On Wednesday 22 December, the European Commission presented a proposal for a Directive implementing the historic OECD tax agreement on a global minimum effective corporate tax rate set at 15% (so-called ‘Pillar II’). The European Tax Adviser Federation (ETAF) welcomes this proposal, bringing the EU one step closer to fair taxation.
For tax advisers’ clients, legal certainty, clear regulations and the avoidance of double taxation are crucial. Consequently, ETAF generally believes the EU should implement the rules as closely as possible to the OECD model rules. In this regard, transposition measures which go beyond the OECD requirements or leave too many transposition options to the Member States should be in principle avoided.
The Directive follows the OECD model rules but expands the rules in the EU to domestic profits and to purely domestic companies that pass the threshold of €750 million turnover. This addition is necessary to avoid any risk of legal controversy in the EU due to a difference in treatment between cross-border and domestic situations, which would be against the Freedom of establishment enshrined in EU Treaties.
“After so many years of international negotiations, the last thing we would want is that the European Court of Justice invalidates this crucial reform. So we welcome this change to ensure the compatibility with EU law and thank the Commission for not having departed too much from the OECD deal”, reacted ETAF President Philippe Arraou.
This change will also increase the number of companies covered by the minimum tax and ensure greater coherence between domestic and foreign affiliates.
The Commission also sticks to the OECD timeline: the Directive should be adopted by the end of 2022 at the unanimity of Member States and start to apply in 2023.
“We very much support France’s ambition to make the minimum taxation in the EU a reality within its six-month presidency of the EU Council, starting in January, and count on every Member State to keep their word and swiftly agree on this reform”, commented Mr Arraou.
ETAF nevertheless would like to point out once again the complexity of implementing the OECD tax deal for tax advisers as well as for the companies they advise, especially in such an ambitious timeline. Compliance with the new rules will likely require more detailed rules and guidance from the OECD and the Commission in the future. To minimize double taxation risks, the access to dispute resolution mechanisms should also be simplified.
Better fight the misuse of shell companies
ETAF also welcomes the ‘UNSHELL’ proposal to better fight the misuse of shell companies, unveiled on the same day by the European Commission.
The new economic substance test in 7 steps introduced by the proposal will help to ensure that the company has a genuine economic link with its residence country and make it much harder to evade taxes.
At the same time, ETAF wants to point out the necessity to have proportionate rules that only target abusive structures and clear definitions. Legitimate structures which have justified reasons not to meet all the requirements should be excluded as long as those reasons are well defined in the text.
“Once again, I would like to reiterate the added value of professional regulations of the tax profession against tax evasion and avoidance and claim the fundamental role of tax advisers as intermediaries between taxpayers and tax administrations. Such a bridging function should neither be disregarded nor put under a general suspicion, but instead, it should be appreciated as an added value”, Philippe Arraou declared.