Annex 14

Glossary

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abuse of law || The law is formally complied with but in a way that is not compatible with its spirit;

anti-abuse measures || Term used in the context of measures intended to combat the avoidance of tax. Such measures may be of general application, e.g. in the form of a general anti-avoidance rule, or aimed at specific transactions or situations, e.g. exit tax on emigration, or in a value added tax context. They may be based on unwritten legal principles, legislation, or tax treaties.

base erosion and profit shifting || Erosion of tax base

beneficial ownership || The term beneficial ownership is often used in contrast to legal ownership, where ownership rights are split, the latter referring to the more formal attributes, such as registration, etc. While the concept may be compared with similar concepts in civil law countries based on economic ownership, the latter may be distinguished in that the related rights are typically contractual in nature while a beneficial owner may, in general, also enforce his rights against third parties. Beneficial ownership is often used in conjunction with the term equitable ownership. While the two expressions appear to have similar meanings, it is not clear that they may always be used interchangeably. In an international context the term is most commonly encountered in tax treaties as one of the preconditions to treaty entitlement in respect of, e.g. dividends, interest and royalties. For example, it has been argued that a conduit company cannot be a beneficial owner. It has also been suggested that beneficial ownership implies control over the capital from which the income is derived and/or control over the disposition of the income itself. Another view focuses on whether the payment is received for the recipient’s own benefit. In a wider sense it has been suggested that the term should be interpreted in accordance with its function of excluding entities interposed solely for the purpose of enjoying treaty benefits that would otherwise not have been available.

Common Consolidate Corporate Tax Base (CCCTB) || The European Commission on 16 March 2011 proposed a common system for calculating the tax base of businesses operating in the EU. The proposed Common Consolidated Corporate Tax Base (CCCTB), would mean that companies would benefit from a "one-stop-shop" system for filing their tax returns and would be able to consolidate all the profits and losses they incur across the EU. Member States would maintain their full sovereign right to set their own corporate tax rate.

clause on good governance in the tax area || A clause on good tax governance (promoting transparency, exchange of information and transparency) introduced in relevant agreements between the EU and third countries

clauses on limitation of benefits || Provision that may be included in a tax treaty to prevent treaty shopping, e.g. through the use of a conduit company. Such provisions may limit benefits to companies that have a certain minimum level of local ownership (“look through approach”), deny benefits to companies that benefit from a privileged tax regime (“exclusion approach”) or that are not subject to tax in respect of the income in question (“subject-to-tax approach”), or that pay on more than a certain proportion of the income in tax-deductible form (“channel approach” or “base erosion rule”).

compliance burdens || Costs caused by the procedural and administrative actions needed to satisfy a taxpayer‘s obligations under the applicable tax rules.

conduit companies || A “conduit company” may be defined as a company that is entitled to the benefits of a tax treaty in respect of income arising in a foreign country, the economic benefit of which income accrues to persons in another country who would not have been entitled to such treaty benefits had they received the income directly. This may be achieved by, e.g. the conduit company lending the income to those persons, reinvestment of the income for their ultimate benefit, or distribution by way of a (tax-exempt) dividend. A conduit company is generally subject to no or minimal taxation under its domestic laws or by reason of the income being on-paid in a tax-deductible form (typically leaving a small taxable “spread” in the conduit company). Tax treaties increasingly contain a limitation on benefits provision that is specifically aimed at preventing their improper use through conduit companies.

corporate tax || Tax on the income of companies. In many countries, income of companies for these purposes includes capital gains.

direct taxation || A direct tax is one imposed upon an individual person (juristic or natural) or on property, as distinct from a tax imposed upon a transaction (indirect taxation).

double non taxation || It occurs when cross-border companies escape paying taxes. Thus double non-taxation deprives States of significant revenues and creates unfair competition between businesses.

double tax conventions || Term generally used to denote an agreement between two (or more) countries for the avoidance of double taxation. In fact there are various types of tax treaty of which the most common are treaties for the avoidance of double taxation of income and capital (usually known as a comprehensive income tax treaty). Such treaties are also commonly expressed to be aimed at the prevention of fiscal evasion. In avoiding double taxation, such treaties also provide for the distribution between the treaty partners of the rights to tax, which rights may either be exclusive or shared between the treaty partners. Measures in such treaties to prevent tax evasion typically include exchange of information provisions and other forms of mutual assistance. Such treaties are generally entered into in order to facilitate international commerce and investment.

double taxation || Double taxation is traditionally divided into two kinds, juridical double taxation and economic double taxation. Juridical double taxation may be described as the imposition of comparable taxes by two (or more) tax jurisdictions on the same taxpayer in respect of the same taxable income or capital. Economic double taxation may be described as the imposition of comparable taxes by two (or more) tax jurisdictions on different taxpayers in respect of the same taxable income. Double taxation may be domestic, i.e. where taxes are imposed within a sovereign state by different taxing authorities (e.g. by different members of a federation), or international, i.e. where taxes are imposed by different sovereign states.

EU Code of Conduct Group || The Code of Conduct for business taxation was set out in the conclusions of the Council of Economics and Finance Ministers (ECOFIN) of 1 December 1997. The Code is not a legally binding instrument but it clearly does have political force. By adopting this Code, the Member States have undertaken to roll back existing tax measures that constitute harmful tax competition and refrain from introducing any such measures in the future ("standstill"). The EU's Finance Ministers established the Code of Conduct Group (Business Taxation) at a Council meeting on 9 March 1998 to assess the tax measures that may fall within the scope of the Code of Conduct for business taxation.

Tax Identification Number || Most countries use a Tax Identification Number (TIN) to identify taxpayers and facilitate the administration of their national tax affairs. TINs are also useful for identifying taxpayers who invest in other EU countries and are more reliable than other identifiers such as name and address.

EU Tax Identification Number || In order to facilitate the work of all stakeholders and ensure an effective and efficient tax administration, enforcement and collection, the European Commission suggests studying the possibility to coming forward with a EU TIN (see Tax Identification Number) allocated to all taxpayers (both individuals and companies or assimilated legal structures) engaged in cross-border operations. This EU TIN would be ruled by common rules with regards to its issuance, use and reporting.

EUROFISC || EUROFISC is a mechanism provided for Member States to enhance their administrative cooperation in combating organised VAT fraud and especially carousel fraud. EUROFISC allows for quick and targeted sharing of information between all Member States on fraudulent activities.

fair tax competition || Is the contrary of harmful tax competition Harmful tax competition generally takes the form of special tax regimes or incentives offered by countries in order to maintain an internationally competitive business environment. The phenomenon may be considered harmful insofar as it distorts the location of business and trade, erodes the tax base of other countries (also referred to as contributing to the “race to the bottom”) and undermines the fairness, neutrality and broad social acceptance of tax systems generally.

general anti-abuse rule (GAAR) || An anti-abuse measure, generally statute based, provide criteria of general application, i.e. not aimed at specific taxpayers or transactions, to combat situations of perceived tax avoidance.

good governance in the tax area || The EU has an established policy on good governance in tax matters (greater transparency of tax systems, exchange of information and fair tax competition) aimed at tackling harmful tax competition and tax evasion (COM (2009) 201, 28/04/2009 and COM (2010) 163, 21/04/2010). It is not limited "tax havens" per se, but aims at improving good governance in the tax area in all countries. This policy has been implemented both by legislation (e.g. the Directive on Administrative Cooperation or the Savings Taxation Directive) and by soft law (e.g. the Code of Conduct for Business Taxation). Beyond the EU, the Commission introduces clause on good tax governance (promoting transparency, exchange of information and transparency) in relevant agreements between the EU and third countries.

hybrid mismatch arrangements || Instrument with economic characteristics that are inconsistent, in whole or in part, with the classification implied by their legal form. Hybrid financial arrangement normally contains elements from equity, debt and/or derivatives, the advantages of which they seek to combine in the same instrument. In a cross-border situation, this normally creates a mismatch in the tax characterization and treatment of the income by the various tax jurisdictions involved.

indirect tax || Commonly accepted (if not comprehensive) distinction may be made on the basis of whether the tax is a tax on income (including capital gains and net worth) (direct) or on consumption (indirect). Indirect taxes are considered to be one of the oldest sources of government revenue. Examples of taxes generally regarded as indirect include value added tax, sales tax, excise duties, stamp duty, services tax, registration duty and transaction tax.

