AMCHAM Tax Update EU developments

Transcription

1 AMCHAM Tax Update EU developments March 4, 2013

2 Executive summary Takeaways for Corporate Taxpayers: Unprecedented public scrutiny of the tax matters of specific companies and multinational groups in general; Less public tolerance for low or no taxation (perception versus reality) as a result of EU and OECD initiatives; The appetite for risky structures (even those whose parameters meet the letter of the law) is changing; More transparency and public engagement by all interested parties (ie. corporations, shareholders, industry groups, governments, etc). 1

3 The EU Black Box 2

4 1. EU Code of Conduct in the Council. EU 27 Member States Decisions Political commitment(council resolution of December 1997) To combat harmful tax competition Core concern: EU tax base erosion 3

5 1. Code of Conduct Since1998; EU Council Code of Conduct Group EU Council Group whereall EU 27 Member States meet regularlyto discuss reviews and updates More than 500 corporate tax regimes reviewed More than 100 considered harmful For all «rollback» agreed so far: Adequacy of rollback proposals Extension of benefits for existing beneficiaries Political(non-legally-binding) instrument 4

6 1. EU Code of Conduct (business taxation) Assessment of harmfulness should, inter alia, take into account: 1. Whether advantages are accorded only to non-residents or in respect of transactions with non-residents (ringfencing I) 2. Whether advantages are ring-fenced from the domestic market (does not affect national tax base) (ringfencing II) 3. Whether advantages are granted even without real economy activity and substantial economic presence 4. Whether the rules on profit determination deviate from internationally accepted principles (notably OECD) 5. Whether the tax advantages lack transparency 5

7 2. EU fiscal state aid EU (fiscal) state aidarticle 107 TFEU also applicable to corporate tax provisions Criteria: 1. Does the measure lead to an advantage? 2. Is this advantage (also tax revenue foregone) financed from state resources? 3. Couldthe measure distort competition in the EU internal market 4. Is the measure specific or selective? 6

8 3. EC Public consultation on double non-taxation cases (2012) Issues Identified: 1. Mismatchesof entities. 2. Mismatches of financial instruments. 3. Application of double taxation conventions. 4. Transfer pricing and unilateral APAs. 5. Transactions with associated enterprises in no or low tax jurisdictions. 6. Debt financing of tax exempt income. 7. Different treatment of passive and active income. 8. Double tax conventions with third countries. 9. Disclosure. 7

9 4. European Commission Action Plan 6 December 2012 Fight against tax fraud and tax evasion, including agressivetax planning and tax havens Communication COM(2012) 351 Action Plan COM(2012) 722 Proposed actions: Closing savings taxation loopholes Draft anti-fraud and tax cooperation agreement Reaction to VAT fraud Improve the effectiveness of the Code of Conduct Combat agressive tax planning (Tax Treaties, unilateral measures, etc) Standard forms for exchange of information Promote automatic exchange of information Recommendation C(2012) 8805 Recommendation C(2012)

10 4.1 European Commission 6 December 2012 On tax havens: using the same definition in EU coordinated fight towards third countries EU tax transparency EU exchange of information EU fair tax competition (including EU Code of Conduct principles) coordinated blacklisting suspending tax treaties / terminating tax treaties review within 3 years 9

11 4.2 European Commission on Aggressive Tax Planning On mismatches: 1. Solutions from the EU Code of Conduct group If not, European Commission will propose EU legislation on mismatches (directive?) 3. In any case EC proposal to amend Parent Sub directive to accommodate anti-hybrid solutions 4. Proposal to include anti-hybrid provision in tax treaties 5. Introduction of general anti avoidance rules (GAAR) within limits of EU law (Cadbury Schweppes wholly artificial arrangements C-196/04) Currentpractice = Allowable / transparent mismatches Active management / substance (IP Box / PECs) 10

12 5. European Parliament resolution 2012 On April 19, 2012, the European Parliament ( EP ): Takes concrete measures to combat tax fraud and tax evasion. The EP estimates that tax evasion and tax avoidance cost the governments of EU Member States billions of euros in lost revenue annually. The resolution goes on to list a wide variety of very diverse issues, such as the use of hybrid financial instruments, or the Parent-Subsidiary Directive, the Interest and Royalties Directive, and the EU Savings Taxation Directive. 31 October 2012: Call for your input to tax-haven-action plan 11

