At the Council meeting of 23 May 2017 the Council will be called on to agree on a new system for resolving double taxation disputes. It will discuss progress on a proposal aimed at introducing a common corporate tax base, providing guidance for future work.
Double taxation - Dispute resolution
The Council will be called on to agree on a new system for resolving double taxation disputes within the EU.
The proposal sets out to improve the mechanisms used for resolving disputes between member states when disputes arise from the interpretation of agreements on the elimination of double taxation. It builds on convention 90/436/EEC on the elimination of double taxation in connection with the adjustments of profits of associated enterprises.
Situations where different member states tax the same income or capital twice can create serious obstacles to doing business across borders. They create an excessive tax burden, can cause economic distortions and have a negative impact on cross-border investment.
The proposed directive requires dispute resolution mechanisms to be mandatory and binding, with clear time limits and an obligation to reach results. It thereby sets out to encourage a favourable tax environment where compliance costs for businesses are reduced to a minimum.
The text allows for a ‘mutual agreement procedure' to be initiated by the taxpayer, under which member states must reach an agreement within two years. If the procedure fails, an arbitration procedure is launched to resolve the dispute within specified timelines. For this, an advisory panel of three to five independent arbitrators is appointed together with up to two representatives of each member state. The panel ('advisory commission') issues an opinion for eliminating the double taxation in the disputed case, which is binding on the member states involved unless they agree on an alternative solution.
At an informal meeting in Valletta on 7-8 April, ministers expressed support for the proposal and called for its rapid approval.
Broad agreement has now been reached on the text. The Council's discussion is likely to focus on the following issues:
- scope of the directive, i.e. the types of disputes that should be covered;
- 'independent persons of standing': criteria to ensure the independence of those appointed to a pool of independent arbitrators;
- standing committee: the possibility of replacing the advisory panel with a permanent structure to deal with dispute resolution cases, possibly granting its powers to the Court of Justice.
Solutions to these issues have been included in a presidency compromise proposal.
The Council will require unanimity to adopt the directive, after consulting the European Parliament.
(Legal basis: article 115 of the Treaty on the Functioning of the European Union.) The Parliament's opinion is still pending.
Common corporate tax base
The Council will take note of progress on a proposal aimed at introducing a common corporate tax base in the EU.
The discussion will focus on aspects of the 2016 proposal that are new in comparison with a 2011 proposal that was withdrawn. Ministers will be called on to provide guidance for further work at technical level.
The aim is to establish a corporate tax system that facilitates cross-border trade and investment and is more resilient to aggressive tax planning practices.
Currently, businesses with cross-border activities in the EU have to comply with up to 28 divergent tax systems. Divergent national tax rules create the risk of double taxation and double nontaxation, distorting the functioning of the EU single market. Business models and corporate structures are becoming more complex, making it easier to shift profits to avoid taxation.
The proposed directive is the first of an envisaged two-step corporate tax reform, establishing a common corporate tax base (CCTB) before introducing a consolidation of taxable corporate income (CCCTB).
In December 2016, the Council agreed that tax consolidation should be considered without delay once the elements of a common tax base have been agreed. Some member states have misgivings about the CCCTB project as a whole, but have agreed to pursue work in line with the December conclusions.
The proposal establishes a single rulebook for calculating taxable company profits throughout the EU. On this basis companies would calculate their own tax liability, applying the tax rate and tax credits applicable in their member state of residence.
Specific provisions are intended to prevent corporate tax evasion. Revamping the 2011 proposal, the objective is a more transparent, efficient and fair system for calculating the tax base of crossborder activities.
The main changes compared to the previous proposal are as follows:
- the scheme would be mandatory for large companies;
- to support innovation, a super-deduction would be allowed for research and development;
- a new allowance for growth and investment is provided for to address the current bias towards debt financing over equity financing;
- a temporary loss relief is provided for, pending agreement on the CCCTB.
The presidency is aiming to conclude discussions on these novel elements by the end of June 2017. It has already proposed amendments. The Council will require unanimity to adopt the directive, after consulting the European Parliament.
(Legal basis: article 115 of the Treaty on the Functioning of the European Union.)
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