EU finance ministers wary of anti-tax avoidance proposal

EU finance ministers will attempt to reach agreement by March on a directive requiring EU-wide country-by-country reporting for large multinationals and by July on a directive requiring EU states to adopt six anti-tax avoidance measures for corporations, Jeroen Dijsselbloem Dutch finance minister and president of the Eurogroup announced at an ECOFIN meeting of EU finance ministers.

Judging from comments made by the other ministers at the meeting, though, agreement on the anti-tax avoidance directive will be difficult to achieve.

The proposed directives are part of an anti-tax avoidance package unveiled by the EU Commission on January 28. Also included is guidance for member states on revising tax treaties to prevent treaty abuse and a proposed new method for identifying countries to be placed on the EU “tax blacklist” of non-EU countries.

All the EU minsters at the meeting, held February 12 in Brussels, appeared to support the proposed country-by-country reporting directive, which largely follows OECD base erosion profit shifting (BEPS) agreements. The directive would require multinationals to submit country-by-country reports of items — such a revenues, profits, income tax paid, and number of employees — which would be exchanged between the tax authorities of the countries concerned.

Ministers were much less enthusiastic about the proposed anti-tax avoidance directive, though. The proposed directive includes limits on interest deductibility, controlled foreign corporation rules, hybrid mismatch rules, a general antiabuse rule, an exit tax, and a “switch over” clause.

German Finance Minister Wolfgang Schaeuble argued that the anti-tax avoidance directive proposals that conform to the OECD/G20 BEPS measures should be split from the proposed directive and agreed to by EU ministers first. Schaeuble said that considering the non-BEPS proposals along with the BEPS proposals will dramatically slow down the process. While the non-BEPS proposals are important and should be considered, that should occur only in a second round, he said.

Similarly, UK Chancellor George Osborne said that the ministers should first work on implementing BEPS agreements reached by the OECD and G20. Osborne also recommended that the ministers go further than the Commission by incorporating into the directive the BEPS work on transfer pricing. He further said the ministers should agree to public release of the transfer pricing country-by-country reports.

Greek Minister of Finance Euclid Tsakalotos also expressed support for public release of the country-by-country reports, stating that the public currently views goverment tax officials as being “outgunned” by large multinationals. Public release will prove that progress is being made to stop tax avoidance, he said.

Luxembourg finance minister Pierre Gramegna agreed that the OECD/G20 BEPS measures in the anti-tax avoidance directive should be considered first by the ministers. Gramegna was among several ministers that argued that an impact assessment should be conducted before the ministers consider the measures further. Ministers should be concerned about harming the competitiveness of the EU and its member states, he said. He also agreed with Osborne that the EU should consider incorporating BEPS standards on transfer pricing into the directive.

Belgium’s finance minister, Johan Van Overtveldt, said he was reluctant to adopt any anti-tax avoidance measures beyond the OECD framework. He also called for a thorough impact assessment before continuing negotiations.

Malta’s Minister for Finance, Edward Scicluna, was strongly critical the Commission for not preparing an impact assessment analyzing the effect of the anti-tax avoidance directive. The minister said the directive’s switch over clause and exit tax are not congruent with the tax systems of the rest of the world. He also said that the EU measures should retain the “flexibility” of the OECD/G20 BEPS measures.

Despite all the criticism of the plan, Dijsselbloem said at the close of the session that he still intended to go forward with his original plan of including the items outside the BEPS agreements in the directive negotiations. It is too early to make the decision to exclude the items; more discussion is needed, Dijsselbloem said.