Platform for Tax Good Governance Fair Corporate Taxation 19/12/2018

Why discussing Fair Taxation today in the context of corporate taxation? International tax framework designed in the 1920s Globalisation, evolution of business models… Closer integration of the EU economies (free movement of capital, common currency) EU initiatives to avoid double taxation (IRD, PSD) Companies play on loopholes and mismatches to avoid paying tax. More possibility of tax arbitrage Fight against tax abuse: prominent in the public debate and a priority for the Commission

Fight against tax abuse: what is at stake? ATP consists in taxpayers reducing their tax liability through arrangement that may be legal but in contradiction with the intent of the law ATP tax evasion ATP harmful tax practices

Channels of ATP Debt shifting Strategic location of intellectual property Misuse of transfer pricing Tax treaty shopping, artificial avoidance of PE

Economic effects of ATP Distortion of competition between firms/ decrease of competitiveness in the long-run Budgetary impact / Loss of tax revenues for public investment Distortion of national account statistics Impact on taxpayer morale and inequalities

EU initiatives EU Directives to reinforce anti-abuse rules & boost tax transparency Anti-Tax Avoidance Directives (ATAD1 and 2) Exchange of information on tax rulings and on country-by-country reports; mandatory disclosure of ATP schemes by intermediaries EU Directive proposals: CCCTB, revision of the interest and Royalty Directive, public CbCR, taxation of the digital economy Code of Conduct: review of patent boxes, listing of non-cooperative tax jurisdictions European Semester: national schemes State Aid procedures

International initiatives G20/OECD: driving force for pushing for more transparency and effective anti-tax avoidance measures at the global level. The Base Erosion and Profit Shifting (BEPS) project, launched in July 2013, provides for a number of actions to increase transparency, improve anti-abuse measures and dispute resolution mechanism. 4 minimum standards: Exchange of tax rulings, Country-by-Country reporting, fighting harmful tax practices, preventing treaty abuse and improving dispute resolution mechanism. A Multilateral Instrument (MLI) to implement changes in DTC. BEPS tackle tax planning strategies that exploit gaps and mismatches in tax rules to shift profits artificially to low or no-tax locations where there is little or no economic activity. All OECD and G20 countries have committed to consistent implementation. Only 4 measures are part of the minimum standards: Exchange of tax rulings, Country-by-Country reporting, fighting harmful tax practices and improving dispute resolution mechanism. Several of the BEPS actions have been reflected in EU initiatives to ensure a coordinated implementation at EU level (cf. annex 2 for the list of actions). BEPS contains also the setting up of a multilateral instrument (MLI) to enable countries to streamline the implementation of the BEPS treaty measures. This instrument enables to change the bilateral tax conventions between the different countries that are part of BEPS. The effectiveness of this instrument depends on the number of signatories and of reservations put by countries on some provisions to opt-out of the global change of the DTCs.

What remains to be done? Monitoring the effect of the agreed rules Outbound payments & erosion of EU tax base Safeguarding double Tax Conventions (DTCs) against ATP Addressing remaining loopholes in in MS regimes & transfer pricing rules To ensure that already agreed decisions are effective, a thorough monitoring of the effects of the implementation of Anti-Tax Avoidance Directives is necessary given the intensification of tax competition, which encourages countries to develop new tax advantages to attract foreign investments. Because the Interest and Royalty Directive (IRD) and the Parent Subsidiary Directive (PSD) have suppressed or relaxed withholding taxes on interest, royalty and dividend payments, it is all the more important to ensure that these payments are not used by companies to engage in ATP. Such payments can freely circulate within the EU and then be channelled to third countries where they might be little or not taxed. The 2011 proposal for a revision of the IRD was meant to tackle this issue. Agreeing on adequate defensive measures by Member States to accompany the EU black list would encourage third countries to comply with high EU good governance standards. WHT are among the countermeasures that are available. The existence of Wht prevents shifting profits tax-free toward non-EU jurisdictions and therefore discourages or impedes ATP. More broadly, the issue of a minimum effective taxation is becoming an increasingly important one. It has been discussed in the context of the fair taxation of the digital economy, the reform of the Code of Conduct, and the revision of the IRD. It is all the more relevant since the US, with their latest tax reform, has de facto introduced a minimum effective taxation on the profits of their MNEs. Such a reflection is particularly important given that Member States are currently competing in lowering their corporate tax rate and/or allowing narrowing of their base.

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