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EP passes resolution on aggressive corporate tax planning

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www.itpa.org

16 December 2015, the European Parliament approved a resolution setting out the legal steps needed to improve corporate tax transparency, coordination and EU-wide policy convergence. The move to counter aggressive corporate tax planning and evasion by multinationals in Europe was triggered by the November 2014 “Luxleaks” revelations. The EU Commission will have to respond to every legal recommendation, even if it does not submit a legislative proposal.

“This report shows the determination of both the European Parliament and the people of Europe to see real legislative change to prevent companies jumping across borders to reduce their tax bills to almost zero. The ‘Luxleaks’ scandal showed how much these corporations have been getting away with,” said co-rapporteur Anneliese Dodds.

The recommended legal steps build on the work of Parliament’s Special Committee on Tax Rulings, whose recommendations were approved at the 26 November plenary session. MEPs ask the Commission, inter alia, to:

  • Table a proposal for country-by-country reporting on profit, tax and subsidies by June 2016;
  • Table a proposal for introducing a “Fair Tax Payer” label;
  • Introduce a Common Tax Base (CCTB) as a first step, which later on should be consolidated as well (CCCTB);
  • Table a proposal for a common European Tax Identification Number;
  • Table a proposal for legal protection of whistle-blowers;
  • Improve cross-border taxation dispute resolution mechanisms;
  • Table a proposal for a new mechanism whereby member states should inform each other if they intend to introduce a new allowance, relief, exception, incentive, etc. that may affect the tax base of others;
  • Estimate the corporate tax gap (corporate taxes owed minus what has been paid);
  • Strengthen the mandate and improve transparency of the Council Code of Conduct Working Group on Business Taxation;
  • Provide guidelines regarding “patent boxes” so as to ensure they are not harmful;
  • Come up with common definitions for “permanent establishment” and “economic substance” so as to ensure that profits are taxed where value is generated;
  • Come up with an EU definition of “tax haven” and counter-measures for those who use them; and
  • Improve the transfer-pricing framework in the EU.

The Commission has three months to respond to the recommendations, either with a legislative proposal or with an explanation for not doing so. Parliament has agreed on a new six-month mandate for the Special Committee on Tax Rulings, which includes close monitoring of the legal initiatives related to corporate taxation and further fact-finding. The new committee will also follow up on on-going work by international institutions, including the OECD and G20.