EU vote on corporation tax avoidance directive

EU vote on corporation tax avoidance directive

The directive was approved by MEPs and must now be approved unanimously by Member States.

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The EU Parliament voted to pass a resolution this week to introduce an EU anti-tax avoidance directive, reflecting the work of the OECD’s base erosion and profit shifting (BEPS) project and recommendations of the Parliament made at the end of last year. The directive contains proposals on key areas often connected with aggressive tax planning, and also defines terms such as permanent establishment, tax havens, patent boxes and minimum economic substance that have often been open to interpretation amongst Member States.

The six key areas covered by the directive are:

  • The deductibility of interest;
  • Exit taxation;
  • A switch-over clause;
  • A general anti-abuse rule;
  • Controlled foreign company (CFC) rules; and
  • A framework to tackle hybrid mismatches.

Ahead of the vote, the EU released figures on corporate taxation and tax avoidance across the EU, with further details on the Parliament’s proposals. The directive will now need to be approved unanimously by Member States before it can go into effect.

As well as the proposals set forward by the Parliament, MEPs were in favour of a number of other measures to tackle tax avoidance, including:

  • An EU blacklist of tax havens, and sanctions against uncooperative jurisdictions;
  • Stricter limits on deductions for interest payments;
  • A minimum tax rate on ‘foreign income’;
  • Introducing a common consolidated corporate tax base (CCCTB);
  • Prohibiting the use of ‘letterbox’ companies’;
  • Increased transparency for trust funds and foundations;
  • Introducing common rules for ‘patent box’ tax reductions on intellectual property earnings;
  • A cross-border dispute resolution mechanism, to be introduced by January 2017;
  • Implementing a common method for calculating the effective corporate tax rate, to allow easier comparison between countries; and
  • Introducing European taxpayer identification numbers to allow effective automatic exchange of information between Member States.

It remains to be seen which, if any, of these recommendations will be taken forward by the Parliament.

For further information, please see our press release here.

 

For further information please contact :

Sarah Beeraje

 

 

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