On 28 January, the European Commission adopted its latest measure in a fight against corporate tax evasion. The measures implement the guidelines agreed by OECD. The package has several parts, some of the binding legal acts, some non-binding. One legally binding act is a proposal for a directive against tax avoidance. The directive provides measures to ensure that companies pay their fair share of taxes and pay them in the jurisdiction where they actually make the profits. It aims to minimize transfers of profits, fictional loans to lower tax base or exploitation of loopholes in national legislations.
The other binding act is a revision of the Administrative Cooperation Directive. It introduces exchange of information by national tax authorities on country-by-country profits of companies. This is a first step toward public country-by-country reporting of profits that many would like to implement and that the EC is currently looking into.
Except for these directives, the EC also issued a recommendation on revisions to tax treaties. According to the EC, member states should evaluate their tax treaties and introduce provisions tackling common tax avoidance measures.
The EC also adopted a Communication on External Strategy for Effective Taxation. This is a non-binding act that sets out the EC´s approach concerning cooperation with third countries on fight against tax evasion. The so-called tax havens will be put onto an EU list. Also, the EC will try to initiate structured dialogues with jurisdictions whose tax standards are not sufficiently resilient against common tax abuses.
The binding acts will now be submitted to the Council, which needs to adopt them unanimously. The EP will have a consultative role. The EC also asked both co-legislators to endorse the non-binding acts as well. The two directives could face a challenge in the Council. Mainly the UK and Ireland regard favorable taxation for companies as part of their economic model.
6th October 2021
9th July 2021