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# 52012SC0403

**COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT Accompanying the Communication from the Commission to the European Parliament and the Council - An Action Plan to strengthen the fight against tax fraud and tax evasion the Commission Recommendation regarding measures intended to encourage third countries to apply minimum standards of good governance in tax matters the Commission Recommendation on aggressive tax planning /\* SWD/2012/0403 final \*/**

  

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 and would help to raise awareness and educate
taxpayers. A feasibility study has been launched recently.

[1]       Communication on a renewed EU strategy 2011-14 for Corporate
Social Responsibility – COM (2011) 681 final of 25.10.2011

[2]       COM (2011) 573 final of 20.9.2011

[3]       Directive N° 2010/24/EU, Regulation N° 904/2010/EU, Directive N°
2011/16/EU and Regulation N° 389/2012/EU

[4]       The EU participates actively in other international forums
such as the OECD, the International Organisation for Tax Administration (IOTA),
the Inter American Center of Tax Administrations (CIAT), the International Tax
Dialogue (ITD), the International Tax Compact (ITC), and the African Tax
Administration Forum (ATAF).

[5]       Money laundering, terrorist financing and criminal schemes
relating to Missing Trader Intra Community Frauds (MTIC), including VAT
carousel fraud and criminal investment in the EU Emission Trading Scheme.

[6]       The revised FATF standards adopted in February 2012 added tax
crime as a predicate offence to the money laundering and terrorist financing
offence.

[7]       Europol allows identifying the organisers of tax related
crimes and dismantling criminal networks.

[8]       Article 7 of Directive N° 2010/24/EU; Articles 28, 29 and 30
of Regulation N° 904/2010/EU; Articles 11 and 12 of Directive N° 2011/16/EU;
Articles 12 and 13 of Regulation N° 389/2012/EU

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

Annex 1

Fiscalis 2013 Programme

Non-cooperative jurisdictions,
aggressive tax planning,

tax fraud and tax evasion

Brussels (BE), 17 July
2012

AGENDA

10:00-13:00

1. Outline results of the public consultation on double non-taxation (Presentation and discussion) 2. Review of existing measures in relation to non-cooperative jurisdictions and aggressive tax planning and presentation of the outcome of a PWC Study on existing and proposed tax measures of a sample of EU Member States (Presentation and discussion) 3. Report from the Commission to the Council on concrete ways to improve the fight against tax fraud and tax evasion including in relation to third countries pursuant the European Council conclusions of 1st  and 2nd March 2012 (Presentation) 4. Commission's Discussion Paper on possible future measures against non-cooperative jurisdictions and aggressive tax planning and a possible strategy at EU level (Presentation and discussion)           EUROPEAN COMMISSION DIRECTORATE-GENERAL TAXATION AND CUSTOMS UNION Direct taxation, Tax Coordination, Economic Analysis and Evaluation Company Taxation Initiatives Seminar on non-cooperative jurisdictions, aggressive tax planning, tax fraud and evasion 17 July 2012 14:30-18:00 Agenda 1. Outline results of the public consultation on double non-taxation (Presentation and discussion) 2. Review of existing measures in relation to non-cooperative jurisdictions and aggressive tax planning and presentation of the outcome of a PWC Study on existing and proposed tax measures of a sample of EU Member States (Presentation and discussion) 3. Report from the Commission to the Council on concrete ways to improve the fight against tax fraud and tax evasion including in relation to third countries pursuant the European Council conclusions of 1st  and 2nd March 2012 (Presentation) 4. Commission's Discussion Paper on possible future measures against non-cooperative jurisdictions and aggressive tax planning and a possible strategy at EU level (Presentation and discussion) ||

||

Annex 12- Impact of
Policy Options

Impact of the Policy Option for
protecting MS tax systems against abuses

(Policy option A)

Objective 1 – Enhance tax co-operation, tax administration, tax enforcement and
tax collection for cross border operations

Policy option A: Action plan to enhance tax administration, tax
enforcement and tax collection in case of cross- border transaction

Baseline scenario: no EU action

Effectiveness in achieving policy objective || --: Low negative impact: In the field of direct taxation, if the loopholes of the existing savings taxation directive are not closed, beneficial owners will continue to invest in products or through structures allowing the avoidance of effective taxation of savings or similar income. The absence of automatic exchange of information for more categories than the mere savings interests will furthemore deprive Member States from the invaluable information on other income received and assets owned by their taxpayers in another Member State, thereby preventing effective taxation but also hindering risk analysis by tax administrations and not encouraging voluntary compliance by taxpayers. Finally, the difficult identification of taxpayers engaged in cross-border transactions will continue to generate important problems in the tax administration and collection, which the onging cuts in expenditure for tax control will in turn reinforce, thereby generating a vicious circle as more and more taxpayers may be tempted by cross-border transactions to reduce their visible taxable basis. In the field of VAT Member States will continue to be targeted by massive frauds and the only recourse available will be a lengthy procedure for requesting a derogation to the existing EU VAT legislation from Council. Also, if no action is taken to solve the problems in intra-community operations through dialogue and raise awareness and education, the tax morale and thus the tax compliance will deteriorate as fewer taxpayers will accept the burden put on their shoulders while others incur no penalty for their non-compliance.

