30 May 2016

FEE: Comment letter to the EC on Anti-Tax Avoidance Directive

FEE has the following comments on the European Commission’s proposed Directive 2016/011 laying down rules against tax avoidance practices – commonly known as the Anti-Tax Avoidance Directive (ATAD).

1) Ensure implementation of OECD/G20 BEPS recommendations in the EU

FEE fully supports the recommendations to tackle base-erosion and profit shifting (BEPS), as prepared by the OECD and approved by the G20. FEE is also in favour of a consistent transposition of the BEPS recommendations into EU law as proposed in the European Commission’s ATAD.

2) Carefully assess the impact of non-BEPS measures

Certain provisions in the ATAD go beyond what is proposed in the OECD/G20 BEPS recommendations. FEE encourages the EC, Member States, and the European Parliament to carefully assess the impact of these provisions in order to ensure that they achieve the intended effects, a level playing field, and do not pose unnecessary risks or burdens to the EU economy.

3) Limit the scope of the proposal to groups

The Explanatory Memorandum and Preamble to the ATAD make several references to the objective of the proposal being the fight against tax avoidance. However, most of the tax avoidance strategies addressed by the ATAD – such as CFC legislation, the interest limitation rule, the switch-over clause and hybrid mismatches – require multinational group structures. Some of the proposals, in particular those relating to the deductibility of interest, may have an impact on singleton companies, not only on groups. FEE consequently encourages the EC, Member States, and the European Parliament to carefully assess whether the scope of the ATAD (“all taxpayers that are subject to corporate tax in one or more Member State”) goes beyond the stated purpose of fighting tax avoidance.

4) Other specific comments:

Interest limitation rule – the one million euro threshold is too low for some Member States and may affect many businesses. Instead, a three million euro threshold would be more appropriate, as already implemented by some Member States. This would ensure that more groups are able to take advantage of the threshold. Furthermore, the third party interest incurred by the group as a whole should be fully deductible.

Exit taxation and General Anti-Abuse Rule (GAAR) – there is a need for a consistent implementation of these rules across the EU from both business and tax authorities’ perspectives. On GAARs specifically, their increased use in Member States will lead to a greater number of tax disputes. FEE therefore calls for a stronger tax dispute resolution mechanism within the EU.

Switch-over clause and CFC legislation– the Commission proposes that these two provisions are applicable when the taxpayer has capital income or reported profits in a low tax jurisdiction. Such “low tax countries” are defined by the Commission as the difference between the tax rate of the third country of origin and that of the hosting Member State. This risks leading to situations, where the same third country is defined as having or not having a low tax rate by different Member States.

Full comment letter

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