Interest and Royalty Directive || Way of referring to Directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (26 June 2003), which aims to eliminate double taxation of cross-border flows of interest and royalties within the internal market between associated companies, as well as cross-border interest and royalty payments made to or by permanent establishments.

international agreed standards of transparency and information exchange || The Global Forum on transparency and exchange of information has been instrumental in, inter alia, the development of standards of transparency and exchange of information through the publication of the Model Agreement on Exchange of Information for Tax Purposes in 2002.

hybrid entities || Generally, an entity that is characterized as transparent for tax purposes (e.g. as a partnership) in one jurisdiction and non-transparent (e.g. as a corporation) in another jurisdiction. In some cases, an entity is a hybrid when it is treated from the point of view of a particular jurisdiction as transparent in that jurisdiction and as non-transparent in the other jurisdiction. This is sometimes referred to as a regular hybrid. In contrast, an entity is a reverse hybrid when it is treated from the point of view of a particular jurisdiction as non-transparent and as transparent in the other. A hybrid entity is therefore also always a reverse hybrid, the difference depending on whether the classification is being made from the point of view of the jurisdiction treating the entity as transparent (hybrid) or non-transparent (reverse hybrid).A loan the return on which (typically interest) is dependent on the profits of the borrower. This loan with economic characteristics that are inconsistent, in whole or in part, with the classification implied by their legal form. This loan contains elements from equity, debt and/or derivatives, the advantages of which they seek to combine in the same instrument. In a cross-border situation, this normally creates a mismatch in the tax characterization and treatment of the income by the various tax jurisdictions involved.

hybrid, profit participating loan || A loan the return on which (typically interest) is dependent on the profits of the borrower. It normally contains elements from equity and debt. In a cross-border situation, this normally creates a mismatch in the tax characterization and treatment of the income by the various tax jurisdictions involved.

non-resident || Tax laws tend to define the concept of residence, leaving a non-resident to be defined by implication as one who does not satisfy the criteria for residence. Residence refers to a person’s legal status in relation to a particular country such as in general to justify subjecting that person to taxation on their worldwide income. In the case of individuals such status is generally determined on the basis of facts and circumstances, in particular by reference to the degree of personal attachment with the country concerned, e.g. the number of days spent in the country, the existence of personal or economic ties with the country, etc. In the case of persons other than individuals there are two common approaches, one based on formal criteria, such as the place of incorporation or registration, and the other on substantive criteria, such as the location of the place of management, central management and control, central administration, place of effective management, head office, or principal place of business. Many countries apply both approaches so that, e.g. a company will be resident if it is either incorporated or effectively managed in the country concerned. Residence as used in double taxation conventions is typically based on the domestic concept of residence as used by the contracting states, at least insofar as this gives rise to comprehensive taxation (or “full liability to tax”) and is based on criteria such as domicile, residence, place of management, etc.

OECD Forum on Harmful Tax Practices || Following a report in 1998 ("Harmful Tax Competition: An Emerging Global Issue") the OECD (Organisation for Economic Cooperation and Development) created a special forum, "Forum on Harmful Tax Practices". To end harmful tax practices the work of the Forum has focussed on three areas: Harmful tax practices in Member Countries, Tax havens, Involving non-OECD economies. The Forum has produced three progress reports. Furthermore, together with cooperative tax havens the Forum has produced a "Model Tax Agreement on Exchange of Information in Tax Matters".

OECD Global Forum on transparency and information exchange || The Global Forum has been the multilateral framework within which work in the area transparency and exchange of information has been carried out by both OECD and non-OECD economies since 2000. The Global Forum has been instrumental in, inter alia, the development of standards of transparency and exchange of information through the publication of the Model Agreement on Exchange of Information for Tax Purposes in 2002. The Global Forum has, since 2006, produced an annual assessment of the legal and administrative framework for transparency and exchange of information in over 80 jurisdictions.

Parent & Subsidiary Directive || Popular way of referring to the 1990 EU Directive (90/435/EEC) that aims to provide a common system of taxation between parent and subsidiary companies within the European Union. The overriding objective is to remove restrictions, distortions, etc., which would interfere with the establishment and effective functioning of the common market. The Directive provides for (in general) a zero withholding tax on cross-border dividend distributions between EU subsidiaries and their EU parents, and an exemption or indirect tax credit in respect of the receipt of such dividends.

Savings Taxation Directive || Popular way of referring to the 2003 EC Directive (2003/48/EC), which aims to enable savings income in the form of interest payments made in one Member State to individuals resident in another Member State to be made subject to effective taxation in the latter state. This aim is to be achieved by a system of information exchange with a transitional period during which certain Member States can opt for withholding tax.

shifting of profits and income into other jurisdictions || Popular expression referring to the practice of the deliberate manipulation of prices charged between related parties based in different jurisdictions or between the head office of a company and a foreign permanent establishment with a view to allocating an excessive part of the combined profits in the jurisdiction or jurisdictions having the lowest effective tax rates. Transfer pricing principles may be applied to counteract the desired results

simulation/sham concept || A transaction is entered into by parties but not adhered to by them because another transaction, which is adhered to, alters or negates the first transaction.

single taxation || Being taxed at least once in one country

substance-over-form principle || The law is formally complied with but there is a lack of substance supporting the transaction/restructuring so that the tax authorities can disregard its form;

Swedish interest rules || Existing interest deduction limitation rules in Swedish tax law as a measure aimed at further protecting the Swedish tax base.

tax avoidance || A term that is difficult to define but which is generally used to describe the arrangement of a taxpayer's affairs that is intended to reduce his tax liability and that although the arrangement could be strictly legal it is usually in contradiction with the intent of the law it purports to follow. (OECD Glossary of Tax Terms)

tax carve-out provision || In general a tax carve-out refers to a provision in an agreement that specifically excludes application of the agreement or part thereof to tax matters. Such clauses are typically found in international agreements, for example in the context of most-favoured-nation treatment that is thus limited to non-tax matters.

tax compliance || The procedural and administrative actions needed to satisfy a taxpayer‘s obligations under the applicable tax rules.

tax evasion || Generally comprises illegal arrangements where liability to tax is hidden or ignored, i.e. the taxpayer pays less tax than he is legally obligated to pay by hiding income or information from the tax authorities.

tax fraud || A form of deliberate evasion of tax which is generally punishable under criminal law. The term includes situations in which deliberately false statements are submitted or fake documents are produced.

tax havens, also sometimes referred to as 'non-cooperative jurisdictions' || Commonly understood to be jurisdictions which are able to finance their public services with no or nominal income taxes and offer themselves as places to be used by non-residents to escape taxation in their country of residence. The OECD has identified three typical 'confirming' features of a tax haven: (i) lack of effective exchange of information, (ii) lack of transparency, and (iii) no requirement for substantial activities. In addition they often offer preferential tax treatment to non-residents in order to attract investment from other countries. Tax havens therefore compete unfairly and make it difficult for 'non' tax havens to collect a fair amount of taxation from their residents.

tax loss restrictions || A restriction placed round certain losses in order to isolate them for tax purposes. For example, losses arising in one category may be ring fenced from profits in another and accordingly cannot be set off against those profits.

tax structures || The tax structure of a country refers to the relative importance of the taxes levied in that country in terms of their incidence and revenue produced. For example, a country that levies a large number of commodity and sales taxes, and that has an income tax with thresholds that exempt the vast majority of the population, has a predominantly indirect tax structure.

taxpayer charter || Document established by national authorities and detailing both (i) the rights of taxpayers (e.g. rights to assistance, equality of treatment, privacy and confidentiality, appeal, independent review of disputes with the tax authorities…) and (ii) their obligations with regards to taxation and tax authorities

theoretical VAT liability || The net amount of VAT that the tax authority of a territory should collect in given year, calculated as the product of final consumption expenditure and the applicable VAT rate. Adjustments are applied e.g. for cross-border shopping. Theoretical VAT liability takes into account exemptions, reduced rates etc.

thin capitalisation rules || A company said to be thinly capitalised when its capital is made up of a much greater proportion of debt than equity, i.e. its gearing, or leverage, is too high. Some tax systems simply disallow interest deductions above a certain level from all sources when the company is considered to be too highly geared under applicable tax regulations.

transfer pricing || Transfer pricing is the area of tax law and economics that is concerned with ensuring that prices charged between associated enterprises for the transfer of goods, services and intangible property accord with the arm’s length principle. Transfer pricing principles may also be applied in the context of transactions – or dealings – between different parts of a single enterprise, e.g. between a head office and permanent establishment or between different permanent establishments of the same enterprise. Rules and procedures applicable to transfer pricing are often found in the domestic law of many countries. In many cases these reflect the OECD Transfer Pricing Guidelines.

transparency || The term transparency is used to describe certain features of a tax system, in particular with regard to its administrative practices. It has been said to include two elements: clear publication of the applicable rules such that they may be invoked by taxpayers against the tax authorities, and the availability to tax authorities of other countries of details of their application in practice. A lack of transparency may manifest itself by, e.g. a general domestic fiscal environment such that the laws are not enforced in line with domestic law.

triangular cases || Term used most commonly in the context of relieving double taxation where more than two (typically three) states are involved. For example, a resident of one state (State R) has a permanent establishment in another state (State P), which in turn derives income in the form of dividends, interest or royalties from a third state (State S), thus raising the issue (if double taxation treaties have been concluded between the states) which tax treaty should be applied to relieve double taxation in State S. Triangular cases also arise in the context of imputation systems where shareholders from one country receive dividends from a company resident in another country where the company derives income from the shareholder’s country of residence (e.g. through a permanent establishment or a subsidiary). Various tax planning arrangements have been devised for overcoming problems relating to the granting of imputation credits in such cases, and various techniques are also available to governments wishing to provide relief (sometimes referred to as triangular tax relief).

VAT gap || Amount of VAT not collected due to fraud, legitimate avoidance, errors, bankruptcies

VAT quick reaction mechanism || A proposal for a Quick Reaction Mechanism (QRM) was adopted by the Commission on 31st of July 2012. Under the QRM, a Member State faced with a serious case of sudden and massive VAT fraud would be able to implement certain emergency measures, in a way which they are currently not allowed to under VAT legislation. In this context, the proposal provides that Member States would be able to apply, within the space of a month, a "reverse charge mechanism" which makes the recipient rather than the supplier of the goods or services liable for VAT. This would significantly improve their chances of effectively tackling complex fraud schemes, such as carrousel fraud, and of reducing otherwise irreparable financial losses. In order to deal with possible new forms of fraud in the future, it is also foreseen that other anti-fraud measures could be authorised and established under the QRM.