13 6. The Common Consolidated Corporate Tax Base ( CCCTB ) In March 2011, the European Commission adopted the final draft of an EU directive for a common consolidated corporate tax base ( CCCTB ) and forwarded it to the European Council Legislative Process: May 2011: Various EU countries submitted complaints; necessary number of 18 complaints to dismiss the final draft was not achieved Working group of the European Council discusses final draft proposal for modification April 2012: European Parliament approved an amended version of the draft of the directive and asked the European Commission to alter its original proposal accordingly Implementation of the European CCCTB: Unanimous approval of the final draft by the Council of the European Union (27 Member States) Less support for CCCTB by upcoming countries for Presidency of the European Council until 2016 (Ireland, Lithuania, Greece, Italy, Latvia, Luxembourg, the Netherlands, Slovak Republic) 12

14 7. The Franco/German Green Book On August 16, 2011, France and Germany agreed to implement measures in order to harmonize their corporate tax base as well as their corporate tax rates and implemented a working group of tax administration officials. As a result, the working group issued a Green Book on February 1, 2012 and discussed the following key convergence measures: Corporate tax rate Tax Groups / Consolidation Dividends / interest deductions Treatment of tax losses Amortization and depreciation Partnerships A partial transformation into domestic law took already place until now: Germany: increase in loss carry-back France: adjustment of rules for loss carry-forwards Next step: further transformation of proposed measures into domestic laws 13

15 8. The Santander decision CJEUDecision (C-338/11through C-347/11) Foreign investment funds (US, Germany, Belgium, Spain) Comparison at fund level and not unitholder/shareholder level; Restriction to the free movement of capital; Non-resident and residents investment funds are in a comparable situation; WHT Dividends French Co. French FCP/ SICAV No income tax No WHT No fiscal coherence justification (exemption not subject to a distribution) No tax evasion justification (for third countries : information exchange) Request for temporal limitation rejected Possibility of EU fund claims reinforced / possibility for non-eu funds to claim 14

16 8. Opportunities for refund of WHT - Overview 15

17 9. OECD Report on Hybrid MismatchArrangements (March 2012) This report points out multiple deductions, classic hybrids and multiple tax credits The OECD proposes several domestic law options to curb hybrid mismatch arrangements: 1. Harmonisation of domestic laws; 2. General anti-avoidance rules (GAAR); 3. Specific anti-avoidance rules; and 4. Rules specificallyaddressinghybrid mismatcharrangements, suchas: a) Rules addressing the multiple deduction of the same expense; b) Rules addressing the deduction of payments which are not included in the taxable income of the recipient; c) Rules addressing the non-inclusion of income which is deductible at the level of the payer; and d) Rules addressing abusive foreign tax credit transactions. 16

18 10. Unilateral actions (from OECD report 2012) 1. Denmark, Germany, New Zealand, the United Kingdom and the United States have rules which in certain circumstances deny the deduction of expenses which are also deductible in another country. 2. Denmark and the United Kingdom have rules which in certain cases deny the deductibility of payments that are not taxable at the level of the recipient due to a mismatch in treatment. 3. Austria, Denmark, Germany, Italy, New Zealand and the United Kingdom have introduced rules that deny the exemption of income which is deductible in the other country. This latter approach has also been agreed upon by the EU Code of Conduct Group (Business Taxation) in relation to hybrid instruments. 4. Other jurisdictions to follow? OECD recommendations: leading to unilateral approach 17

19 11. BEPS report (February 2013) OECD Report on «Base Erosion & Profit Shifting» (BEPS) by multinationals This report suggests strategies for consideration at the G20 SUMMIT. Tax planning strategies used by MNC s (mainly in US): Transfer pricing of intra-group transactions Structuring intra group financing (high tax versus low tax) Treaty shopping (to avoid withholding tax) Call for creative thinking to be engaged in by OECD, G20 and EU, suggested options = Improvmentsto transfer pricing rules Digital goods and services (challenge business model if no taxable presence) More effective anti-avoidance measures (GAAR S, CFC S, etc) Target tax hybrid arrangements Rules on intra-group financing Tacking harmful regimes with limited substance and transparency (mirrors EU rules) 18

20 12. Administrative cooperation in Tax Matters EU Directive February 2011 (substitutes 1997 Directive) Bill of law 6455 voted on 27 February 2013 on Exchange of information On request (no major change subsidiarity, etc) Spontaneous; or Automatic as from for: Directors fees Pensions Income from employment Spontaneous (i.e. not optional) exchange of foreseeablyrelevant information, in case: The Luxembourg tax authoritiessuppose that there may be a loss of tax in the other member state; Cross-border transactions conductedin such way to achive tax savings; Artificial transfers of profits Etc, 19

21 Worldwide Effective Tax Rate RATE Coalition vs. WIN America Campain Source Martin Sullivan Calculations 134 tax notes 1486 (March 19, 2012) 20