26.

Invites the Commission and the Member States to consider a ‘Framework on Aggressive Tax Arrangements and Low Rates’ (FATAL) along the following lines, and which would replace the current CoC: A. Without prejudice to the respective spheres of competence of the Member States and the Union, this framework concerns those measures which affect, or may affect, in a significant way the location of business activity in the Union and the relocation of personal income and capital (individual taxation regimes). Business activity in this respect also includes all activities carried out within a group of companies. The tax measures covered by the framework include both laws or regulations and administrative practices. B. Within the scope specified in paragraph A, tax measures which provide for a significantly lower effective level of taxation, including zero taxation, than those levels which generally apply in the Member State in question, or below any minimum effective level of tax agreed in the Inclusive Framework on BEPS or in international forums where the EU is represented, are to be regarded as potentially harmful and therefore covered by this code (gateway criterion). Such a level of taxation may operate by virtue of the nominal tax rate, and/or the tax base or any other relevant factor determining the effective tax rate. When assessing whether such measures are harmful, account should be taken of, inter alia: 1. whether advantages are accorded only to non-residents or in respect of transactions carried out with non-residents; or 2. whether advantages are ring-fenced from the domestic market, so they do not affect the national tax base; or 3. whether advantages are granted even without any real economic activity and substantial economic presence within the Member State offering such tax advantages, as defined by the European Commission and based on a proportionate substance requirement evolving progressively as reported income increases within the Member State concerned. Particular attention will be given to intellectual property regimes in this regard; 4. whether the rules for profit determination in respect of activities within a multinational group of companies depart from internationally accepted principles, notably the rules agreed upon within the OECD; or 5. whether the tax measures lack transparency, including where legal provisions are relaxed at administrative level in a non-transparent way. C. Within the scope specified in paragraph A, preferential personal income and capital tax regimes resulting in a significantly lower effective level of taxation, including zero taxation, than those levels which generally apply in the Member State in question are to be regarded as potentially harmful and therefore covered by this code. Similarly, general personal income and wealth tax regimes that would lead to single market distortion may be covered by the scope and assessed. Standstill and rollback Standstill D. Member States commit themselves not to introduce new tax measures which are harmful within the meaning of this framework. Member States will therefore respect the principles underlying the framework when determining future policy and will have due regard for the review process referred to in paragraphs E to I in assessing whether any new tax measure is harmful. Rollback E. Member States commit themselves to re-examining their existing laws and established practices, having regard to the principles underlying the framework and to the review process outlined in paragraphs E to I. Member States will amend such laws and practices as necessary with a view to eliminating any harmful measures as soon as possible taking into account the Council’s and Commission’s discussions following the review process. Review process Provision of relevant information F. In accordance with the principles of transparency and openness Member States will inform each other and the Commission of existing and proposed tax measures which may fall within the scope of the framework. In particular, Member States are called upon to provide at the request of another Member State information on any tax measure which appears to fall within the scope of the framework. Where envisaged tax measures need parliamentary approval, such information need not be given until after their announcement to Parliament. The regimes that will be evaluated in the scope of the framework should be notified for information to the European Parliament. Assessment of harmful measures G. Any Member State may request the opportunity to discuss and comment on a tax measure of another Member State that may fall within the scope of the framework. This will permit an assessment to be made of whether the tax measures in question are harmful, in the light of the effects that they may have within the Union. That assessment will take into account all the factors identified in paragraphs B and C. H. The Council also emphasises the need to evaluate carefully in that assessment the effects that the tax measures have on other Member States, inter alia in the light of how the activities concerned are effectively taxed throughout the Union. Insofar as the tax measures are used to support the economic development of particular regions, an assessment will be made of whether the measures are in proportion to, and targeted at, the aims sought. In assessing this, particular attention will be paid to special features and constraints in the case of the outermost regions and small islands, without undermining the integrity and coherence of the Union legal order, including the internal market and common policies. Such assessment would consider the progressive minimum substantial economic presence requirements as defined in paragraph B. Procedure I. A group will be set up jointly by the Council and the Commission to assess the tax measures that may fall within the scope of this framework and to oversee the provision of information on those measures. The Council invites each Member State and the Commission to appoint a high-level representative and a deputy to this group, which will be chaired by a representative of a Member State. The group, which will meet regularly, will select and review the tax measures for assessment in accordance with the provisions laid down in paragraphs E to G. The group will report regularly on the measures assessed. These reports will be forwarded to the Council for deliberation and, if the Council so decides, published. The documents should be communicated to Parliament upon request and disclosed once the evaluation process is over. Enforcement J. Member States are entitled to implement countermeasures that would reduce tax avoidance incentives should a Member State fail to roll back a regime that had been assessed as harmful in the context of this framework within 2 years, and in particular: (a) non-deductibility of costs; (b) withholding tax measures; (c) limitation of participation exemption; (d) special documentation requirements, especially regarding transfer pricing; Geographical extension K. The Council considers it advisable that principles aimed at abolishing harmful tax measures should be adopted on as broad a geographical basis as possible. To this end, Member States commit themselves to promoting their adoption in third countries; they also commit themselves to promoting their adoption in territories to which the Treaty does not apply. In this context, the Council and the Commission should rely on criteria on tax transparency, fair taxation and implementation of anti-BEPS measures to establish an EU list of non-cooperative jurisdictions. The Fair taxation criteria should be based on factors identified in paragraphs B and C of this framework. L. Member States with dependent or associated territories, or which have special responsibilities or taxation prerogatives in respect of other territories, commit themselves, within the framework of their constitutional arrangements, to ensuring that these principles are applied in those territories. In this connection, those Member States will take stock of the situation in the form of reports to the group referred to in paragraph H, which will assess them under the review procedure described above. Monitoring and revision M. In order to ensure the even and effective implementation of the framework, the Council invites the Commission to report back to it annually on the implementation thereof and on the application of fiscal State aid. The report should be made publicly available. The Council and the Member States will review the provisions of the framework two years after its adoption;