Tuesday, November 26, 2013

Europe proposes to curb use of hybrids and other abusive tax schemes

From the European Union, slightly shortened for readability purposes:
European Commission adopts proposal to amend the Parent Subsidiary Directive
The European Commission adopted on 25 November 2013 a proposal to amend the Parent Subsidiary Directive to:
  1. include a general anti-abuse provision and 
  2. deny tax benefits to companies making use of hybrid loan instruments. 
Under the Proposal, Member States are expected to implement the amended Directive into their domestic law by 31 December 2014. The Council of the European Union should approve this Proposal by unanimity for it to become effective.
Now this is potentially quite significant. But there are some big caveats.

Commenting on the proposals, Green tax spokesperson Sven Giegold, who was European Parliament draftsman/rapporteur for an earlier revision of the parent-subsidiary directive (and who, by the way, was one of TJN's founders), said:
"These proposals are an important step to addressing the chicanery by unscrupulous multinationals, which exploit these loopholes in EU legislation to shirk their corporate taxation responsibilities. The Greens have long called for the EU to close the loopholes in legislation on parent-subsidiary taxation. The current provisions allow corporations to shift profits between subsidiaries cross-border, in many cases to avoid their tax responsibilities in the jurisdictions in which they operate and in some cases to avoid taxation altogether. It is high time that this door was closed and we hope these proposals will now be swiftly adopted.

"While this is an important step, it will only be effective as part of a wider EU approach on corporate tax avoidance and dumping. EU governments need to speed-up decision-making on the EU common consolidated corporate tax base, as well as finally agreeing to a minimum common corporate tax rate, which would more effectively close the door to tax dumping.

"Tax fraud, evasion and avoidance deprives exchequers in EU member states of EUR 1 trillion in revenue per year, according to the EU Commission. Addressing this problem should have been a top priority in the context of the current economic crisis and the fiscal problems faced by EU member states. EU governments must stop sitting on their hands and swiftly move forward with these proposals."
Reuters adds:
"Progress in tackling the problem is likely to be slow. Europe is torn between the demands of small countries, such as Luxembourg and Ireland, fiercely resisting change to their low-tax regimes which attract foreign investment, and states such as Britain and Germany, wary of driving away big employers.
We're not sure that's a wholly accurate portrayal of the positions of the UK and Germany: the UK in particular seems gung-ho for allowing an ever greater proliferation of abusive offshore-friendly schemes, while Germany is rather more cautious. In any case, TJN Senior Adviser Sol Picciotto adds that one can now see past the political difficulties:
"I think Sven is right: only the CCCTB can deliver a more comprehensive solution. This move against hybrids, as well as the Letters sent to Ireland, Luxembourg and the Netherlands challenging some of their tax breaks as state aids, are sticking plaster. But it’s possible that the pressure on these states may weaken their opposition to the CCCTB. In fact, the work on the CCCTB started after the Code of Conduct first began to put pressure on such measures. The Code gradually became toothless, but the new pressures resulting from BEPS changes the situation I think."
The lobbyists are, as usual, out in force. But there is still everything to play for.

Hat tip: Katrin McGauran

Update 2014: for more on corporate tax, see here.

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