European Parliament Adopts Anti-Tax Avoidance Directive

The European Parliament voted overwhelmingly in favor of the Anti-Tax Avoidance Directive, proposed by the European Commission in January 2016, which aims at tightening rules against tax avoidance. At the same time, the parliament has also set up a “Panama Papers” inquiry committee to investigate alleged contraventions and maladministration.

The Directive

The proposal aims to ensure that tax is being paid in the country where profits are made. It clarifies the common definitions to be applied among the EU states. Some of the proposals are:

  • creating an exhaustive 'black list' of tax havens and countries;
  • quickly introducing a common consolidated corporate tax base (CCCTB);
  • introducing a common method for calculating the effective corporate tax rate in each member state, so as to allow for comparison across the EU;
  • as part of a switch-over clause, MEPs favor setting a minimum rate of 15%, i.e. if foreign income was taxed at a lower rate outside the EU, then the difference would need to be paid;
  • limiting the deductibility of exceeding borrowing costs only up to 20%/2,000,000 of the taxpayer's earnings;
  • creating a harmonized, common European taxpayer identification number (TIN) for effective automatic exchange of information;
  • prohibiting the use of letterbox companies;
  • a cross-border tax dispute resolution mechanism with clearer rules and timelines, to be introduced by January 2017.

Panama Papers Inquiry Committee

On June 8, the European Parliament also agreed to set up an inquiry committee into the “Panama Papers” data. The committee will investigate alleged contraventions and maladministration in the application by the European Commission or member states of EU laws on money laundering, tax avoidance and tax evasion. It will have 65 members and twelve months to present its report, the Parliament informed.

Sources: European Parliament - Anti-tax Avoidance Directive, European Parliament - "Panama Papers" Inquiry Committee

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