation on Tax Treaties
Issues in relation to treaty abuse have not been addressed in the draft Directive, instead the Commission has presented a Recommendation on the implementation of measures against tax treaty abuse. The Recommendation encourages Member States to adopt the OECD’s proposed revisions to Article 5 of the OECD Model Tax Convention to address artificial avoidance of permanent establishment status. In addition, the Recommendation suggests that if Member States decide to include a general anti-avoidance rule with a principal purpose test based on the OECD recommendations, this should be modified to ensure compliance with EU-law. The Commission favours the principal purpose test over a limitation of benefits clause as it considers the latter could discourage cross border investment and would therefore be detrimental to the Single Market.

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