On 28 January 2016, the European Commission published a draft Anti Tax Avoidance Package ('ATA') in order to ensure increased tax transparency and effective taxation within, and outside of, the EU.
The draft ATA Directive addresses 6 international and BEPS-related elements of the Common Consolidated Corporate Tax Base (CCCTB) which have been discussed by the EC, Member States and stakeholders since the EC issued its 2011 CCCTB proposal.
Amount the measures included in the ATA package are:-
a proposed Directive on tax avoidance practices (discussed further below),
amendments to the Directive on automatic information exchange in order to gather and share information on Multinational Enterprise Groups to ensure they pay their fair share of tax where profits are made,
a recommendation paper on how Member States should reinforce their tax treaties against abuse by aggressive tax planners, and
a communication on external strategy for effective taxation in countries outside of the EU and a study on effective taxation.
The draft Directive may be considered by the Economic and Financial Affairs Council of the European Union (ECOFIN) as soon as this month (February 2016). However, the Directive would require unanimous consent by all Member States, since it is a taxation measure, and would then need to be implemented into the domestic law of each individual Member State.
The proposed Directive on tax avoidance focuses on some of the proposals set out in the Base Erosion and Profit Shifting (BEPS) project. This is to ensure that these proposed measures are enacted uniformly across the EU in order to strengthen its collective stance on tax avoidance.
The measures include:-
limiting interest deductions to 30% EBITDA or €1 million (whichever is higher) in order to mitigate the bias against equity financing,
introducing an exit tax on capital gains on assets transferred out of a Member State whether or not the gain is realised,
introducing a “switch over” clause, meaning that foreign income received from a “low tax” jurisdiction (which imposes tax at below 40% of the recipient Member State’s tax rate) will be taxable, with a credit for any foreign tax paid,
a general anti-abuse rule (GAAR) to tackle artificial tax arrangements,
controlled foreign company (CFC) rules in relation to foreign entities subject to corporate tax at below 40% of the Member State’s tax rate, and
hybrid mismatch rules to prevent taxpayers benefiting from a double deduction or a deduction with no corresponding inclusion in taxable profit.
The measures above are intended to operate alongside the EU’s Common Consolidated Corporate Tax Base (CCCTB) project, on which further draft legislation is expected in Autumn 2016.
Whilst the Commission has not set out a specific timeframe for finalizing the above measures, it is clear that this project will be pursued with some urgency.