| Author (Corporate) | European Commission |
|---|---|
| Series Title | COM |
| Series Details | (2013) 814 final (25.11.13) |
| Publication Date | 25/11/2013 |
| Content Type | Policy-making |
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The issue of corporate base erosion is very high in the political agenda of many EU and non-EU countries and has been on the agenda of recent G20 and G8 meetings; the OECD is currently undertaking work on base erosion and profit shifting ('BEPS') which is widely welcomed. Double non-taxation is one of the key EU areas for urgent and coordinated action: it forms part of an on-going effort to improving the proper functioning of the Internal Market, by closing tax loopholes generated by exploiting the differences in national tax systems. Double non-taxation deprives Member States of significant revenues and creates unfair competition between businesses in the Single Market. A specific example of double non-taxation was identified in 2009 in the Business Code of Conduct Group concerning certain financial hybrid mismatches. Responses to the 2012 Commission public consultation on double non-taxation had agreed in general such mismatches were undesirable. Hybrid loans arrangements are financial instruments that have characteristics of both debt and equity. Due to different tax qualifications given by Member States to hybrid loans (debt or equity), payments under a cross border hybrid loan are treated as a tax deductible expense in one Member State (the Member State of the payer) and as a tax exempt distribution of profits in the other Member State (the Member State of the payee), thus resulting in an unintended double non-taxation. The Action Plan to strengthen the fight against tax fraud and tax evasion adopted by the Commission on 6 December 2012 identifies tackling mismatches between tax systems as one of the actions to be undertaken in the short term (in 2013). In this respect, the Action Plan states "Detailed discussion with Member States have shown that in a specific case an agreed solution cannot be achieved without a legislative amendment of the Parent Subsidiary directive. The objective will be to ensure that the application of the directive does not inadvertently prevent effective action against double non-taxation in the area of hybrid loan structures". On 21 May 2013, the European Parliament adopted a resolution whereby it urged the Member States to embrace the Commission's Action Plan and fully implement the Recommendation on aggressive tax planning. The European Parliament also called on the Commission to address specifically the problem of hybrid mismatches between the different tax systems used in the Member States, as well as to present in 2013 a proposal for the revision of the PSD with a view to revise the anti-abuse clause and to eliminate double non-taxation in the EU as facilitated by hybrid arrangements. In its conclusions of 22 May 2013, the European Council noted the Commission's intention to present a proposal before the end of the year for the revision of the 'parent/subsidiary' Directive. This proposal seeks to tackle hybrid financial mismatches within the scope of application of the PSD and to introduce a general anti-abuse rule in order to protect the functioning of this directive. |
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| Source Link | Link to Main Source http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2013:814:FIN |
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| Subject Categories | Taxation |
| Countries / Regions | Europe |