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ANNEX 3

|| EUROPEAN COMMISSION DIRECTORATE-GENERAL TAXATION AND CUSTOMS UNION Direct taxation, Tax Coordination, Economic Analysis and Evaluation Company Taxation Initiatives

Report of Meeting

1. Meeting Fiscalis Seminar

2. Subjects Non-cooperative jurisdictions, aggressive tax planning, tax fraud and tax evasion

3. Date and Place 17th July 2012, Brussels

4. Participants Representatives of EU Member States (morning session)

Representatives of business, NGOs and academia (afternoon session)

DG TAXUD (D1, D2, C4)

4. Objectives Exchange of views and experience on the outline results of the public consultation on double non-taxation, on the Communication on concrete ways to improve the fight against tax fraud and tax evasion including in relation to third countries, and on existing measures, and possible future measures in relation to non-cooperative jurisdictions and aggressive tax planning.

5. Results Several delegations actively participated in the discussion. In general, MS were supportive towards an EU coordinated approach to tackle non-cooperative jurisdictions, aggressive tax planning, tax fraud and tax evasion although some of them would prefer national measures (having due consideration to the principles of subsidiarity and proportionality).

Stakeholders in the afternoon session also reacted positively on an EU coordinated approach but they stressed that any measure newly introduced had to replace the current one in order not to increase administrative burden and not to effect competition.

6. Some more general comments:

· Participants in both sessions emphasised that actions should be coordinated with other international fora in order to create synergies and to avoid any overlaps.

· Participants in both session underlined that clear joint definitions (NCJs, ATP, tax avoidance, intentional and non-intentional double non-taxation) are needed. Some MS suggested a reference to the level of taxation. Amid it was stressed that COM should avoid including any of such definitions in non-tax legislation.

· Participants in both sessions also agreed that administrative cooperation and exchange of information between MS have to be improved. The idea was tabled to establish a network of coordination between MS to tackle NCJs and ATP.

· Participants in both sessions were also in favour of introducing voluntary disclosure mechanism.

· Some NGOs pointed out that concerns of developing countries and impacts on them should be taken into account before any measures in developed countries are introduced. Some also raised doubts about strict conditionality of development aid.

· From the NGOs' point of view full country-by-country reporting (CBCR) could be an appropriate measure whilst representative of business sector raised doubts about efficiency of such a measure.

· As regards anti-abuse measures, concerns were expressed about their effectiveness given the Treaty rules. Some suggested that any EU anti-abuse measure should be supplementary to the national ones and not replace them. The business sector suggested focusing on other areas than GAAR.

· Participants in both sessions welcomed all three initiatives of the Commission (Communication of 27 June on tax fraud and tax evasion, December Communication on tax havens and aggressive tax planning, and perspective of an Action Plan by year-end).

7. Follow–up The Commission asked for written comments before 17th August 2012, and for estimations on the quantitative impact of tax havens and aggressive tax planning. Some written contributions were sent but none on data or quantitative impact.

ANNEX 11

Impact on SME (SME-test)

Consultation with SME representatives || See section 2.2. The public consultation on double non-taxation was opened to all taxpayers, including SME. SME representatives ‘UEAPME) were invited the seminar held on 17th July 2012 on non-cooperative jurisdictions aggressive tax planning, tax fraud and evasion.

Preliminary assessment of businesses likely to be affected || The measures assessed are primarily directed to MS. They might indirectly affect businesses and individuals, since they are taxpayers. Those taxpayers currently "using" fraud and evasion schemes or sophisticated tax planning are currently paying less tax than those fully complying with MS’s tax rules. As a result of the measures envisaged, non-compliant taxpayers will in the future pay more taxes than they do currently. This should conversely result in fairer tax systems and possibly a reduction in tax rates if the full amount of tax due is collected. There is no indication that SME would be specifically affected by the measures, since such elaborated schemes based on international schemas are less likely to involve SME than large enterprises. SME should, therefore, be among those taxpayers that are more likely to benefit indirectly from fairer tax systems. Simpler common EU approaches should reduce compliance costs for all companies, including SMEs.

Measurement of the impact on SMEs || At this stage of the assessment, it is difficult to assess the quantitative impact of the initiative on economic operators. However, a qualitative assessment suggests, for the reasons outlined above, that SMEs will "suffer" less from the increase in tax as they are less likely to use such schemes, but benefit more from any reduction in compliance cost due to simplification. Work in the Joint Transfer Pricing Forum on SMEs confirms that SMEs tend to have fewer complex problems but suffer disproportionately from excessively complex compliance procedures.

Assess alternative options and mitigating measures || The conclusion of the impact assessment contains no indication that the selected options might result in a disproportionate burden for SMEs as compared to the current situation. Therefore, there is no need for SME specific measures.

ANNEX 2

Discussion Paper on possible future measures against non-cooperative jurisdictions and aggressive tax planning and a possible strategy at EU level – Seminar July 17 2012

The challenges raised by non-cooperative tax jurisdictions and aggressive tax planning need to be tackled urgently. In addition the European Council called on the Council and the Commission on the 2nd March 2012 to develop concrete ways to improve the fight against tax fraud and tax evasion, including in relation to third countries and to report by June 2012.

The Commission’s response is the Communication[1] adopted on 27th June 2012, which deals more specifically with concrete ways to improve the fight against tax fraud and tax evasion. The Commission also announced that it would come forward later this year with an action plan on these suggestions and an initiative on tax havens and aggressive tax planning.

In order to assist in the preparation of this initiative, the Commission is holding this seminar in order to gather the views of Member States and stakeholders on possible measures.

Issues to be discussed with the Member States and interested Parties

1. Issue 1: Challenges to be addressed

Problem description

EU Member States lose both individual and corporate income tax revenue from the shifting of profits and income into low-tax countries. The revenue losses from this tax avoidance and evasion are difficult to estimate, but some have suggested that the annual cost of offshore tax abuses may be around $100 billion per year.

Whatever the precise amount of such losses, their importance contributes to an unfavourable tax environment for both MS and taxpayers. Indeed, the main challenges currently being faced are:

- the erosion of tax bases because of (national and international) tax avoidance and evasion and its economic consequences. Losses in EU MS’ tax revenues cause undesired shifts of part of the tax burden to less mobile tax bases, such as labour, property and consumption, while international tax avoidance is facilitated by the use of non-cooperative jurisdictions and schemes abusing MS’s tax systems;

- increasing administrative costs and compliance burdens on tax authorities and taxpayers may lead to discouraging compliance by all taxpayers. Effectiveness of anti-abuse measures is also affected by free movement within the EU and with third countries;

- undermining the integrity and fairness of tax structures;

- distorting financial and, indirectly, real investment flows.

Possible solutions

A possible solution is to aim at building an EU favourable tax environment (for MS, taxpayers, and investors) where on the one hand erosion of tax bases would be efficiently tackled (within the EU and in relation to third countries) and on the other hand confidence of taxpayers would be enhanced (i.e. by stable tax policies, and if possible moderate levels of taxation).

Question 1:

a) do participants agree that the main current challenges have been correctly identified? Should any others be mentioned?

b) do participants agree that an EU solution is favourable to a series of individual national solutions? What other approaches could be considered?

2. Issue 2: third countries dimension

Problem description

International tax avoidance is facilitated by schemes abusing MS’ tax systems and by the use of non-cooperative tax jurisdictions. MS react individually with measures at national level, adopted by each country according to its own criteria. Moreover, EU MS and institutions currently use a number of different measures that could be seen as incentives or defensive measures towards third countries. However these individual or specific actions often seem to have limited effectiveness.

Possible solutions

a) Identification of cooperative and non-cooperative jurisdictions

A coordinated approach could be developed within the EU towards non-cooperative jurisdictions so as to increase the effectiveness of defensive measures. This could include adopting at EU level a definition of non-cooperative jurisdictions, which could be based on how third countries implement the principles of good governance in the tax area (transparency, exchange of information and fair tax competition), and could be used by both EU MS and EU institutions.

b) Toolbox of incentives and defensive measures

The Commission services would like to assess a toolbox of incentives and defensive measures to be used by MS and EU institutions according to their respective competences in order to better convince third countries to cooperate in the tax area with EU MS.

Such toolbox could cover a range of measures among which, for instance:

- incentives for cooperative jurisdictions (i.e. jurisdictions implementing the criteria under a) above) could cover measures to be adopted:

o at national level (removal from national blacklists, conclusion of double tax conventions (DTC), twinning programmes, ad hoc detachment of experts to answer request from EU MS,…);

o at EU level (possible enhancement of development aid for capacity building against strict conditionality,…).

