BEPS within the EU Framework Compatibility and Implementation

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BEPS within the EU Framework – Compatibility and Implementation

CFE Forum 2014 Policies for a Sustainable Tax Future

Thursday, 27 March 2014

Univ.-Prof. DDr. Georg Kofler, LL.M. (NYU)

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BEPS

 Report Addressing Base Erosion and Profit Shifting (12 February 2013)

 Declaration on Base Erosion and Profit Shifting, C-MIN(2013)22 (29 May 2013)

 Action Plan on Base Erosion and Profit Shifting (19 July 2013)

 See also, e.g.,

− US Joint Committee on Taxation, Present Law and Background Related to Possible Income Shifting and Transfer Pricing, JCX-27-10 (2010)

− UK House of Lords Select Committee on

Economic Affairs, Tackling corporate tax

avoidance in a global economy: is a new

approach needed? (31 July 2013)

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− Communication from the Commission on An Action Plan to strengthen the fight against tax fraud and tax

evasion, COM(2012)722 final

− 34 concrete Actions, including …

− … 6 on the better use of existing instruments and Commission initiatives to be progressed

− … 7 on new Commission initiatives

− … 21 on future initiatives and actions to be developed

EU Action Plan

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BEPS Actions – OECD and EU

BEPS Action OECD EU

1

Address the tax challenges of the

digital economy

• Discussion Draft The Tax Challenges of the Digital Economy (24 March 2014)

• High Level Expert Group on Taxation of the Digital Economy

2

Neutralise the effects of hybrid

mismatch arrangements

• Report Hybrid Mismatch Arrangements:

Tax Policy and Compliance Issues (March 2012)

• Discussion Draft Hybrid Mismatch Arrangements (4 April 2014)

• Commission proposal for a Council Directive on the taxation of parent companies and subsidiaries of different Member States, COM(2013) 814

3 Strengthen CFC

rules —

• Council Resolution on coordination of the Controlled Foreign Corporation (CFC) and thin capitalisation rules within the European Union, [2010] OJ (C 156), 1

4

Limit base erosion via

interest deductions and

other financial payments

—

• Council Resolution of 8 June 2010 on coordination of the Controlled Foreign Corporation (CFC) and thin capitalisation rules within the EU, [2010] OJ (C 156), 1

• Art 14a of the Compromise Proposal for the CCCTB, Doc. 14768/13 FISC 18 (14

October 2013) (“Interest limitation rule”)

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BEPS Actions – OECD and EU

5

Counter harmful tax practices more effectively,

taking into account transparency and substance

• Harmful Tax Competition – An Emerging Global Issue (1998)

• Standard for Automatic Exchange of Financial Account Information (2014)

• Communication on Promoting Good

Governance in Tax Matters, COM(2009)201 final

• An Action Plan to strengthen the fight against tax fraud and tax evasion

COM(2012)722 final, and Recommendation on aggressive tax planning, C(2012)8806 final

• Recommendation regarding measures intended to encourage third countries to apply minimum standards of good

governance in tax matters, C(2012)8806 final

• Proposal for a mandatory automatic exchange of information in the field of taxation, COM(2013) 348 final

• Platform on Tax Good Governance

• Mandate to negotiate stronger tax agreements with Switzerland, Andorra, Monaco, San Marino and Liechtenstein

• Reinforce Code of Conduct

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BEPS Actions – OECD and EU

6 Prevent treaty abuse

• Revised Discussion Draft on the Meaning of ‘Beneficial Owner’ in Articles 10, 11 and 12 (2012)

• Discussion Draft Tax Treaty Abuse (17 March 2014)

• Communication on concrete ways to

reinforce the fight against tax fraud and tax evasion including in relation to third

countries, COM(2012)351 final

• Working Paper A review of anti-abuse provisions in EU legislation, D(2013)

• Commission proposal for a Council Directive on the taxation of parent companies and subsidiaries of different Member States, COM(2013) 814

7

Prevent the artificial avoidance of PE

status

• Revised Draft on the Interpretation and Application of Article 5 (Permanent Establishment) of the OECD Model Tax Convention (2012/13)

—

8-10

Assure that transfer pricing outcomes are in

line with value creation

• Revised Discussion Draft on Transfer Pricing Aspects of Intangibles (30 July 2013)

• Work of the JTPF

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BEPS Actions – OECD and EU

11

Establish methodologies

to collect and analyse data on

BEPS

— —

12

Require taxpayers to disclose their aggressive tax

planning arrangements

• Report on Tackling Aggressive Tax Planning through Improved

Transparency and Disclosure (February 2011)

