On 28 January 2016, and in response to the OECD’s Base Erosion and Profit Shifting (BEPS) project, the European Commission published a package of anti-avoidance measures as part of its ongoing plans to ultimately introduce a common consolidated corporate tax base (CCCTB).
The package comprises:
- a draft anti-avoidance Directive, with a minimum set of measures to be implemented into member states’ domestic laws
- a draft Directive for country-by-country reporting
- a recommended “principal purpose” test for inclusion in double tax treaties.
The proposed anti-avoidance Directive is the most interesting (and controversial) element here. Although the OECD has confirmed it is compliant with the BEPS project recommendations, there are a number of key differences, for example:
- on interest deductibility: the draft Directive proposes automatic deductibility for finance costs “matched” by finance receipts (with a fixed ratio rule only applicable to the excess; it also proposes a €1m de minimis (compared to £1m as proposed by the UK’s consultation; increased to £2m as announced at Budget 2016)
- “hybrid mismatches”: the EC’s proposals are quite different to those put forward by the OECD and would be likely to result in a different regime applying to an intra-EU arrangement as opposed to a non-EU arrangement
- exit charges: the BEPS project did not specifically address exit charges. The EC’s proposals go further than current UK legislation by, for example, imposing an exit charge on asset transfers between a member state head office and a permanent establishment elsewhere in the EU.
Given the controversies and complications attached to the CCCTB project, not to mention the forthcoming EU referendum in the UK, it seems unlikely that this package will find its way into UK domestic law.
The measures can be viewed here.