In a first, the European Commission has stressed that tax rules in seven EU member states facilitate corporate tax avoidance by multinational enterprises (MNEs).
The 2018 European Semester Country Reports – published on March 7 – highlight that there are indicators to suggest that the tax rules in force in seven EU countries are used by MNEs engaged in aggressive tax planning structures.
“I want to highlight the fact that for the first time, the Commission is today stressing the issue of aggressive tax planning in seven EU countries: Belgium, Cyprus, Hungary, Ireland, Luxembourg, Malta, and the Netherlands,” European Commissioner Pierre Moscovici said.
“These practices that we know have the potential to undermine fairness and the level-playing field in our internal market, and they increase the burden on EU taxpayers. The related country reports presented today are based on a thorough review of their tax rules and relevant factual economic indicators.”
Aggressive tax planning
The Belgium Country Report notes that despite recent tax reforms, the country’s tax system remains complex. Some features of the Belgian taxation system, in particular the lack of specific anti-abuse rules for the notional interest deduction regime, may facilitate aggressive tax planning via ‘cascading,’ the report notes.
The Commission’s Country Report on Ireland highlights that the absence of some anti-abuse rules or the exemption from withholding taxes on dividend payments made by companies based in Ireland suggest that Ireland’s corporate tax rules may still be used in tax avoidance structures. The high level of dividend payments and, in particular, charges for using intellectual property, suggest that the country’s tax rules are used by companies that engage in aggressive tax planning, the report states.
So far as Luxembourg’s tax system is concerned, the report stresses that the absence of withholding taxes on royalties and interest payments made by companies based in Luxembourg, or the lack of some anti-abuse rules, suggest that the country’s tax rules may still be used in tax avoidance structures.
The Dutch tax system too is open to tax abuse by multinationals, the Commission’s report notes. For instance, the absence of withholding taxes on dividend payments by co-operatives, the possibility for hybrid mismatches using the limited partnership, and the absence of withholding taxes on royalties and interest payments, combined with the lack of some anti-abuse rules, may facilitate aggressive tax planning.
Closing gaps in tax rules
The Country Reports note that some of the member states, including Ireland and Luxembourg, have taken steps to amend certain aspects of their tax systems that may facilitate aggressive tax planning and are engaged in international tax reform.
“We of course recognize the steps some of these member states have taken to adapt their tax model recently,” Moscovici said.
“I am meeting ministers from these countries on a regular basis and, two days ago, I met the Minister of Netherlands for a very positive exchange of views to discuss their national measures and take stock on progress. Because there is progress but clearly, if we raise that issue, it is because we believe that clearly more needs to be done.”
Commenting on the release of the Commission’s reports, international tax expert Rasmus Christensen said: “This is really a new direction for the European Commission, specifically putting the emphasis – in key political documents – on the aggressive tax planning opportunities allowed by member states’ tax systems. After the blacklist of third-country tax havens, this is another sign that the Commission is willing and able to push the agenda intra-EU as well.”
“And the fact that it has commissioned a large economic study to provide evidence on this speaks volumes of the intent of the Commission,” Christensen told TP News.