On 8 June 2016, the European Parliament (EP) approved 91 amendments to a draft report of the Anti-Tax Avoidance Directive.
The amendments to the draft Anti-Tax Avoidance Directive include, amongst others, proposals for a 15% rate for the application of the switch-over rule, an EU blacklist of tax havens and sanctions against uncooperative jurisdictions, additional limitations on the deductibility of exceeding borrowing costs, and the swift introduction of a common consolidated corporate tax base.
Regarding the switch-over rule for earnings that are taxed in a country outside of the EU and then transferred to an EU member state, the EP approved a more ambitious amendment than originally suggested by the Commission, i.e. the amendment would apply the member state’s tax rate to foreign income that does not arise from an active business and is taxed at less than 15% in the foreign state (the European Commission had suggested a statutory rate of less than 40% for the rule to apply).
The EP also approved the preparation of an exhaustive EU ‘black list’ of tax havens and countries alongside a list of sanctions for non-cooperative jurisdictions and for financial institutions that operate within tax havens.
The EP advocated stricter limits on deduction for interest payments, meaning it would limit the deductibility of exceeding borrowing costs to maximum 20% of the taxpayer’s earnings or EUR 2 million, whichever is higher.
The EP would also swiftly introduce a common consolidated corporate tax base (CCCTB),
Further EP approved amendments include (non-exhaustive list):
- prohibiting the use of letterbox companies;
- increasing the transparency of trust funds and foundations;
- introducing a common method for calculating the effective corporate tax rate in each member state;
- setting up a cross-border tax dispute resolution mechanism with clearer rules and timelines;
- creating a harmonised, common European taxpayer identification number (TIN);
- proposing common definitions for terms including ‘permanent establishment’, ‘tax haven’, ‘royalty costs’ and ‘patent boxes’ as well as other terms that may be open to interpretation.
The package of measures is scheduled to be voted by the Economic and Financial Affairs Council on 17 June 2016 and it must pass unanimously to take effect.
Read the EP’s press release on the Anti-Tax Avoidance Directive here.
For more insights on the Anti-Tax Avoidance Directive and to understand the implications for your organisation, please contact Jonas Van de Gucht.