EU Commission Release Corporate Tax Reform Plan
On March 18, 2015, the European Commission presented a package of transparency measures aimed at tackling corporate tax avoidance and harmful tax competition within the European Union.
The transparency package is said to be "the first step in the Commission's ambitious agenda for 2015 to fight tax avoidance." The Commission said it will be followed, before the summer, by a detailed Action Plan on corporate taxation, which will set out the Commission's views on fair and efficient corporate taxation in the EU and propose a number of ideas to achieve this objective. This will include reconsideration of proposals for a Common Consolidated Corporate Tax Base among member states.
The package sets out a number of measures that can be taken in the short-term, including to establish an increased link between taxation and economic substance, in line with ongoing talks being led by the Organisation for Economic Cooperation and Development (OECD).
However, more immediately, the Commission is in particular seeking to establish strict transparency requirements for tax rulings issued to companies by member states.
The Commission's report says: "Tax rulings which result in a low level of taxation in one member state can entice companies to artificially shift profits to that jurisdiction. Not only can this lead to serious tax base erosion for other member states, but it can further incentivize aggressive tax planning and corporate tax avoidance."
The report adds: "Currently, there is little information exchange between national authorities on tax rulings. Member states whose revenues are adversely affected by the tax rulings of others cannot take the necessary action in response. In line with the joint effort to combat corporate tax avoidance, there is an urgent need for greater transparency and information sharing on cross-border tax rulings including transfer pricing arrangements."
"Therefore, the Commission is putting forward a proposal for the automatic exchange of information on cross-border tax rulings. National tax authorities will be obliged to automatically share basic information on their cross-border tax rulings with all other member states, at regular intervals. Where relevant, member states that receive this information can then request more details."
The Commission has proposed that these new requirements be built into the existing legislative framework for information exchange, through amendments to the Directive on Administrative Cooperation. The Commission called upon the Council to prioritize adoption of these proposals.
Welcoming the announcement, OECD Secretary-General Angel Gurría said: "The European Commission's initiative is another major step to tackle corporate tax avoidance. It confirms that the BEPS project is fully on point and that co-ordinated solutions are the best way forward. The message is clear: change is happening and co-operation and transparency are replacing secrecy and harmful practices."
"The package is fully in line with the work carried out in the OECD/G-20 base erosion and profit shifting (BEPS) project and reflects the long-standing co-operation with the EU on these matters. The OECD will continue to work with the Commission on the implementation of these measures and in particular on a common format for transmission of information on rulings among tax administrations."
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