MEPs have voted to support a European Commission proposal for an EU anti-tax avoidance directive based on the OECD’s Base Erosion and Profit Shifting (BEPS) action plan, and have indicated they want to push for stricter limits on deductions for interest payments and tougher rules on foreign income
The resolution was passed by 486 votes to 88, with 103 abstentions. During the debate, MEPs called for more transparency for trust funds and foundations, common rules for patent box tax reductions on intellectual property earnings, and an EU blacklist of tax havens and sanctions against uncooperative jurisdictions.
The EU anti-tax directive lays out the principle that tax should be paid where profits are made and includes legally-binding measures to block the methods most commonly used by companies to avoid paying tax. It also proposes common definitions of terms like ‘permanent establishment’, ‘tax havens’, ‘minimum economic substance’, ‘transfer prices’, ‘royalty costs’, ‘patent boxes’, ‘letterbox companies’ and other terms which have previously been open to interpretation.
MEPs are more ambitious than the Commission with regard to the ‘switch-over rule’ for earnings taxed in a country outside the EU and then transferred to an EU member state. This foreign income is often exempt from taxation, so as to avoid double taxation, whereas MEPs favour setting a minimum rate of 15%. As a result, if foreign income was taxed at a lower rate outside the EU, then the difference would need to be paid.
Other recommendations include limiting the deductibility of exceeding borrowing costs only up to 20 % of the taxpayer's earnings or up to an amount of €2m, whichever is higher.
MEPs want to see the EU draw up an exhaustive 'black list' of tax havens and countries, including those located in the EU itself, complemented with a list of sanctions for non-cooperative jurisdictions and for financial institutions that operate within tax havens.
In addition, the use of letterbox companies should be banned, and there should be greater tax transparency for trust funds and foundations.
MEPs called for the swift introduction of a common consolidated corporate tax base (CCCTB), along with a common method for calculating the effective corporate tax rate in each member state, so as to allow for comparison across the EU.
They also wanted to see a cross-border tax dispute resolution mechanism with clearer rules and timelines, to be introduced by January 2017, and the adoption of a harmonised, common European taxpayer identification number (TIN) to serve as a basis for effective automatic exchange of information between member states tax administrations.
Now that the Council directive has been drawn up, all EU member states have to agree unanimously to adopt the proposal into law.
