EU Economy
Germany, France and Italy call for EU directive on tax reform
By Michael Hennigan, Finfacts founder and editor
Dec 2, 2014 - 8:30 AM

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Wolfgang Schäuble, German finance minister, and Michael Noonan, Irish finance minster, at a meeting of the Eurogroup, Brussels, July 07, 2014

Germany, France and Italy have called on the European Commission to accelerate and expand reforms on special tax deals for multinational companies, saying the EU should adopt rules by the end of next year.

Jean-Claude Juncker, European Commission president, last month came under pressure for his role as prime minister of Luxembourg in the period 1995-2003, in facilitating the conversion of the Grand Duchy to a tax haven (see links below).

According to a joint letter by finance ministers Wolfgang Schäuble, Michel Sapin and Pier Carlo Padoan to the EU Commission, reform measures should go beyond greater transparency and company registries to a “general principle of effective taxation” to counter he EU’s lack of “tax harmonisation” which encourages companies to cherry-pick where they pay,

“Our citizens and our companies expect us to cope with tax avoidance and aggressive planning,” the ministers said in the proposal "obtained" by Bloomberg News and a copy of which has been "seen" by The Financial Times. “The diagnosis is made and the solutions are already known, so we should act without any delay.”

The letter calls for “stricter conditions and rules” for unilateral tax rulings, in a reference to Ireland, the Netherlands and Luxembourg:  the Lux Leaks revealed that one civil servant had given over 340 tax rulings to cut tax on foreign-generated income to less than 1% in some cases.

Ireland, the Netherlands and Luxembourg are under investigation by the European Commission in connection with the implications for state aid rules of special tax deals for Apple, Starbucks, Amazon and Fiat Finance.

In their letter, they call for the EU to adopt “a set of common, binding rules on corporate taxation to curb tax competition and fight aggressive tax planning” and write that EU plans for exchange of tax information between member states do not go far enough. EU law “could do more on trusts, shell companies and other non-transparent entities” by establishing compulsory ownership registers, they state.

In addition they urge the commission to address specific loopholes linked to accounting for interest payments, royalty receipts and the connections between parent and subsidiary companies.

Jean-Claude Juncker promised last month that the commission will bring forward proposals on tax harmonisation soon and also introduce an exchange of information on tax rulings.

“Transparency is not enough. We can surely not concede that situations where treaty freedoms are misused in order to avoid tax remain unaddressed. For this reason, an [EU] anti-BEPS (Base Erosion and Profit shifting) directive should set a general principle of effective taxation,” the ministers write.

Ireland opposes tax harmonisation  - pressure to change the headline rate of 12.5% is not expected - but transparency on tax rulings would also be a serious development.

The ministers warn: "The anti-BEPS directive will be an opportunity to fix this issue through countermeasures towards jurisdictions whose behaviour fosters non-transparency and aggressive tax planning.”

Related tax links

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