• Report on Co-operative Compliance (29 July 2013)

—

13

Re-examine transfer pricing

documentation

• Discussion Draft White Paper on Transfer Pricing Documentation (30 July 2013)

• Memorandum on Transfer Pricing Documentation (3 October 2013)

• Discussion Draft Transfer Pricing Documentation and Template for Country-by-Country Reporting (30 January 2014)

• Code of conduct on transfer pricing

documentation for associated enterprises in the European Union (EU TPD), [2006] OJ C 176/1

• Work of the JTPF

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BEPS Actions – OECD and EU

14

Make dispute resolution mechanisms more effective

—

• Communication on Double Taxation in the Single Market, COM(2011)712 final.

• Working Paper (Stakeholder meeting) Double Taxation in the Single Market, D(2013) (12 April 2013)

15

Develop a multilateral

instrument

— —

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 Action 1 of the EU Action Plan calls for “full and effective implementation and

application” of the new framework for administrative cooperation → Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation and repealing Directive 77/799/EEC, [2011] L 64, p. 1 – Applicable since 1 January 2013, except for the portions on automatic exchange of information, the first phase of which starts on 1 January 2015

 Action 12 of the EU Action Plan calls for the adoption of standard forms for exchange of information → Commission Implementing Regulation (EU) No

1156/2012 of 6 December 2012 laying down detailed rules for implementing certain provisions of Council Directive 2011/16/EU on administrative cooperation in the field of taxation, [2012] OJ L 335, p. 42

 Action 16 of the EU Action Plan calls for a promotion of automatic exchange of information → Proposal for a Council Directive amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation, COM(2013) 348 final

Exchange of Information

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 Action 8 of the EU Action Plan calls for a recommendation on aggressive tax planning → Recommendation on aggressive tax planning, C(2012)8806 final

 Contains recommendations to Member States to …

 … include a Subject-to-Tax-Clause in their tax treaties:

 … adopt a general anti-avoidance rule:

Aggressive Tax Planning

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 Action 7 of the EU Action Plan calls for a recommendation regarding minimum standards of good governance in tax matters for third countries → Recommendation regarding measures intended to encourage third countries to apply minimum standards of good governance in tax matters, C(2012)8806 final

 Contains …

 … a list of minimum standards of good governance (transparency and effective exchange of information, no harmful tax measures in the area of business taxation)

 … measures against third countries not complying with these standards

 … measures in favor of third countries complying with these standards

 … measures in favor of third countries which are committed to comply with these standards

Third Countries and Good Governance

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 Proposal to amend the Parent Subsidiary Directive, COM(2013)814 final (25 Nov.

2013)

 Action 14 of the EU Action Plan calls for a revision of the Parent-Subsidiary-Directive with regard to hybrid loans

 Stakeholder‘s consultation concerning an amendment of the Parent-Subsidiary-Directive with respect to hybrid loan structures, D.1 (2013) (27 March 2013)

 Background also: “In as far as payments under a hybrid loan arrangement are qualified as a tax deductible expense for the debtor in the arrangement, Member States shall not exempt such payments as profit distributions under a participation exemption” (Report of the Code of Conduct Group of 25 May 2010, Doc. 10033/10, FISC 47, par. 31 [access to the public

restricted]).

 Proposed Amendment of Art 4(1)(a):

Hybrid Loan Structures

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Anti-Abuse

 Proposal to amend the Parent Subsidiary

Directive, COM(2013)814 final (25 Nov. 2013)

 Action 15 of the EU Action Plan calls for a review of anti- abuse provisions in EU

legislation

 Working Paper (Stakeholder

meeting) A review of anti-

abuse provisions in EU

legislation, D(2013)

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− Working Paper (Stakeholder meeting) Double Taxation in the Single Market, D(2013) (12 April 2013) – Following the Communication from the Commission on Double Taxation in the Single Market, COM(2011)712 final.

− Tax policy options to solve the existing double taxation cases

− Option 1: Maintaining the current situation – no action at EU level

− Option 2: Recommending the adoption of arbitration procedures to resolve difficulties arising from the interpretation and application of DTCs

− Option 3: Proposing EU Legislation – directive providing for an arbitration procedure to solve conflicting cases deriving from the interpretation and application of DTCs

− Option 4: Proposing EU Legislation – directive obliging the state of residence to eliminate international double taxation

− Option 5: Proposing EU Legislation aiming at distributing taxing rights between the source State and the resident State and providing in the absence of a DTC for a tax credit in the latter State where taxing rights are shared

Double Taxation

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BEPS within the EU Framework Compatibility and Implementation