BEPS within the EU Framework Compatibility and Implementation

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1 Univ.-Prof. DDr. Georg Kofler, LL.M. (NYU) BEPS within the EU Framework Compatibility and Implementation CFE Forum 2014 Policies for a Sustainable Tax Future Thursday, 27 March

2 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 (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) 2

3 EU Action Plan 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 3

4 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) 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 /13 FISC 18 (14 October 2013) ( Interest limitation rule ) 4

5 BEPS Actions OECD and EU BEPS Action OECD 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 5

6 BEPS Actions OECD and EU BEPS Action OECD 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) 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 6

7 BEPS Actions OECD and EU BEPS Action OECD EU Establish methodologies to collect and analyse data on BEPS Require taxpayers to disclose their aggressive tax planning arrangements Re-examine transfer pricing documentation Report on Tackling Aggressive Tax Planning through Improved Transparency and Disclosure (February 2011) Report on Co-operative Compliance (29 July 2013) 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 7

8 BEPS Actions OECD and EU BEPS Action OECD EU Make dispute resolution mechanisms more effective Develop a multilateral instrument 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) 8

9 Exchange of Information 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 9

10 Aggressive Tax Planning 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: 10

11 Third Countries and Good Governance 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 11

12 Hybrid Loan Structures 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 /10, FISC 47, par. 31 [access to the public restricted]). Proposed Amendment of Art 4(1)(a): 12

13 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 antiabuse provisions in EU legislation Working Paper (Stakeholder meeting) A review of antiabuse provisions in EU legislation, D(2013) 13

14 Double Taxation 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 14

15 Thank you! Univ.-Prof. DDr. Georg Kofler, LL.M. (NYU) Institute for Fiscal Law, Tax Law and Tax Policy Johannes Kepler University Linz Altenberger Str. 69, 4040 Linz, Austria Tel: +43/732/ Mail: Web: 15