The European Commission’s push to clamp-down on corporate tax avoidance is set to receive a setback on Wednesday amid growing signs that a number of EU countries have concerns about a proposed anti-tax avoidance directive.
Up to ten EU countries, including Ireland, are poised to resist giving final sign-off to a new anti-tax avoidance package announced by the European Commission in January at Wednesday's meeting of EU finance ministers.
The complex package of measures includes new rules on controlled foreign countries (CFC) rules, exit taxes and anti-abuse rules. Three of the six measures proposed derive from the OECD Base Erosion and Profit Shifting (BEPS) rules agreed at international level last September, with the remaining three based on EU-specific proposals.
A number of countries, however, are concerned that the new rules - which, unlike the OECD recommendations would be binding and transposed into EU law - have not been sufficiently explored and could hamper EU competitiveness. “It’s not something you can agree at EU level in ten weeks,” one official said. “More work needs to be done, as the impact of the directive would be wider than it is supposed to be.”
EU Commissioner Pierre Moscovici announced the new measures in January, promising sweeping changes to the way companies use tax devices, arguing that many exploit tax rules to avoid paying tax.
But the measures need to be endorsed by EU member states before entering in law, with a final decision needing unanimous support from all 28 EU countries.
Britain, Luxembourg, Belgium and the Baltic States are among those countries, along with Ireland, who are believed to have concerns about the measures, though negotiations are set to continue behind the scenes ahead of Wednesday's meeting.
The Netherlands, which holds the rotating chairmanship of the EU, has been hoping to secure a common approach on the directive by the end of its presidency in June. Should agreement not be reached on Wednesday, a decision in June is unlikely due to the British referendum on EU membership.
In particular, Ireland is understood to have concerns that member states’ tax rates, though not directly mentioned in the proposal, could be invoked as a reason to trigger certain tax rules, a move that could set a precedent.
Minister for Finance Michael Noonan is expected to address Ireland's concerns at Wednesday's meeting.
Also included in the draft conclusions under consideration by Ministers is a commitment to establish a common EU list of tax-havens, though negotiations on this proposal will begin in earnest in the summer.
Speaking in Brussels, a spokeswoman for the European Commission said it was not unusual for negotiations to take place between member states at this stage, adding that the Dutch presidency had set an "extraordinarily ambitious" timetable for the adoption of the proposal. "The Presidency and ourselves had been very keen to get agreement on this proposal at tomorrow's Ecofin. This is something we are still very keen to do," she said. "This is a very far-reaching process. It means that for the first time ever we will have enshrined in law, some of the anti-aggressive tax planning measures which organisations like the OECD have put out as standards, and that go beyond a lot of the so called BEPS work that OECD has done."
The Anti-tax avoidance package announced by the European Commission in January is one of the key strands of the EU's pledge to clamp-down on corporate tax avoidance in the wake of the Luxembourg leaks and Panama Papers scandal. A proposal on the controversial Common Consolidated Corporate Tax Base (CCCTB) is expected in the autumn, while last month the Commission unveiled new rules obliging companies with a turnover of more than €750,000 to report key financial information on a country-by-country basis.
