The EU has been active to find solutions to the issues of profit shifting, but more remains to be done. In the EU, the debate around corporate taxation began to emerge as cross-border activity increased with economic and political integration. It focused primarily on preventing problems which could hamper the development of the Single Market, such as double taxation and tax discrimination. The issues and challenges of corporate tax systems in an economic union as well as their role for competitiveness vis-à-vis third countries were highlighted in the 1962 Neumark report followed by the 1970 van den Tempel report and the 1992 Ruding report. In 1998 the Code of Conduct for business taxation was established to limit harmful tax competition and identify specific tax regimes considered harmful. In 2001, the Commission presented a Communication identifying concrete steps to eliminate tax obstacles to cross-border trade in the EU. This was followed by 10 years of technical preparation, culminating in the Commission's 2011 proposal for a Common Consolidated Corporate Tax Base (CCCTB). In 2012, the Commission adopted and Action Plan to strengthen the fight against tax fraud and tax evasion 21 . Among others, the plan led to an amendment of the Parent-Subsidiary Directive to allow Member States the use of unilateral measures against profit participating loans as well as to the establishment of the Platform for Tax Good Governance. The transparency package proposed in March 2015 contains a number of proposals to improve transparency and information flows between tax authorities. This has led to the adoption by the Council in December 2015 of a Directive on the automatic exchange of information on advance cross-border tax rulings and advance pricing arrangements. In June 2015, the Commission adopted the Action Plan for Fair and Efficient Corporate Taxation in the EU 22 . The Commission initiatives take into account the work carried out by the Expert Group on Taxation of the Digital Economy 23 , as well as the OECD's work on the digitalisation of the economy 24 . This will be complemented by a package of initiatives to reform and modernise the EU VAT system, paying particular attention to the interaction with the Digital Single Market 25 . Finally, the Commission has been investigating the tax ruling practices of Member States under State aid rules since 2013 and adopted three decisions in October 2015 and January 2016.
The CCCTB initiative will provide a holistic solution to the problem of tax avoidance in Europe, with a fundamental reform of corporate taxation. A common corporate tax base would effectively mean that a single set of corporate tax rules would be available for companies to calculate their taxable income, instead of the current co-existence of 28 corporate tax rules. The consolidation would allow companies to offset losses in one Member State against profits in another. The CCCTB would in general reduce compliance costs and complexities for businesses in the Single Market. In addition, it would be highly effective in tackling tax avoidance as it would limit the opportunities to manipulate tax rules and exploit mismatches between tax systems. The Action Plan for Fair and Efficient Corporate Taxation in the EU announced the relaunch of the CCCTB. A two-step approach will be followed focusing firstly on the common tax base and secondly on the consolidation.
While work on the relaunch of a CCCTB is progressing, there is a need to act now to avoid varying interpretation of the OECD/G20 BEPS measures, which would also create administrative burdens and uncertainty for businesses. The Commission proposal covers elements that have already been discussed extensively and presents a pragmatic approach bringing together initiatives to enhance effective taxation and transparency in the Single market. The Action Plan laid the basis for developing an EU approach to implementing some international aspects of the common base that are linked to the BEPS project. This would allow for a coordinated implementation of the new international standards agreed in the OECD/G20 BEPS package. The Action Plan states that these elements should be agreed in the Council within 12 months. Member States have extensively discussed anti-avoidance rules, not only in the context of the BEPS project, but also in the context of the CCCTB proposal presented by the Commission in 2011. The following rules were discussed: interest limitations, exit taxation, switch-over rules, general anti-abuse rule (GAAR), controlled foreign companies (CFC) rules, hybrid mismatches and definition of permanent establishment.
The Anti-Tax Avoidance Package will ensure that tax is paid where the value is generated and that tax information is effectively accessed. The EU uses all tools at its disposal securing a common approach: two legally binding Directives, a Commission recommendation, as well as a Commission Communication preventing together aggressive tax planning within the EU and against external base erosion threats. This package is structured around the following 4 initiatives:
- A proposal for an Anti-Tax Avoidance Directive
- A Recommendation on Tax Treaty issues
- A proposal for an amendment to the existing Directive on administrative cooperation to implement the OECD agreement on Country-by-Country Reporting
- A Communication on External Strategy for Effective Taxation
Those four initiatives are accompanied by a Chapeau Communication that clarifies the context, objectives and overall articulation of the package.
The proposal aims at setting a common minimum level of protection against tax avoidance. This coordinated approach should safeguard the integrity of the Single Market, level the playing field on tax for Member States and limit the distortions in the European Union. The policy proposal also ensures that rules and measures taken to fight tax avoidance are compliant with EU law and respect the fundamental freedoms as well as fundamental rights as enshrined in the EU Charter of Fundamental Rights.
