EU countries agree on taking a step forward on anti-avoidance rules

EU countries agree on taking a step forward on anti-avoidance rules

The EU is about to approve a new Directive on anti-avoidance measures against third countries, the next step to implement the whole OECD recommendations for BEPS.

International tax avoidance has been the new taxation battlefield for OECD and the EU’s tax authorities since 2015. Following the OECD’s release of BEPS recommendations, the European Commission issued Directive 2016/1164.

The EU’s finance ministers gathered in Malta on 21st February to update this Directive in relation to hybrid mismatches and state-aid rules to ensure a sound implementation of BEPS principles.

The hybrid mismatch is a loophole by which profits can be reduced substantially by exploiting the diverse countries’ taxation rules. The focus in now on non-EU countries now and the hybrid mismatches discussion will be included in a new Directive proposal to be approved by January 2020.

At the Council meeting, State members such as Ireland, Sweden, Denmark, Netherlands, Malta, Luxembourg and the United Kingdom, the countries most likely to be affected by the new regulations, proposed to delay some specific provisions that will enter into force by 2022.

This new proposal represents the EU’s second step at building up an ‘anti-avoidance’ common structures to prevent corporate groups from taking advantage of tax jurisdictions’ shopping. The discussion is very much aligned with the finalization of the list of non-cooperative jurisdictions in taxations matters, based on the provisions of a ‘Code of Conduct’ Group on business taxation set up by the Council in 1998. Those are the last measures within the EU’s external strategy for an effective taxation.

Although there is still lot to be done on BEPS, the European Union is very active when conducting anti-avoidance measures and queries as it was shown by the actions against giants such as Apple, Google or Amazon being widely reported by media.

These necessary but slow steps are not easy, bearing in mind that unanimity is required when agreeing on tax issues within the European institutions, but represents a warrant both for citizens and States that something is being done in the right way. We still believe that an efficient system must include regulatory and legislative measures coupled with the adoption of universal jurisdiction principles applied to serious tax evasion.

Del Canto Chambers’ Editorial Board

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