- defensive measures against non-cooperative jurisdictions could similarly be identified for possible adoption:

o at national level (suspension/ termination of DTC, blacklisting, application of a uniform rate of withholding tax on payments to these countries reported by a third party, denial of deductions in respect of expense payments to payees resident in a non-cooperative jurisdiction, application of transfer pricing rules for transactions between non associated companies resident in a non- cooperative jurisdiction, penalties…);

o at EU level in the tax area (application of tax anti-abuse measures such as the CCCTB GAAR mentioned below, examining the possibility of an EU-wide framework whereby MS introduce a targeted tax regime to balance an aggressive one from a third country, possible penalties defined at EU level,…) or in other areas (discouraging project financing in NCJ, discouraging EU companies from establishing related entities in NCJ, impact to be taken into account when concluding preferential economic relations such as free trade agreements or when granting financial support and technical assistance…).

Question 2 :

a) Do participants believe that a joint action of EU MS could increase the effectiveness of defensive measures towards third countries?

b) Do participants agree that an EU definition of non-cooperative jurisdictions could be based on the implementation of the principles of good governance in the tax area? Would participants see any other relevant (tax and non-tax) criteria to be taken into account?

c) Do participants agree with the suggested toolbox of incentives and defensive measures? What other measures could be taken into consideration?

3. Issue 3: anti-abuse measures

Problem description

Anti-abuse measures adopted by MS may raise some issues of compliance with EU rules or other international rules when applied to third countries.

Possible solutions

Following the 2007 EC Communication on anti-abuse measures in the area of direct taxation (COM(2007)785)[2] and in reaction to the case law of the Court of Justice of the EU, the Council adopted a resolution in 2010[3] on coordination of tax policies in anti-abuse measures. This mainly focused on CFC and thin capitalisation. In addition, article 80 of the proposed CCCTB Directive[4] contains a General anti-abuse rule stipulating that artificial transactions carried out for the sole purpose of avoiding taxation shall be ignored for the purposes of calculating the tax base. On this basis, the Commission could assist MS in designing anti-abuse measures in full compliance with EU and other international commitments.

Question 3

a) Could the introduction of an EU-wide general anti abuse rule such as the one provided for in the CCCTB improve the effectiveness of the fight against aggressive tax planning?

b) How useful would it be for MS to design their anti-abuse measures on the basis of the one provided for in the CCCTB proposal? Could the Commission have a role in assisting them in designing such measures?

4. Issue 4: Double tax conventions

Problem description

EU businesses operate in a Global Economic Scenario and therefore aggressive tax planning is not limited to the Internal Market. Schemes of aggressive tax planning frequently imply the use (or abuse) of Double Tax Conventions (DTCs) which often leads to double non taxation.

Possible solutions

Some DTC between Member States contain a provision to ensure that double non taxation is avoided[5]. Such a type of approach could be, subject to agreement on article 1 of the revised Interest and Royalty proposal[6], be a possible solution for cross-border interest, royalty and licence fee payments between MS, and also between MS and third countries.

Question 4

a) Do you find the concept above suggested appropriate in order to tackle aggressive tax planning? If not, what are the strength and weaknesses of it? Do you have other suggestions?

5. Issue 5: any other suggestions

As pointed out the above concepts should not be seen as exhaustive. Other more general concepts could also be considered, for example: Measures to increase transparency and to introduce enhanced reporting obligations or final withholding taxes at source (in cases of many taxpayers and relatively low amounts).

Question 5

a) We would therefore ask you to provide any other suggestion you might have for ways in which non- cooperative jurisdictions and aggressive tax planning could be tackled?

________________________

[1] COM (2012) 351

[2] http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2007:0785:FIN:en:PDF

[3] Council Resolution, The coordination of the Controlled Foreign Corporation (CFC) and Thin Capitalisation rules within the European Union, 10597/2010, 08.06.2010.

[4]COM (2011) 121/4, 16.03.11,

[5] e.g. the Protocol of the DTC between France and Italy point 15 provides that exemption shall only be granted if and to the extent such income is taxable in the other State.

[6] Council directive on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, COM(2011)714, 11.11.2011.

ANNEX 4

|| EUROPEAN COMMISSION DIRECTORATE-GENERAL TAXATION AND CUSTOMS UNION Direct taxation, Tax Coordination, Economic Analysis and Evaluation Company Taxation Initiatives

Brussels,

TAXUD D1 D(2012)

Staff working paper

The internal market: factual examples of double non-taxation cases

Consultation document

Important notice: this document is a staff working paper of D.G. Taxation and Customs for discussion and consultation purposes. It does not purport to represent or pre-judge any formal proposal of the Commission.

PUBLIC CONSULTATION PAPER

The Internal Market:

Request for contributions on factual examples and possible ways to tackle double non-taxation cases

Note:

This document is being circulated for consultation to all interested parties. The sole purpose of this consultation is to contribute to the debate, to collect relevant information and to help the Commission develop its thinking in this area.

This document does not necessarily reflect the views of the European Commission and should not be interpreted as a commitment by the Commission to any official initiative in this area.

Each contribution received will be acknowledged.

All contributions received, including anonymous ones, will be taken into account. Your identity (personal data) and the content of your contribution will only be published on the Internet if you give your specific consent to this by indicating "Yes" in the relevant boxes in the questionnaire. For more detailed information on how your personal data and contribution will be treated, we recommend that you read the specific privacy statement on the consultation website[1].

In the interests of transparency, organisations responding to this consultation are invited to provide the public with relevant information about themselves by registering in the Interest Representative Register and by subscribing to its Code of Conduct

(see https://webgate.ec.europa.eu/transparency/regrin/welcome.do?locale=en).

If the organisation is not registered, its submission will be published separately from those of registered organisations.

1. IDENTIFICATION OF THE STAKEHOLDER

The Commission services would be interested in receiving contributions from all interested parties on the issues described below. In order to analyse the responses, it will be useful to group the answers by type of responder.

Question -You could be included in one of the following groups[2]: ⁪ Multinational enterprise ⁪ Large company ⁪ Medium small micro sized enterprise (SMEs) ⁪ Academic ⁪ Non-Governmental organisation (NGO) ⁪ Tax advisor or tax practitioner ⁪ Others. Please specify ________________________________________________ Name/denomination of your organization/entity/company ________________________ Country of domicile_____________________________________________________ Contact details, including e-mail address _____________________________________ Brief description of your activity or your sector ________________________________ Do you agree to publication of your personal data? Yes ⁪ No ⁪ Do you agree to have your response to the consultation published along with other responses? Yes ⁪ No ⁪

2. Introduction

The Commission is launching this fact-finding public consultation in order to establish evidence concerning double non-taxation within the EU and in relation with Third Countries. Members of the public are encouraged to provide factual examples of cases of double non-taxation on cross-border activities that they have encountered or have knowledge of. Double non-taxation cases encompass cases where there is no taxation of the activities as well as cases where the taxation is extremely low. Double non-taxation cases do not encompass cases where a company is not taxed because the activity is effectively taxed elsewhere, e.g. the exemption of dividends paid to parent companies where there is taxation of the activities in the subsidiary, or where a company is not taxed in a profitable year because of losses carried forward form previous years.

The scope of this consultation only includes cases of double non-taxation, i.e. cases where the tax rules of two countries combined lead to non-taxation. The decisions in single member states on how to tax certain types of income received by resident and/or non resident are therefore outside the scope of this consultation as direct taxation generally falls within the competence of the member states although legal measures of approximation is issued for the establishment and functioning of the internal market.

The consultation concerns taxes which companies or other entities pay directly to tax authorities (i.e. "direct taxes") such as corporate income taxes, non-resident income taxes, capital gains taxes, withholding taxes, inheritance taxes and gift taxes.

It is undesirable that in the EU Internal Market a taxpayer is subject to double non-taxation on his/her cross-border activity as this gives the taxpayer a competitive advantage compared to other taxpayers who are subject to ordinary taxation. Our aim is to obtain a better picture of the real problem and, if possible, of its financial impact. You are also invited to provide any suggestions you might have for ways in which the different cases of double non-taxation could be tackled, for instance by legislative approaches, increased information measures or good governance rules.

Legislative approaches (i.e. closing loopholes and stopping mismatches) could be done at different levels. The different levels would be unilateral legislation in the individual Member States, bilaterally between the Member States or on EU level through directives.

Increased information measures could include rules on disclosure to the tax authorities (e.g. early mandatory disclosure of certain tax planning schemes).

Good governance rules could be e.g. soft law agreements between Member States or exchange of good practices.

3. Background

International double taxation is usually defined as the imposition of comparable taxes in two or more States on the same taxpayer in respect of the same subject matter and for identical periods. Its harmful effects have been widely recognized and in particular are mentioned in the first paragraph of the OECD Model Tax Convention.

But also the opposite situation, double non-taxation, has potential harmful effects in terms of fairness of the tax systems and potential distortion of the Internal Market.

In the Annex IV to the Annual Growth Survey 2012, the Commission acknowledged that Member States have to consider revenue-raising measures. Better tax coordination at the EU-level has a role to play in this context.

Therefore, the avoidance of double non-taxation has an enhanced importance in the present Economic Crisis context.

The European Council conclusions of 24 June 2011[3] asked the Commission to ensure the avoidance of harmful practices and proposals to fight tax fraud and tax evasion.

The Commission, in the Communication on Double Taxation in the Single Market[4] stated that in a period when MS are looking for secure and additional tax revenues, it is important for their credibility towards their taxpayers that they take the necessary measures to remove double taxation and double non-taxation.

Moreover, in the Communication, the Commission announced that as regards double non-taxation, it would launch a fact-finding consultation procedure.

