1. Interparliamentary Conference on Stability, Economic Coordination and Governance in the European Union Luxembourg, 9-10 November 2015 Maarten de Wilde 10 November 2015, 8.30-10.30am Erasmus University Rotterdam University of Amsterdam Loyens & Loeff dewilde@law.eur.nl ‘Topic 3: Fair Tax Competition’

2. 0 – Introduction 1.Taxing multinationals; ‘setting the scene’; 2.Some points of discussion; 3.Some final remarks; 4.Wrap up; Maarten de Wilde

3. 1 – Taxing Multinationals; Setting the Scene Key drivers of tax competition and MNE tax planning responses; –Building blocks of corporation tax systems and their effects; –Countries: competition for investment – financing expenditure; –MNEs: competition – optimization of after-tax corporate profits; –General public: discontent; Addressing matters: autonomy or efficiency? –Current paradigm: equilibrium through competition or coordination; –Level playing field; EU-wide approach or single MS perspective? –Alternative: Unitary Taxation – CCCTB; Maarten de Wilde

4. 1 – Setting the Scene (cont’d…) Key drivers of tax competition and MNE tax planning responses; Corporate taxation – key properties: –Country sovereignty; –Separate accounting and arm’s length standard (SA/ALS); –Taxable entity: separate entity approach; –Taxable base: nominal return to equity standard, beneficial regimes; –Tax base division: supply side (origin), investment location as ‘location of value creation’; And their effects: –Effective tax rate differentials and mismatches; –Debt equity bias – incentivizing debt financing; –Investment location distortions – incentivizing tax competition and tax planning; –Real profits, ‘paper profits’ and corporate taxation – disconnects; –Globalization; mobility and elasticity of corporate tax base – ‘race to the bottom’; –Base Erosion and Profit Shifting (‘BEPS’) issues; –Public discontent; Maarten de Wilde

5. 1 – Setting the Scene (cont’d…) Addressing matters: autonomy or efficiency? International corporate taxation, today’s paradigm: –Country autonomy in corporate taxation; –Corporate tax base assignment to investment jurisdictions; –Effective tax differentials inevitably initiate competition and planning responses; –Solution: international alignment of effective tax levels at origin and transparency? –New problem: international coordination requires some form of autonomy transfers; –Equilibrium through competition or equilibrium through coordination? Political question; which way to go? –Coordination: giving up country autonomy in corporate taxation; –Maintaining autonomy: acceptation of tax competition and planning responses; –Level playing fields; EU-wide approach or MS perspectives? –Going out of the box; Unitary Taxation – CCCTB; Inelastic and economically efficient business taxation; Technically feasible? Maarten de Wilde

6. 2 – Some Points of Discussion 1.“How to strike the right balance between EU jurisdictions’ freedom to design their tax systems and guaranteeing a fair taxation of profit in the Single Market?” 2.“How could fairer tax competition in the EU be instrumental for investment and growth in the Single Market?” 3.“While the Treaty explicitly excludes tax harmonisation, which further institutional room for manoeuvre remains for improvement of tax competition and coordination, while guaranteeing the free movement of capital and freedom of establishment in the Single Market?” 4.“Which steps should European and global policy-makers take to reach a wider “level playing field” and prevent further profit shifting”? 5.“How to guarantee a more homogenous implementation at national level of tax legislation agreed at EU and global level?” Maarten de Wilde

7. 2 – Some Points of Discussion (cont’d…) 1.“How to strike the right balance between EU jurisdictions’ freedom to design their tax systems and guaranteeing a fair taxation of profit in the Single Market?” Autonomy or efficiency? Autonomy; –Multiple country induced market distortions (mismatches / disparities); –Country tax competition effects; –MNE tax optimization responses; –‘Race to the bottom’; –‘BEPS’; –Level playing field – single MS perspective; Efficiency; –Coherence, substance, transparency (G20/OECD); –And minimum effective taxation? (EU); –Autonomy transfers; –Level playing field – EU-wide perspective; –EU-ROW; Maarten de Wilde

8. 2 – Some Points of Discussion (cont’d…) 2.“How could fairer tax competition in the EU be instrumental for investment and growth in the Single Market?” Tax competition; fair competition v harmful competition; Level playing fields; MS perspective v EU wide perspective; Addressing matters in current international tax framework; –‘Race to bottom’; at level of single MS level or at level EU as a whole? Addressing matters under alternative tax framework; –Unitary taxation; –Rent taxation; –Destination based; Maarten de Wilde

9. 2 – Some Points of Discussion (cont’d…) 3.“While the Treaty explicitly excludes tax harmonisation, which further institutional room for manoeuvre remains for improvement of tax competition and coordination, while guaranteeing the free movement of capital and freedom of establishment in the Single Market?” Delineating EU law: Single country induced market distortions; –Seeking internal consistency at single MS level (equality: domestic / cross-border); –Treaty Freedoms (discriminations / restrictions); –State aid and harmful tax competition; ‘R&D carve out’ (“nexus approach”); –Autonomy at MS level; Multiple country induced market distortions; –Seeking internal consistency at EU wide level (resolving mismatches / disparities); –Seeking external consistency at single MS level; –Approximation of laws (coordination / coherence, transparency, minimum effective taxation); –Autonomy transfers from MS to EU; Maarten de Wilde

10. 2 – Some Points of Discussion (cont’d…) 4.“Which steps should European and global policy-makers take to reach a wider “level playing field” and prevent further profit shifting”? Political decisions: –Deciding between country autonomy or Single Market efficiency? –Level playing field; single MS perspective or EU wide perspective? –Solution in current tax paradigm or out of the box? Building blocks for an efficient corporate tax system: –Unitary taxation; –Rents taxation, e.g. through allowance for corporate equity (ACE); –Tax base division – destination based taxation; Competitive and inelastic CCCTB technically feasible? –ACE and incentive regime for R&D activities; –Sharing mechanism – sales only apportionment; Maarten de Wilde

11. 2 – Some Points of Discussion (cont’d…) 5.“How to guarantee a more homogenous implementation at national level of tax legislation agreed at EU and global level?” Deciding between autonomy or efficiency, again; –Soft law or hard law approaches? –Peer pressure or legally binding measures? EU instruments, e.g., EU Directive –Discretionary room for MS? International public law instruments (bilateral / multilateral treaty); –Minimum standards? Monitoring implementation (enforcement?); Legal drafting; Legal certainty for taxpayers; Maarten de Wilde

12. 3 – Some final remarks European Commission (COM(2015) 302 final, Brussels, 17 June 2015): ‘…it is time to move forward’; EU BEPS; –Towards hard law? –Towards soft law? Matters are ‘in the hands of the Member States’. Maarten de Wilde

13. Maarten de Wilde, PhD, LL.M; –dewilde@law.eur.nl.dewilde@law.eur.nl Maarten de Wilde 4 – Wrap up