Robin Walduck, Tax Partner at KPMG in the UK comments on the European Parliament approval of the EU Anti-tax Avoidance Package which occurred on Wednesday (8 June).
Robin Walduck, Tax Partner at KPMG in the UK said:
“It is not surprising that the European Parliament has approved the package of anti-tax avoidance measures contained in the EU Commission proposal. However, MEPs have also called on the EU Commission to alter and extend many of its original proposals, some of which are potentially very far-reaching.
“Perhaps most notably, MEPs have called for the new rule on interest deductions (in line with BEPS Action 4) to be restricted to just 20% of the taxpayer’s earnings compared with the original proposal of 30%, although the de minimus threshold is also increased from EUR 1m to EUR 2m. The 20% cap also contrasts with the 30% rate proposed in the recent consultation document issued by the UK Government.
“What’s more, MEPS have acknowledged the need for consistency within the EU in relation to the adoption of a wide range of matters including the definition of a permanent establishment, the application of transfer pricing rules and the treatment of intellectual property, among others. Such a strategy ought to simplify compliance for taxpayers in many circumstances. However it could also potentially have the effect of hindering the establishment of favourable regimes designed to provide a competitive advantage for a particular Member State. For example, some countries have favourable regimes for the taxation of intellectual property rights including the UK which has only recently made revisions to its Patent Box regime.
“The MEPs are also requiring an extension to the scope of the so-called ‘switch-over’ rule whereby income which is taxed at a low rate outside the EU would be subject to tax in the relevant EU Member State. The proposal is that this rule would apply if such income is not subject to a tax rate of at least 15%.
“Finally, there are also calls for a host of further measures aimed at combating the use of tax havens including (a) increased transparency of trust funds and foundations, (b) redefining an enterprise in line with the definitions of permanent establishments and minimum economic substance to negate the creation of special purpose entities which benefit from low tax rates, and (c) defining and drawing up a ‘black list’ of tax havens and countries including within the EU to be complemented with sanctions.
“We noted back in January that the EU Anti-tax Avoidance Package went much further than stewardship of the implementation of BEPS and, with these additional measures, the European Parliament is extending that still further adding greater complexity and uncertainty. On top of this, for the UK, there is an additional layer of uncertainty surrounding the outcome of the EU referendum.
“However, it should not be forgotten that the above proposals only become effective once approved by the Council which requires the unanimous approval of all EU Member States. This means that there is still some way to go before implementation.
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