The Commission is presenting this consultation to the public in order to gather evidence of double non-taxation within the EU and in relation with Third Countries and of its potential impact on the Internal Market in order to identify and develop the appropriate policy response to double non-taxation.

4. Questions submitted to the public and to interested parties

We have, based on various sources including international tax literature, articles and lectures, identified a number of issues where double non-taxation could occur. These issues are briefly presented below in order to facilitate the consultation. It should however be stressed that we also invite you to describe any other double non-taxation issues (see issue 10 – Other issues?). The list of issues shall not be seen as exhaustive.

Issue 1 – Mismatches of entities

Mismatches of entities occur when entities ('hybrid entities') are treated differently for tax purposes in two jurisdictions (i.e. transparent entity in one jurisdiction and non-transparent in the other).

Assume an enterprise with a parent company in country A and a subsidiary in country B intends to finance an investment by the subsidiary in e.g. machinery or the market introduction of a product. The parent does not have sufficient funds itself so that third-party debt will be used to finance the operation. This debt financing would usually lead to one net financing cost in either country A or country B.

Use of an inserted entity that is treated as transparent in Country A, but is treated as a company in Country B (assuming such an entity can be arranged) could lead to double deduction. If the inserted entity takes up the third-party loan; Country A would give deduction against the parent company' income if Country A applies word-wide income taxation, and Country B would give deduction against the income of the subsidiary if it has some form of consolidation or group loss offset possible.

The outcome of this mismatch in entity qualification is that tax deductible expenses (in this example interest expense) can be deducted in both countries when the 'real' expense is only incurred once.

Double non-taxation can also occur if the mismatch of the hybrid entity is the reverse (i.e. the hybrid entity is seen as an entity in the country of the owners (country A), but seen as transparent by the country where the hybrid entity is located (country B)). In these cases income of the hybrid entity can be excluded from taxation in both countries. If Country A exempt income like dividends and capital gains from shares; it will not tax the income as the income is seen as income of an entity resident in country B. Country B will not tax either unless the activities in the country B qualify as a permanent establishment for the owners in country B.

Question A – Do you find such mismatches of entities relevant in the future discussions on double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Questions B – Are you aware of mismatches of entities between member states or towards third countries?

Yes ⁪ No ⁪ Do not know ⁪

Question C - Please give relevant details about these mismatches of entities (max 500 words)?

Question D – Please provide any suggestions you might have for ways in which these mismatches of entities could be tackled (max 500 words).

Issue 2 - Mismatches of financial instruments

There are financial instruments that include characteristics of both debt and equity (or seen from the creditor/shareholder: loan and shares). These financial instruments are usually known as hybrid financial instruments and include instruments such as preferred shares and profit participating loans.

Member states will not necessarily qualify these hybrid instruments in the same way. If there is a mismatch in the qualifications of such financial instruments between member states (i.e. as debt in one jurisdiction and as equity in the other), double non-taxation might occur.

Assume an enterprise with a parent company in country A and a subsidiary in country B intends to finance an investment of the subsidiary in e.g. machinery or the market introduction of a product (i.e. the same factual situation as under issue 1) but this time, the parent does have sufficient funds itself and intends to use them for the investment.

The parent company may choose to use of a hybrid financial instrument that is treated as equity in country A, but as debt in country B. When the subsidiary is funded with such an instrument, the subsidiary will have interest deductions in country B while the corresponding income for the parent company in country A will be dividends which in many member states are tax exempt income for parent companies.

The outcome of this mismatch of financial instrument qualification is an interest deduction in one member state without taxation of the corresponding income in another member state.

Question A – Do you find such mismatches of financial instruments relevant in the future discussions on double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Questions B – Are you aware of mismatches of financial instruments between member states or towards third countries?

Yes ⁪ No ⁪ Do not know ⁪

Question C - Please give relevant details about these mismatches of financial instruments (max 500 words)?

Question D – Please provide any suggestions you might have for ways in which these mismatches of financial instruments could be tackled (max 500 words).

Issue 3 – Application of Double Tax Conventions leading to double non-taxation

Member States have over the years concluded bilateral or multilateral double tax conventions (DTCs) with each other that help to allocate taxing rights between the signatory states and provide relief if double taxation arises.

The application of DTCs (in connection with national legislation in the signatory states) could in some cases lead to double non-taxation.

The commentary to Article 23A of the OECD Model Tax Convention already tackles with one situation of double non-taxation that would arise from a conflict of qualifications of income. In such cases the state of residence is according to the OECD commentary not required to exempt the income when the source state based on its domestic law considers that the provisions of the treaty precludes it from taxing.

This does however not solve all cases of double non-taxation that comes from the application of DTCs. It does for instance not solve cases where the double non-taxation is based on different interpretations of the facts or of the provisions of the treaty. This could for example be cases where the two countries have different interpretations of when electronic commerce will constitute a permanent establishment. This would result in double non-taxation if the state of residence believes there is a permanent establishment (and exempt the income) and the source state believes there isn't a permanent establishment (and therefore does not tax the income).

Question A – Do you find such cases relevant in the future discussions on double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Questions B – Are you aware of cases where member states application of double tax conventions lead to double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Question C - Please give relevant details about these cases (max 500 words)?

Question D – Please provide any suggestions you might have for ways in which this problem could be tackled (max 500 words).

Issue 4 - Transfer pricing and unilateral Advance Pricing Arrangements

An advance pricing arrangement (APA) is an arrangement that determines, in advance of controlled transactions, an appropriate set of criteria for the determination of the transfer pricing for those transactions over a fixed period of time. An APA may be unilateral involving only one tax administration.

In transfer pricing there can be good reasons for issuing unilateral APAs or similar advance agreements concerning transfer pricing although bilateral APAs should be preferred over unilateral APAs. Unilateral arrangements give the taxpayers certainty of the taxation of intra-group transactions in the issuing member state.

APAs may however create double non-taxation. This could e.g. be the case if the member state (Country A) where the associated enterprise is situated is not aware of the APA issued in the other Member State (Country B). If the APA determines that the group may use one transfer pricing method (e.g. the cost plus method) for a controlled transaction, there could be a risk for double non-taxation if Country A believes that the arm's length price should be determined on the basis of another method (e.g. the comparable uncontrolled price method).

The outcome of using different transfer pricing methods could be double non-taxation as well as double taxation. The risk of double taxation can be tackled by using the EU Arbitration Convention[5].

It could be noted that member states with the "Code of Conduct" (Business Taxation) have committed themselves to spontaneously exchange details of concluded unilateral APAs. The Exchange of Information should be made to any other tax administration directly concerned by the unilateral APA and should be done as swiftly as possible after the conclusion of the APA.[6]

Question A – Do you find unilateral advance pricing arrangement relevant in the future discussions on double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Questions B – Are you aware of unilateral advance pricing arrangements that could lead to double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Question C - Please give relevant details about these unilateral advance pricing arrangements (max 500 words)?

Question D – Please provide any suggestions you might have for ways to tackle unilateral advance pricing arrangements leading to double non-taxation (max 500 words).

Issue 5 – Transactions with associated enterprises in countries with no or extremely low taxation

There could be a risk of double non-taxation if member states do not have appropriate rules in place to deal with transactions with associated enterprises in countries with no or low taxation.

These appropriate rules would include transfer pricing rules to ensure arms length conditions between the associated enterprises.

There could also be a risk of double non-taxation if dividend exemption applies to untaxed profits. The aim of the profit distribution exemption between groups of companies is to prevent double taxation of parent companies on the profits of their subsidiaries. The exemption should therefore only apply when the profits of the subsidiary has been (effectively) taxed.

Similarly there could be a risk of double non-taxation if interest and royalty payments are exempted from withholding tax in cases where the company which is the beneficial owner is not (effectively) taxed. This would create double non-taxation as the payment will be deductible in the EU member state and not (effectively) taxed in the other country.

Question A – Do you find transactions with associated enterprises in no/low tax countries relevant for the future discussions on double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Questions B – Are you aware of transactions with associated enterprises in no/low tax countries that could lead to double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Question C - Please give relevant details about these kinds of transactions (max 500 words)?

Question D – Please provide any suggestions you might have for ways in which these kinds of double non-taxation could be tackled (max 500 words).

Issue 6 – Debt financing of tax exempt income

Double non-taxation might occur if interest deductions are allowed on debt that finances income that is not (effectively) taxed in any country.

One example of this could be the financing of foreign subsidiaries or permanent establishments in countries with no or low taxation. Many member states apply the principle of territoriality for corporate taxation. This means that income not related to activities in the member state is kept outside the tax base. Dividends and capital gains on shares in subsidiaries are tax exempt and income from permanent establishments in other countries is also tax exempt.

Double non-taxation could incur if full interest deductions are allowed for debt financing of activities in foreign subsidiaries and permanent establishments that are not subject to (effective) taxation. The corresponding income from the shares will be tax free and the underlying activities in the subsidiary or the permanent establishment will only be taxable outside the member state, where it's not (effectively) taxed.

Another example could be cases where foreign investors are allowed to allocate their debt financing in relation to acquisition of target companies through consolidation between the acquiring holding company and the target company (see illustration).

