European Commission gets closer to agreeing anti-tax avoidance directive
The European Commission is on the brink of agreeing its far-reaching anti-tax avoidance directive, but is waiting on approval of some elements of the package by the Belgian and Czech governments, before it introduces new rules at midnight on Monday 20 June
At the end of last week the Commission’s ECOFIN committee came to an agreement in principle on the anti-tax avoidance directive, which was first published in January 2016. This calls for member states to take a stronger and more coordinated stance against companies that seek to avoid paying their fair share of tax and to implement international standards against base erosion and profit shifting.
Key features of the new proposals include legally-binding measures to block the most common methods used by companies to avoid paying tax; a recommendation to member states on how to prevent tax treaty abuse; a proposal for member states to share tax-related information on multinationals operating in the EU; actions to promote tax good governance internationally; and a new EU process for listing third countries that refuse to play fair.
Following on from the Friday meeting, vice-president Valdis Dombrovskis said: ‘After a lot of work, there is an agreement in principle on the anti-tax avoidance directive. Most of the outstanding issues have been resolved in very fruitful discussions. Some of the elements still must be confirmed by Belgian and Czech governments.
‘The directive, which will hopefully be adopted on Monday, will shut down many of the channels most commonly used by aggressive tax planners to minimise their tax bills.’
Friday’s compromise came after the EU agreed to drop the draft law’s so-called switch-over clause aimed at limiting exemptions on foreign income from taxation.
Belgium has yet to confirm its approval of the directive, having indicated it is concerned that the new rules restricting the amount of interest that a company is entitled to deduct could create an unfair playing field between EU and non-EU countries if introduced before an OECD-wide standard.
The Czech finance minister Andrej Babis is threatening to veto the directive to highlight unconnected concerns about the European Commission’s failure to address VAT fraud.
Dombrovskis said: ‘The compromise which was fleshed out today goes a very long way to accommodate member states’ concerns. But for the Commission is crucial that there is a clear date by when common rules need to apply to everybody to fully implement the OECD BEPS standards. We have been emphasising many times that Europe wants to be in a leading position in the fight against tax avoidance and also in implementing global standards.’
Tax changes in the EU must be agreed to by all 28 member states.
The ECOFIN committee also said that the Commission will make a proposal on the revised anti-money laundering directive on 5 July.
At the meeting, Ireland along with Cyprus and Slovenia was formally taken out of the Excessive Deficit Procedure instigated following the financial crisis
