As of 1 January 2019, all Member States shall apply new legally binding anti-abuse measures that target the main forms of tax avoidance practiced by large multinationals. The rules build on global standards developed by the OECD in 2015 and should help to prevent profits being siphoned out of the EU where they go untaxed.
The new rules focus on several main elements.
All member states will now tax profits moved to low-tax countries where the company does not have any genuine economic activity (controlled foreign company rules). To discourage companies from using excessive interest payments to minimise taxes, member states will limit the amount of net interest expenses that a company can deduct from its taxable income (interest limitation rules). Member states will be able to tackle tax avoidance schemes in cases where other anti-avoidance provisions cannot be applied (general anti-abuse rule).
Further rules governing hybrid mismatches to prevent companies from exploiting mismatches in the tax laws of two different EU countries in order to avoid taxation, as well as measures to ensure that gains on assets such as intellectual property moved from a member state’s territory become taxable in that country (exit taxation rules) will come into force one year later, as of 1 January 2020.
First proposed by the Commission in 2016, the legally binding rules were agreed swiftly to spur global efforts to clamp down on aggressive tax planning. The agreement followed the agreement among OECD countries on recommendations to limit tax base erosion and profit shifting (BEPS).
New transparency rules have gradually been coming into force to make sure that member states have the information they need to crack down on companies that are not paying their fair share of tax. The EU is also acting to ensure that its international partners implement global anti-tax avoidance standards through its ongoing work on a list of non-cooperative tax jurisdictions. Finally, the Commission has also proposed far-reaching corporate tax reforms which would overhaul how multinationals are taxed in the EU while ensuring a business environment which makes life easier for companies doing business across borders.
The Anti Tax Avoidance Package is part of the Commission’s ambitious agenda for fairer, simpler and more effective corporate taxation in the EU.
The Package contains concrete measures to prevent aggressive tax planning, boost tax transparency and create a level playing field for all businesses in the EU.
It will help Member States take strong and coordinated action against tax avoidance and ensure that companies pay tax wherever they make their profits in the EU.
The Chapeau Communication outlines the political, economic and international context of the Anti Tax Avoidance Package and gives an overview of the different elements.
The Anti Tax Avoidance Directive proposes six legally-binding anti-abuse measures, which all Member States should apply against common forms of aggressive tax planning.
It aims to create a minimum level of protection against corporate tax avoidance throughout the EU, while ensuring a fairer and more stable environment for businesses.
The revised Directive proposes country-by-country reporting between Member States’ tax authorities on key tax-related information on multinationals operating in the EU.
These new transparency provisions will allow all Member States the information that they need to detect and prevent tax avoidance schemes.
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The Recommendation advises Member States how to reinforce their tax treaties against abuse by aggressive tax planners, in an EU-law compliant way.
It covers the introduction of general anti-abuse rules in tax treaties and the revision of the definition of permanent establishment.
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The External Strategy presents a stronger and more coherent EU approach to working with third countries on tax good governance matters.
It also sets out a process to create a common EU list of third countries for tax purposes.
See the infographic.
The study looks at Member States’ corporate tax rules (or lack thereof) that can facilitate aggressive tax planning and key structures used by companies to avoid taxation.
It includes factsheets with the main findings for each Member State and examples of tactics used by multinationals to lower their taxes.