Dividends could flow out of the member state without tax. Furthermore gains on the (direct or indirect) sale of shares in the target company will in most cases not be taxable. The outcome will therefore be double non-taxation as there will be interest deductions inside the member state and no taxation of the corresponding income (the dividend or capital gain) outside the member state.

Question A – Do you find these cases relevant for the future discussions on double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Questions B – Are you aware of cases where debt financing of tax exempt income is deductible?

Yes ⁪ No ⁪ Do not know ⁪

Question C - Please give relevant details about these case(s) (max 500 words)?

Question D – Please provide any suggestions you might have for ways in which these kinds of double non-taxation could be tackled (max 500 words).

Issue 7 - Different treatment of passive and active income

Some member states apply special tax regimes for passive income such as interests and royalties.

Some of these regimes are justified by technical reasons (i.e. to compensate the inflation depreciation effect) or just by a tax policy choice of a Member State.

Sometimes, however, these regimes may potentially lead to situations of effective double non-taxation.

Double non-taxation might incur in these cases through a combination of the exemption (or extremely low taxation) in the member state with the special regime and the tax rules in another member state. This could for instance be the case if the other member state allow deductions for interest and royalty payments and do not have a withholding tax on the payments. The outcome here would be deductions in one member state and no (effective) taxation in the member state with the special regime.

There could also be a risk of double non-taxation if the other member state apply the principle of territoriality for corporate taxation and therefore exempt income from activities abroad (whether its dividends from subsidiaries, gains on subsidiary shares or income from foreign permanent establishments). The outcome here would (effectively) be a double exemption.

These tax special regimes only apply to passive income and therefore active business activities would be excluded from these double non-taxation schemes.

Question A – Do you find these special regimes relevant for the future discussions on double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Questions B – Are you aware of such special regimes leading to double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Question C - Please give relevant details about these case(s) (max 500 words)?

Question D – Please provide any suggestions you might have for ways in which these kinds of double non-taxation could be tackled (max 500 words).

Issue 8 – Double Tax Conventions with third countries

EU businesses operate in a Global Economic Scenario and therefore situations of potential risk of double non-taxations are not limited to the Internal Market. Schemes of double non-taxation frequently imply the use (or abuse) of Double Tax Conventions (DTCs) with Third Countries.

Some DTC between member states and developing countries contain sparing tax clauses[7] and matching tax clauses[8] that intend to promote genuine economic activities in the developing countries. These clauses can however be misused in some circumstances to achieve double non-taxation beyond the initial intentions.

Most member states also have DTCs with countries that (partly or fully) have no or extremely low taxation. These DTCs can also be used to achieve double non-taxation especially if the member state according to the DTC shall apply the exemption method for elimination of double taxation or if the member state according to the DTC cannot apply any (or only low) withholding tax on dividends, interest and/or royalties.

Other schemes include the combination of two DTCs or one DTC combined with EU legislation to achieve double non-taxation.

On 28th April 2009 the Commission issued a Communication on Promoting Good Governance in Tax Matters[9] to present concrete actions that could be taken to better promote the principles of good governance in the tax area (transparency, exchange of information and fair tax competition)

Having full regard to the principle of subsidiarity, the Communication concluded "there is a need to ensure more coherence between Member States individual positions in the international tax arena, and the good governance principles such as in bilateral tax treaties with third countries".

Future discussions on double non-taxation could take into account the principles of good governance in the tax area.

Question A – Do you find double tax conventions with third countries to be relevant for the future discussions on double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Questions B – Are you aware of double tax conventions with third countries that can be used to achieve double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Question C - Please give relevant details about these double tax conventions with third countries (max 500 words)?

Question D – Please provide any suggestions you might have for ways in which these kinds of double non-taxation could be tackled (max 500 words).

Issue 9 –Disclosure

Double non-taxation can be very difficult to detect in an ordinary tax audit. The availability of the relevant information is crucial for detection of double non-taxation and for policy responses to them.

The OECD published in February 2011 a report on disclosure initiatives to tackle aggressive tax planning[10]. In the report it was concluded (in paragraph 29) that:

"Disclosure initiatives can help fill the gap between the creation/promotion of aggressive tax planning schemes and their identification by the tax authorities. Mandatory early disclosure rules, for example, have proven to be very effective in providing governments with timely, targeted and comprehensive information on aggressive tax planning schemes, thus allowing timely policy and compliance responses."

The mandatory early disclosure rules are rules created by some member states which require certain promoters of tax planning schemes to disclose these schemes to the tax administration. Promoters could be e.g. accountants, solicitors, banks and financial institutions. The rules require the promoters to provide the tax administration with information about schemes falling within certain descriptions. The promoter must explain how the scheme is intended to work and must normally do so before making the scheme available to clients.

Other types of disclosure initiatives could be e.g. additional tax reporting obligations, questionnaires, co-operative compliance programmes and rulings.

Question A – Do you agree that targeted disclosure initiatives could be a way to tackle double non-taxation?

Yes ⁪ No ⁪ Do not know ⁪

Question B – Do you have knowledge of the experiences with disclosure rules in member states?

Yes ⁪ No ⁪ Do not know ⁪

Question C – If your answer is yes to A, please specify which disclosure initiatives you believe could be a way to tackle double non-taxation (max 500 words)?

Question B - If your answer is yes to B, please specify what the experiences in member states are (max 500 words)?

Issue 10 – Other issues?

As written above the list of issues (issues 1-8) shall not be seen as exhaustive. We would therefore also invite you to describe any other double non-taxation issues that you have encountered or that you are aware of.

We would also be interested in suggestions of increased information measures – not being disclosure (issue 9) - you might have for ways to tackle double non-taxation.

It should be recalled that the consultation only concerns taxes which companies and other entities pay directly to the tax authorities (i.e. "direct corporation taxes"). You should therefore only include double non-taxation issues concerning direct corporation taxes.

It should also be recalled that the cases should be cases with double non-taxation of the activities. This does not include cases where there is low taxation in one tax year because of losses carried forward from previous years nor does it include cases where the "non- taxation" in one jurisdiction is matched by a corresponding (effective) taxation in another jurisdiction. The former is a question on the timing while the later is a question of allocation of taxing right – neither of them is a question of double non-taxation.

Question A– Are you aware of double non-taxation not described above?

Yes ⁪ No ⁪ Do not know ⁪

Question B - Please give relevant details about these kinds of double non-taxation case(s) (max 500 words)?

Question C – Please provide any suggestions you might have for ways in which these kinds of double non-taxation could be tackled (max 500 words).

Question D - Please provide any other suggestions of increased information measures – not being disclosure - you might have for ways to tackle double non-taxation (max 500 words).

5. Who is consulted?

All interest parties including tax professionals in practice, in business and in academia.

6. How can I contribute?

You are invited to reply to this consultation by completing the questionnaire by sending a response by letter, fax or email within 3 months of the date of publication.

Email: TAXUD-D1-Consultation-DNT@ec.europa.eu

Postal address: European Commission

Directorate-General for Taxation and Customs Union

Rue de Spa 3, Office 8/007

B-1049 Brussels

Belgium

Fax: +32-2-29 56377

7. What will happen next?

At the end of the consultation process the Commission will publish a report summarising the outcome of the consultation on the website of the Taxation and Customs Directorate General

(http://ec.europa.eu/taxation_customs/common/consultations/tax/index_en.htm).

In addition, the Commission will analyse carefully analyse the information provided in order to identify and develop the appropriate policy response. The results will be used as input to the Communication on strengthening good governance in the tax area ("tax havens, uncooperative jurisdictions and aggressive tax planning") planned for the 4th quarter of 2012.

8. Any questions?

Please contact: TAXUD-D1-CONSULTATION-DNT@ec.europa.eu or tel. +32 2 29 64846 or +32 2 29 55136 or fax: +32-2-2956377

We hope you will take this opportunity to contribute your views!

[1] [link to the website for this specific consultation]

[2] For the purposes of identification, please check whether your company is a medium, small or microenterprise, according to the Commission Recommendation (2003) 361 of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises; in its annex, Title I, Article 2, SMEs are defined as enterprises which employ fewer than 250 persons and which have an annual turnover not exceeding EUR 50 million, and/or an annual balance sheet total not exceeding EUR 43 million.

[3] http://register.consilium.europa.eu/pdf/en/11/st00/st00023.en11.pdf

[4] COM(2011)712 final

[5] Convention 90/436/EEC on the elimination of double taxation in connection with the adjustment of profits of associated enterprises

[6] Communication 2007/71 on the work of the EU Joint Transfer Pricing Forum in the field of dispute avoidance and resolution procedures and on Guidelines for Advance Pricing Agreements within the EU, paragraph 68.

[7] The State of residence grants a tax credit taking into account the tax that would have been paid at the State of source in absence of a certain tax incentive.

[8] The State of resident grants a notional tax credit, independently of the effective taxation at the State of source.

[9] COM(2009) 201.

[10] "Tackling aggressive tax planning through improved transparency and disclosure (Report on disclosure initiatives". The report can be found on http://www.oecd.org/dataoecd/13/55/48322860.pdf.

ANNEX 13: LIST OF ACTIONS CONSIDERED IN THE COMMUNICATION OF 27 JUNE 2012

1. Introduction

The Communication of 27 June 2012 identified 26 concrete actions aimed at reinforcing the fight against tax fraud and tax evasion including in relation to third countries.

