STRICTER RULES SUGGESTED ON CORPORATE TAX AVOIDANCE

The preparation of the new anti-tax avoidance directive has arrived to a new phase, since the European Commission has submitted a new proposal that follows the recommendations made by the European Parliament in November-December 2015. The European Parliament welcomed the proposal, although the members of the European Parliament would set stricter limits on deductions for interest and stricter rules on foreign income.

The proposal is based on the principle that tax should be paid where profits are made, and it includes a legally binding measure to block the methods commonly used by companies to avoid tax payment. Usually this ‘foreign’ income is taxed in a country outside the EU and then transferred to an EU Member State, where it is often exempt from taxation, in order to avoid double taxation.

Members of the European Parliament now suggest a minimum rate of 15% for the corporate income tax and if the foreign income was taxed at a lower rate outside the EU, then the difference would need to be paid. The proposal contains several other recommendations, such as increasing the transparency of trust funds and foundations, drawing up an exhaustive black list of tax heaven countries including those in the EU complemented with a list of sanctions for non-cooperative jurisdictions and for financial institutions operating within tax heavens. As a next step, the EU Member States have to agree on the wording of the directive unanimously.