The European Commission's proposal for an Anti-Tax Avoidance Directive creates a minimum level of protection against corporate tax avoidance
Member States asked to apply measures from 1 Jan 2019
The European Commission (EC) announced on 28 January 2016 a well-flagged series of anti-tax avoidance proposals for review by European Union (EU) Member States. These combine recommendations to combat base erosion and profit shifting (BEPS) which were set out in the final October 2015 reports from the BEPS Plan by the Organisation for Economic Cooperation and Development (OECD) with measures which have an EU flavour. The EC’s ambition is to harmonise to the greatest extent the adoption of anti BEPS measures into local laws across EU Member States.
To do this by means of legislation in a Directive will require unanimity on the part of Member States. Based on our initial analysis of the proposals, KPMG believes it is unlikely that all of the proposed measures will reach the required degree of Member State unanimity for adoption through a Directive.
The proposals have been influenced by debates aired in the EU Parliament and fuelled by the perception that multinational corporations (MNCs) are engaged in aggressive tax planning and are not effectively taxed on their activities in the European Union.
Ireland's tax rate
Ireland’s 12.5% corporation tax regime is not within the scope of these proposals. Ireland remains vigilant that the combined effect of the measures, if adopted, would not undermine the broader framework of its regime. Ireland has stated its readiness to engage constructively with international counterparties on anti BEPS measures but is concerned to ensure that there is multilateral adoption of measures so as to preserve Ireland’s relative competitive position.
Many EU Member States (including Ireland) have already spent over two years participating in multi-country working groups which produced the OECD BEPS Plan recommendations without reaching consensus on the detail of many of the measures. It appears unlikely that EU Member States can reach unanimity when presented with essentially the same proposals by the EC.
The EU has a range of tools to influence Member States when making local tax policy choices. Many of these are highlighted in the announced package of measures. This, of itself, is an acknowledgement that it is not realistic to expect that all Member States will agree to adopt the full range of measures through a Directive. In the event that some of the proposals do not reach the threshold for EU-wide enactment through a Directive, guidance can be provided to shape the choices of Member States in setting their national tax policies through influential EU fora such as the EU Code of Conduct Group.
KPMG believes that, at a minimum, the debate and work on the package of measures over the coming months will influence the thinking of policy makers and will shape future tax policy choices of EU Member States.
In making future tax policy choices, Member States will be mindful of the continuing scrutiny on the transparency of their tax regimes and of the need to evidence that locally taxed profits are aligned with economic activity – challenges which KPMG believes Ireland’s tax regime remains well placed to meet.
Click to explore KPMG’s initial high level analysis of the announced measures - where we expect the final outcome to be a common ground amongst Member States for adoption of measures, and which of the measures we expect may devolve to broader based guidance principles on the basis that they will be difficult to shape so that ‘One Size Fits All’.