This Annex provides first an overview of these 26 concrete actions and then detailed explanations on those actions which have been considered as priorities.

2. Complete list of 26 concrete actions

Measures to be executed by the Commission || Priority

1. Development of computerised formats for secure and enhanced automatic exchange of information See point 2 in part 2 here below. || 1 || ||

2. EU Tax Identification Number (TIN) for cross border operations See point 3 in part 2 here below. || 1 || ||

3. Mutual Direct access to national data bases, extension of automated access for VAT The purpose of this action is to permit a direct access by all Member States to relevant (parts of) the national databases in the field of direct taxation and to extend this access in the area of direct taxation. Given the (mainly technical) complexity of such a project, the vast majority of Member States expressed major reserves on the opportunity for an immediate implementation of this possible concrete action, especially as regards direct taxation. || || || 3

4. Extending EUROFISC to direct tax The EUROFISC network in the VAT domain, in which all member states participate, enables targeted and swift action to be taken in order to combat new and specific types of fraud. It involves a multilateral early warning mechanism and the coordination of both data exchange and work of liaison officials in acting upon warnings received. The idea would be to extend the scope of EUROFISC mechanisms to direct taxation. The Member States welcomed the initiative but invited to draw first the conclusions of the experience in the VAT sector before extending it to other revenues. || || 2 ||

5. Quick Reaction Mechanism on VAT fraud See point 4 in part 2 here below. || 1 || ||

6. Teams of auditors dedicated to cross-border tax fraud The initiative would entail creating pools of auditors from Member States that could be appointed to undertake specific missions for tackling cross border tax fraud on a case by case basis. These auditors would remain attached to their national tax administrations but could be called on to take part in specific missions. The operational costs could be covered by the future FISCALIS programme and the rules on simultaneous controls and presences in offices abroad could apply, especially in terms of supervision. In a nutshell, all legal provisions are there to facilitate the setting up of pools of international auditors and there would only need to be an agreement on a methodology. While Member States expressed the willingness to better use the existing tools and instruments, business stakeholders supported strongly such an initiative which would reduce the burden of controls for cross-border players. Guidance could be issued in a first instance. || || 2 ||

7. Single TAX WEBPORTAL for all taxes and taxpayers building on the VAT web portal under development See point 5 in part 2 here below. || 1 || ||

8. One-stop shop for non-resident taxpayers in Member States To enhance compliance both in internal and cross-border situations taxpayers must be better informed about EU and Member States' tax rules. A one-stop shop for non-resident taxpayers in Member States would make it easier for the taxpayers concerned to meet their tax obligations. The Member States generally recognised this action as a top priority but recommended to limit its scope in a first instance to the VAT domain where legislation is harmonised and such one-stop shop would deliver results in an efficient manner for both tax administrations and taxpayers. || || 2 ||

9. "EU VAT Forum" See point 5 in part 2 here below. || 1 || ||

10. Taxpayers' charter Tax administrations would consider complementing their control approach with a more service-oriented approach. In the spirit of Corporate Social Responsibility[1], the Commission could develop a taxpayers' charter. This would not only rules with regards to relationships between tax administrations and taxpayers but also a code of good behaviour by taxpayers. Even though not considered as a critical priority, this initiative was welcome by both tax administrations and stakeholders. Several representatives of the latter offered to contribute. || || 2 ||

11. Common minimum administrative or criminal sanctions In a globalised world where non-compliant taxpayers can weigh up their risks of being caught and punished in different jurisdictions, it is worth considering common minimum rules against tax fraudsters and evaders with regard to certain types of tax offences and including administrative or criminal sanctions. The fight against fraud is one of the priority sectors identified in the Commission Communication “Towards an EU Criminal Policy”[2]. The Commission would propose rules to strengthen the fight against fraud affecting the EU financial interest by means of criminal law. Foreseeing common definitions of infringements and minimum administrative and criminal sanctions was supported neither by Member States not stakeholders. They consider the benefits of such harmonisation not so clear and the legal constraints and costs fairly important. Any action should anyway also be duly coordinated with Ministries of Justice and anti-fraud authorities. || || || 3

12. Single legal instrument for administrative cooperation The Commission could consider a single legal instrument for administrative cooperation for all types of taxes to ensure full integration and consistency of the mechanisms for cooperation. Replacing the existing legal instruments[3] by one single act applicable to all tax areas and based on identical definitions and principles received an extremely low support as these acts were only adopted recently and the sole priority should be ensuring that they deliver their promises and improve effective tax administration, enforcement and collection. || || || 3

13. Multilateral agreements for administrative cooperation in the field of indirect taxes with third countries In addition to the negotiation and conclusion of agreements on anti-fraud and tax cooperation matters (see action 26), possibilities to conclude multilateral agreements for administrative cooperation in the field of indirect taxes with third countries should be explored as well as the participation of third countries in simultaneous controls. Despite the length of the negotiation of such agreements, the Member States stressed the importance of this action which would allow reaping benefits in indirect taxation similar to those being progressively gained in direct taxation. || || 2 ||

14. Promotion of EU advanced practical tools (including electronic formats) with a view to ensuring their use by non-EU countries particularly in relations with EU Member States The Commission developed over the last years together with the involvement of Member States a full range of advanced practical tools. Cooperation with other international organisations should be improved with a view to avoiding overlaps and creating synergies for the benefit of tax administrations. In fact, Member States should be able to use a single set of tools and instruments both within the EU and in their relations with third countries. To this end, the Commission is promoting EU advanced practical tools (including electronic formats) with a view to ensuring their use by non-EU countries particularly in relations with EU Member States. This action is already under way with interventions of Commission officials in various fora[4] and the constant backing of Member States. Member States renewed their total support to this action as it drastically improves the functioning of their service and ensures a smoother and more efficient adminis­trative cooperation. || || 2 ||

15. Promotion of automatic exchange of information standard globally (through OECD) In its recitals of Directive 2011/16/EU, the Council recognised that "the mandatory exchange of information without pre-conditions is the most effective means of enhancing the correct assessment of taxes in cross-border situations and of fighting fraud". Automatic exchange of information indeed gives tax administrations invaluable information on income received and assets owned by their taxpayers that can also be particularly useful for risk analysis purposes and that can serve as an incentive to voluntary compliance. The EU has a key role to play in promoting its standard of automatic exchange of information so as to give support to developing international standards of transparency and exchange of information in tax matters. Almost all Member States and stakeholders supported the action. || 1 || ||

16. Promotion of fair tax competition standards globally (also with OECD) Continued promotion of good governance principles in the tax area under international trade and cooperation agreements is the utmost importance for a fair and effective tax administration, enforcement and collection for MS. The other objectives of the impact assessment are specifically addres­sing these questions and we refer to this detailed analysis for more information. || || 2 ||

17. Announcement of coordinated defensive measures or sanctions against tax havens The other objectives of the impact assessment are specifically addres­sing these questions and we refer to this detailed analysis for more information. || 1 || ||

Measures to be executed by the Commission together with the Member States || Priority

18. Examine ways to improve access to information on money flows, building on national experiences Access to information on money flows is critical to trace significant payments made through off-shore bank accounts. Several Member States have developed a large experience with a complete set of procedures and principles. The return on investment achieved by Member States applying such measures demonstrates that actions in this field are not only effective but very efficient and that establishing and sharing best practices in this field would benefit not only Member States budgets but more generally tax morale in Europe. || || 2 ||

19. Better cooperation between all law enforcement services (including between, direct and indirect taxation areas), not only on tax fraud and evasion but also on tax related crimes (e.g. through Europol) As tax fraud is often linked with other forms of criminal activity it is important to strengthen cooperation between tax administrations and other authorities, in particular anti-money laundering, social security and judicial authorities, both at national and international level. At national level, it is necessary to ensure a satisfactory level of cooperation between all law enforcement services concerning not only tax fraud and evasion but also tax related crimes[5]-[6]. Cooperation concerning tax related crimes can also be ensured through Europol[7]. The Commission can facilitate coordination in the areas concerned through joint use of its existing programmes and their successors. Both Member States and stakeholders backed the idea of creating bridges between the various departments and thereby reaping the benefits of a multiplier effect beyond the limits of each domain. On top of the exchange of information, such an action would allow exchanging best practices between departments in charge and improve working methodologies, thereby increasing further the benefits in each individual domain. || || 2 ||

Measures to be initiated by the Member States || Priority

20. More effective use of practical IT tools on mutual assistance and administrative cooperation between EU tax administrations The Commission is assisting Member States in their efforts by providing them with the practical tools and instruments they need to engage in effective administrative cooperation. The Commission will closely monitor the correct application by all Member States of the commonly agreed rules and procedures. Member States fully supported this proposal as it allows gaining time as well as money through the redeployment of human resources to "productive" activities instead of administrative ones. || 1 || ||

21. Joint audits with presence of officials of a Member State in another Member State More regular joint audits should be promoted through extensive use of the existing legal provisions on simultaneous controls and the presence of officials of a Member State in another Member State[8]. Member States did not support the development of new initiatives in this area but were of the opinion the best use should be made first of the existing provisions to streamline and rationalise audits. The stakeholders as well supported the idea of increased action in this domain. || || 2 ||

