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The EU Anti-Tax avoidance package: An antidote in the making

The EU Anti-Tax avoidance package

The package mainly consists of two legislative proposals addressing on the one hand, measures supportive of anti-Base Erosion and Profit Shifting (the EU-BEPS) with an aim to create a simpler, levelled and ‘fairer’ level of taxation within the EU and on the other hand, non-public country by country reporting (CBCR) through an amendment to the current EU Directive on Administrative Cooperation in the field of direct taxation.

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On January 28th the European Commission delivered on its promise and unveiled an Anti-Tax avoidance package.  The package mainly consists of two legislative proposals addressing on the one hand, measures supportive of anti-Base Erosion and Profit Shifting (the EU-BEPS) with an aim to create a simpler, levelled and ‘fairer’ level of taxation within the EU and on the other hand, non-public country by country reporting (CBCR) through an amendment to the current EU Directive on Administrative Cooperation in the field of direct taxation.  The package also includes measures for a coordinated approach towards good governance with third countries and last but not least, recommendations to tackle treaty abuse.  

The contents of the EU anti-Tax avoidance package released, mirrors the 2013 BEPS Action plan undertaken by the Organization for Economic Co-operation and Development (OECD) under the direct instructions of the G20 and is built on the fundamental premise of aligning the country of activity with the country where tax is paid, only this time with EU member States at the center of this.

The latest measures as laid out in the anti-Tax avoidance package, should be seen in the overall context of the European Commission’s “Action Plan”, which was adopted by the European Parliament on the 16th of December last year and drafted by the Committee on Economic and Monetary Affairs (ECON), regarding matters of coordination, transparency and convergence of corporate taxation policy within the EU.

The determination of the EU to get the leading grip on the fight towards tax evasion was apparent from the very first days following the aftermath of the ‘LuxLeaks’ scandal back in November of 2014, leading to the adoption of a triple target by the European Parliament; increased transparency in all financial transactions within the EU, coordination as far as possible of the national tax authorities within the EU, and convergence of all tax systems within the EU, to an extent which will enable the European Council to speak with ‘one voice’ at the international scene.

Without this article aiming to venture into or analyze the numerous and composite tax issues that have mounted and now surfaced as a result of an old and out of date international tax system (not excluding aggressive and even abusive tax practices) and the global financial meltdown which resulted in deteriorating public finances around the globe, it became obvious that the EU proposed anti-tax avoidance package is simply an antidote in the making.  With imminent risks that have not yet been determined (let alone being measurable) with first and foremost the complete absence of an estimable assessment of the impact that such an endeavor may have on the fragile economy of each member state.  

The uncalled eagerness of the EU to go beyond OECD BEPS proposals and become the champion of tax transparency at the cost of endangering the competitiveness of the internal market is another grave risk that need not be taken in my opinion at this stage.  In light of the fact that third countries are
openly reluctant to adopt similar measures.

The need for coordinated action in tackling tax evasion not excluding the automatic exchange of tax information is objectively speaking a move in the right direction.  If this were to be achieved on a global basis, then the commendable efforts undertaken by the EU and the OECD would have
generated immediate and quantifiable results in the global struggle against tax
evasion. 

The problem however which arises, in my opinion, concerns the fact that there are many countries (most of them situated in the Americas, Asia and the Middle East) who have not committed to the above standards, nor have they expressed any intent to willingly do so in the future. 

As a result, the EU and the OECD are left competing on their own as to who will tackle most effectively the phenomenon of tax evasion and tax avoidance (lately these two concepts have increasingly and alarmingly been used as synonyms, which is a fundamental mistake).  The absence of a conclusive and binding solution for all countries with no exceptions, as concerns the aspiration to effectively tackle tax evasion and promote corporate tax consciousness as the global standard, will lead to a more intense phenomenon of capital flight out of the fragile European banking system, resulting in the prolongation of the recession in the EU, or at a best case scenario lead to sluggish recovery for certain European countries.

We all agree with the principle of increased and improved measures that will enhance global transparency and accommodate to the maximum a tax levelled playing field for all. This endeavor can succeed only under the condition that this will apply to and be implemented by all and for all. ‘A la carte’ solutions which are non-binding for all countries will not only fail to solve the global issue of tax evasion and avoidance, but on the contrary will undeservedly serve as to reward those countries which do not comply, whilst penalizing those countries that do. 

KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative ("KPMG International") a Swiss entity. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International Cooperative ("KPMG International") or KPMG member firms.

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