Fundamental rights || ≈: No impact

Economic impact || --: Low negative impact: Even if the no action option would avoid in principle any new costs for tax administrations and economic operators, the absence of enhanced administrative cooperation will remain a problem as it will continue to provide taxpayers with incentives to act in a way that prevents or hinders effective tax administration, enforcement and collection and thereby undermines fair competition in the industry at EU level and with third countries, which in turn leads to market distortions.

Social impact || --: Low negative impact: Indirectly, the continued existence of loopholes and problems in the administrative cooperation in the case of cross-border operations will maintain a negative impact in terms of fiscal pressure on diligent taxpayers and on taxpayers whose identification is easy and main income is therefore subject to closer controls (i.e. labour income).

Impact on taxpayers || ≈: No impact

Impact on tax administrations || ≈: No impact

Impact on EU budget || ≈: No impact

Impact on other parties || ≈: No impact

Policy option A1: Presenting an action
plan including prioritising specific measures

Effectiveness in achieving policy objective || +++: Very high positive impact: By foreseeing and prioritising concrete measures, the action plan will allow achieving to a very large extent the policy objective of improving administrative cooperation and in particular: – Closing loopholes in the existing savings taxation Directive; – Reaping the invaluable benefits of the automatic exchange of information; – Enhancing the efficiency and effectiveness of tax collection in the case of cross-border transactions through a better identification of taxpayers; – Providing a mechanism allowing Member States to react promptly against sudden and massive VAT frauds resulting in considerable loss for the treasuries; – Setting up a platform where traders and tax administrations can discuss VAT problems in relation to cross-border business; – Raising awareness and education of VAT taxpayers in order to ease compliance.

Fundamental rights || -: Very low negative impact: The policy option might affect the right to the protection of personal data, recognized in Article 8 of the charter of Fundamental Rights of the EU, as the action plan may result in more personal data being exchanged in the interest of public finance. Any personal data exchange should comply with the existing EU rules.

Economic impact || +: Low positive impact: Although the introduction of additional measures may trigger modifications in the behaviour of taxpayers as a consequence of the resulting enhanced identification of taxpayers, the functioning of the internal market will at the same time be improved through the elimination of various bias introduced by enhanced tax administration, enforcement and collection.

Social impact || +++: Very high positive impact: By improving the administrative cooperation, this policy option will increase the effectiveness and timeliness of tax administration, enforcement and collection in the case of cross-border transactions; the option will also result in a deterrent effect, encouraging taxpayers to report all relevant tax information and thus increasing voluntarily tax compliance on a go-forward basis; the actual existence of a level-playing field of all taxpayers and fair and equal treatment between them will also increase tax morale in the society.

Impact on taxpayers || ++: Medium positive impact: Through a better administrative cooperation in cross-border operations, there will be a simplification of formalities for taxpayers engaged in these transactions as well as indirectly a positive effect on the horizontal equity between the various categories of income and capital and all taxpayers.

Impact on tax administrations || ++: Medium positive impact: Although the action plan may require the setting up of new systems and thereby entail administrative costs and change management actions for tax administrations, it will foremost improve the breadth of information available to them, thus improving their possibilities to collect tax.

Impact on EU budget || --: Low negative impact: Further to the adoption of an action plan, the Commission services will have to study and potentially implement various concrete actions, requiring additional human and budgetary resources.

Impact on other parties || ≈: Differentiated impacts: At this stage of the assessment of the action plan and in the absence of decision on the concrete actions to be carried out, it is difficult to assess the impact of the initiative on economic operators. These impacts will be analysed on a case-by-case basis in the (proportionate) impact assessments to be made for the specific initiatives.

Objective
2 - Close loopholes and potential for abuse in MS’ direct tax systems (national
legislation and double tax conventions)

Policy option B2: close loopholes stemming from double tax
conventions

Baseline
scenario: No EU Action

Effectiveness in achieving policy objective || No impact

Fundamental rights || No impact

Economic impact || Negative impact on EU MS revenues. Double non-taxation would continue to occur on the basis of mismatches between tax systems of the two contracted parties, and be used in schemes involving ATP and  jurisdictions not complying with minimum standards of good governance.