22. Decrease costs and complexity of tax systems for taxpayers Taxpayers' compliance could be encouraged in various ways. One way to increase tax compliance is to decrease its costs and complexity for taxpayers. The administrative costs for business of complying with the tax code vary considerably between the Member States. As the time and costs fall disproportionally on small enterprises, decreasing administrative complexity (e.g. by increasing the use of online tools) would help tax collection and increase the competitiveness of many European firms. Member States agreed with the position that all rules and systems to be put in place should be proportionate to the needs and that this principle should be recognised as a kind of red line. Stakeholders and the business in particular backed the principle as well and recalled its importance for an increased voluntary compliance by taxpayers. || || 2 ||

23. Motivational incentives to enhance tax compliance including voluntary disclosure programmes Tax administrations could also develop motivational incentives in the form of voluntary disclosures programmes. Whereas some Member States consider that tax compliance should the standard and should not need motivational incentives, others pointed out to the good and efficient results achieved by applying such an approach, stressing the enhanced tax morale, awareness and deterrent effect that such measures can have. || || 2 ||

Measures to be initiated by the Council || Priority

24. Adoption of amended Savings Directive See point 1 in part 2 here below. || 1 || ||

25. Adoption of proposed negotiating mandate to amend existing EU savings agreements with Switzerland, Andorra, Monaco, Liechtenstein and San Marino See point 1 in part 2 here below. || 1 || ||

26.Approval of the draft EU/Liechtenstein agreement on anti-fraud and tax cooperation matters and adoption of proposed mandate to open similar negotiations with Andorra, Monaco, San Marino and Switzerland See point 1 in part 2 here below. || 1 || ||

3. Orientations with regards to the main priority actions

The consultation of Member States and stakeholders carried out by DG TAXUD revealed that, in order to enhance administrative cooperation, any action plan should focus among others on the following priority actions among the 26 suggested by the Commission in its Communication of 27 June 2012:

3.1. Strengthening existing tools for ensuring more effective tax collection of savings or similar income in Member States by Council action to amend the existing savings taxation directive on the basis of the Commission's proposal – Amending existing EU savings agreements with other countries – Concluding anti-fraud and tax cooperation agreements with other European non-EU countries

Capital income is one of the most mobile tax bases, and tax competition is rife in this area. In order to ensure the proper functioning of the internal market and tackle the problem of tax evasion the Savings Tax Directive 2003/48/EC was adopted in June 2003. The Directive applies to interest paid to individuals resident in an EU Member State other than the one where the interest is paid. The Directive has been applicable since 1 July 2005.

Pursuant to Article 18, the Commission issued a first report on the operation of the Directive on the subject on 15 September 2008. Following this first review, the European Commission adopted on 13 November 2008 an amending proposal to the Savings Taxation Directive, with a view to closing existing loopholes and better preventing tax evasion. The Commission proposal seeks to improve the Directive, so as to better ensure the taxation of interest payments which are channelled through intermediate tax-exempted structures. It is also proposed to extend the scope of the Directive to income equivalent to interest obtained through investments in some innovative financial products as well as in certain life insurance products. The second report of 2 March 2012 confirmed the widespread use of offshore jurisdictions for intermediary entities (35% of the non-bank deposits in Member States, 65% for deposits in Savings Agreements countries).

If the proposal currently on the Council's table is not swiftly adopted by Member States at unanimity, the smooth functioning of the internal market and efficient tax collection by Member States will continue to be adversely affected by the multiple and easy ways for individuals to circumvent the rules by using interposed legal persons or arrangements (like certain foundations or trusts) which are not taxed on their income or untaxed innovative financial vehicles rather than taxed classical savings products. On the contrary, adopting the proposal will permit not only the closing of existing loopholes and the elimination of opportunities for tax evasion but will also ensure a consistent application of the new principles across the EU and facilitate agreements on similar or equivalent measures with Member States' dependent or associated territories and third countries.

In the same context, the Council should ensure that the savings agreements in place with a series of other states and dependencies and territories are reviewed in order to ensure that the loopholes closed by the amending directive are closed as well in the case of interest or similar income received from instruments owned there.

The negotiations on the content of anti-fraud agreement with Liechtenstein can be considered as finalised. However, the main obstacle to the signature and conclusion remains the political reservations by Austria and Luxembourg regarding the link with the EU savings directive. The Council should take immediate action in order to ensure that the agreements can be adopted and consider as well the need to negotiate similar agreements with other third states.

The European Council has repeatedly underlined the necessity to adopt these proposals, agreements and mandates without delay.

3.2. Ensuring more effective tax administration and enforcement in the case of cross border transactions by analysing the scope for reviewing the conditions of the automatic exchange of information

Automatic exchange of information gives tax administrations invaluable information on income received and assets owned by their taxpayers in other countries and thus contributes to effective and efficient tax administration and enforcement in the country of residence. The information received can also be particularly useful for risk analysis purposes and can serve as an incentive to voluntary compliance. The experience in the context of the savings directive demonstrates the benefits of such cooperation on a pan-European level: on average more than 4 million records are sent each year from source countries to residence countries representing on average 20 billion euro of savings income.

The new directive 2011/16/EU on administrative cooperation adopted on 15 February 2011 substantially expands the scope of automatic exchange of information and invites the Commission to develop new systems and formats for five other categories of income and capital: income from employment, director's fees, pensions, life insurance products not covered by another EU law on administrative cooperation, ownership of and income from immovable property. The implementation and entry into application of this new legislative instrument will already constitute an important step forward in the area of direct taxation and will significantly enhance effective taxation and the fight against tax fraud in relation to EU cross-border transactions.

However, as Directive 2011/16/EU only focuses on 5 categories of income and capital, there is scope for extending automatic exchange of information on a voluntary basis to other categories such as income from employment other than dependent employment, royalties, dividends or capital gains.. Such an extension would not only allow MS to draw even greater benefits from the mechanisms provided for by Directive 2011/16/EU but would also:

- provide concrete follow-up to the statement at the time of the adoption of Directive 2011/16/EU that "in order to promote a level-playing field in the realm of automatic exchange of information, Member States commit themselves to improve the availability of information on all categories enumerated in Article 8(1) to the greatest extent possible" and

- pave the way for to further strengthening the automatic exchange of information in a pro-active and non-coercive manner and raising the standard thereof , as the Council has already committed to assess in 2017 .

3.3. Ensuring more effective tax administration and enforcement in the case of cross border transactions by examining the possibility of introducing an EU TIN as a unique identifier for taxpayers engaged in cross-border transactions

The easy, correct and unambiguous identification of taxpayers is key in ensuring an effective and efficient tax administration, enforcement and collection. This is particularly true in the case of cross-border transactions where tax authorities do not have the same level of access to information on taxpayers or operators located abroad and where in the absence of proper identification the international exchanges of information (whether on request, spontaneous or automatic) may be very complex. The concrete experience of Member States in this area shows that information can be far better matched when a Tax Identification Number (TIN) is communicated and used as a unique identifier: whereas the automatic matching of information is very low in the absence of TINs with a rate usually lower than 40%, it basically exceeds the 80-90% range when a TIN is provided as part of the information exchanged.

Despite the initiatives of the European Commission to facilitate access to information on TINs in the case of cross-border transactions, major obstacles remain: economic operators are only required to record and report the identification of their counterparts in a limited number of instances, mainly further to Directive 2003/48/EC on taxation of savings and in accordance with specific national obligations; TINs are not necessarily mentioned on identification documents and can accordingly not be recorded at the time of a transaction; each Member State has its own TIN with its specific structure, syntax and semantic and its own rules on when and how it must be recorded by economic operators; certain Member States may use several different TINs whereas others have no TIN at all and base the identification of taxpayers on other more ambiguous elements such as the date of birth, the postal code…

The action plan could thus suggest enhancing tax administration, enforcement and collection by analysing concrete ways for a better use of TINs, for example through improved use of existing TINs, the introduction of an EU TIN as a unique identifier for all taxpayers engaged in cross-border transactions, whether a natural, a legal or another person, or even a unique EU TIN in replacement of national TINs. Before an initiative is proposed further to the action plan, this concrete action would of course be subject to a specific impact assessment.

3.4. Tackling trends and schemes of tax fraud and tax evasion in the field of VAT, by setting up a quick reaction mechanism

Member States will continue to be targeted by new and massive VAT fraud as the possibility for them to seek derogation from the EU VAT legislation to counter such fraud takes too long and does not allow them to take rapid action. Therefore, the Commission has adopted a proposal for setting up a Quick reaction mechanism in the field of VAT allowing Member States to react promptly against sudden and massive fraud resulting in considerable VAT loss for the Treasury. The action plan could emphasise the necessity for the Council to swiftly adopt the Commission's proposal.

3.5. Ensuring high levels of taxpayer compliance in the field of VAT

With a view to enhancing the relationship between tax administrations and business and improving the governance of VAT at EU level stakeholders have advocated the setting up of a forum at EU level where traders and tax administrations can discuss problems related to doing business across borders in the EU in order to look for possible solutions. All stakeholders should be encouraged to contribute to the development and working of this forum.

The lack of reliable information for business on their obligations in other Member States when doing business in those countries continues to be a hurdle for doing business across borders and thus prevents business from exploiting the full benefits of the internal market. When setting up a web portal at EU level the Commission could invite Member States to put on to the EU web portal useful information for traders wanting to do business on their territory. This would provide accurate and up to date information to the traders