Corporate Tax Avoidance
The fight against corporate tax avoidance is central to the European Commission's political priority to ensure a fairer Single Market. It is closely linked to the agenda to tackle tax fraud and evasion.
Corporate tax avoidance is understood as a situation when certain companies use aggressive tax planning in order to minimise their tax bills. It often entails companies exploiting legal loopholes in tax systems and mismatches between national rules, to artificially shift profits to low or no tax jurisdictions. As such, it goes against the principle that taxation should reflect where the economic activity occurs.
Corporate tax avoidance can result in the erosion of Member States' revenues and undermine fair burden-sharing between taxpayers (in particular between companies and private citizens) and fair competition for businesses.
Transparency and the fight against tax avoidance
Tax transparency is an essential element in combatting corporate tax avoidance.
In corporate taxation, there is currently a low level of transparency. This lack of transparency can enable and even incentivize abusive tax practices by certain companies, as it can mean that these practices go unchallenged: Member States may simply lack information on the impact of other countries' tax regimes on their own. It also means that loopholes between national tax regimes go unnoticed, and can be exploited by aggressive tax planners to avoid paying taxes.
The Commission has made it a priority to improve corporate tax transparency, in order to re-establish the link between taxation and real economic activity, and effectively tackle corporate tax avoidance.
The Commission presented a package of measures to boost tax transparency on 18 March 2015.
A key element of this Tax Transparency Package is a proposal to introduce the automatic exchange of information between Member States on their tax rulings.
The package also contains other tax transparency initiatives. It will be submitted to the European Parliament for consultation and the Council for agreement.
The Tax Transparency Package is the first step in a broad Commission agenda against corporate tax avoidance. The nextstep will be an Action Plan on corporate taxation, in summer 2015.
For further information see the press release (IP/15/4610), the questions and answers on tax transparency (MEMO/15/4609), the Proposal to introduce the automatic exchange of information between EU Member States on their tax rulings (COM/2015/135 ), the Staff Working Document (SWD/2015/60), the Communication on tax transparency to fight tax evasion and avoidance (COM/2015/136 ), and the Proposal for a Directive repealing the Directive on taxation of savings income (COM/2015/129 ).
The Commission has proposed that EU Member States should automatically exchange information on their tax rulings.
A tax ruling is a confirmation that tax authorities give to taxpayers on how their tax will be calculated. Rulings are not intrinsically problematic and granting them is not illegal or against EU law. Many tax authorities provide them in order to give businesses the legal certainty that they need to have before putting in place large or complex commercial structures. However, problems can arise if the tax rulings facilitate or even incentivize aggressive tax planning. For example, tax rulings which offer a low level of taxation in one Member State can encourage companies to artificially shift profits there, leading to serious revenue losses for other Member States.
The Commission proposal will require that, every 3 months, national tax authorities will have to send a short report to all other Member States on all advance cross-border tax rulings and advance transfer pricing arrangements that they have issued. The automatic exchange of information on tax rulings will enable Member States to detect certain abusive tax practices by companies and take the necessary action in response. If, after this initial exchange, a Member State believes that it needs more information on a particular ruling, it can request more details or the full ruling. The increased transparency will furthermore exert peer pressure on Member States to adapt their national tax practices and allow them to take actions against harmful tax practices applied in other Member States. See the presentation.
The 18 March 2015 package contains other initiatives:
The Commission will examine the feasibility of new transparency requirements for companies, such as the public disclosure of certain tax information by multinationals.
The Code of Conduct on Business Taxation is one of the EU's main tools for ensuring fair corporate tax competition but in recent years, it has been less effective than it should be. The Commission will work with Member States to review the Code of Conduct, to make it more effective in ensuring fair and transparent tax competition within the EU.
The Commission is proposing to repeal the Savings Tax Directive, in order to have a streamlined framework for the automatic exchange of financial information. This will prevent any legal uncertainty or extra administration for tax authorities and businesses, when complying with the new transparency rules.
The Commission, along with the EU Statistical Office (Eurostat), will work with Member States to see how a reliable estimate of the level of tax evasion and avoidance can be reached. Reliable statistics of the scale and impact of these problems would help to better target policy measures against them.
The next step will be an Action Plan on corporate taxation, which will be presented before the summer. It will include launch of a debate on the Common Consolidated Corporate Tax Base (CCCTB) and ideas for integrating new OECD/G20 BEPS actions at EU level.