Social impact || No impact

Impact on taxpayers/tax administrations || Negative impact. This option will continue to enable some taxpayers to reduce their tax cost by using ATP schemes and  jurisdictions not complying with minimum standards of good governance , while other taxpayers will bear the additional compliance costs implied by anti-abuse measures implemented by MS. Tax administrations will continue to support the costs of additional work to tackle double non-taxation, by costly and time intensive audits.

Impact on EU budget || No impact

Impact on other parties || No impact

Policy option B2:
Recommendation to prevent double non taxation in double tax conventions

Effectiveness in achieving policy objective || Positive impact, in bilateral situations covering two EU MS or one MS and a third country. This option will bring to completion the specific policy objective of closing loopholes stemming from double tax conventions provided that MS implement the recommendation. This will have however no impact on situations involving more than 2 countries.

Fundamental rights || No impact

Economic impact || Low positive impact. This option will contribute to reduce the scope of double non-taxation, and to improve accordingly the tax revenues of EU MS.

Social impact || No impact

Impact on taxpayers/tax administrations || Positive impact. By reducing the scope for double non-taxation this option would also reduce the opportunities for a small number of taxpayers to reduce their tax costs. However this could lead to reduce pressure on tax administrations and reduce compliance requirements for taxpayers.

Impact on EU budget || No impact

Impact on other parties || No impact

Policy option C1: to adopt EU compliant and effective anti-abuse
measures in MS

Baseline
scenario: no EU action

Effectiveness in achieving policy objective || No impact

Impact on the four freedoms || Negative impact. Some MS would continue to adopt national anti-abuse measures that would not comply with EU law. Within the EU, this could impact the four freedoms. Towards third countries, only free movement of capital would be concerned. These measures would be implemented as long as the Commission has not yet engaged in infringement procedures.

Economic impact || Negative impact. This would affect essentially companies having cross-border activities within the EU (including SMEs) and in relation to third countries. The compliance costs (see below) resulting from multiple requirements could negatively affect the competitiveness of EU companies as compared to third countries having  lower tax compliance costs and fewer tax regulation authorities. This could, together with other factors, contribute to relocation of economic activities outside the EU. In addition, this option could affect trade and investment flows between third countries that would be considered as non-cooperative jurisdiction by one or several MS and not by others, thereby leading to potential inconsistent approach between MS. However preferential trade arrangements between the EU and the third countries concerned should not, as such, be affected since these arrangements contain a tax carve-out provision protecting the possibility for the parties to adopt measures aimed at either adopting or enforcing national tax rules designed to combat avoidance or evasion of taxes. Moreover, this option might involve adjustment costs for developing countries, unless these countries have concluded with the EU MS concerned a double tax convention containing specific provisions on anti-abuse rules. There is also the possibility that national anti-abuse measures cover triangular situations involving indirectly a developing country, such as the misuse of a DTC between an EU MS and a developing country.

Social impact || No impact

Impact on taxpayers/tax administrations || Negative impact. The compliance burden on taxpayers will increase as a result of anti-abuse measures implemented by several MS that may be inconsistent between them and create double taxation situations, in particular in triangular situations not covered by DTC. Tax administrations are likely to increase the number of audits in order to ensure that the anti-abuse measures have been correctly implemented. This could result in additional claims and judicial appeals, which a costly for both taxpayers and tax administrations.

Impact on EU budget || No impact

Impact on other parties || No impact

Policy option
C1: Recommendation of an EU- wide general anti abuse rule as standard of the EU

Effectiveness in achieving policy objective || Positive impact. However the effectiveness of this option will depend on EU MS’ willingness to implement it at their level.

Fundamental rights || No impact

Impact on the four freedoms || Positive impact. This option would ensure that the anti-abuse measures adopted and implemented by EU MS on the basis of this template would raise no EU compliance issue.

Economic impact || Positive impact. This would affect essentially companies having cross-border activities within the EU (including SMEs) and in relation to third countries. It would reduce the compliance costs (see below) of EU companies resulting from anti-abuse requirements and could positively affect the competitiveness of EU companies by bringing their compliance costs closer to those of third countries. This could, together with other factors, contribute to reducing the motivation for relocating economic activities outside the EU. This option could positively affect trade and investment flows between third countries by reducing inconsistencies in regulations implemented by MS towards these countries. Preferential trade arrangements between the EU and the third countries concerned should not, as such, be affected since these arrangements contain a tax carve-out provision protecting the possibility for the parties to adopt measures aimed at either adopting or enforcing national tax rules designed to combat avoidance or evasion of taxes. Moreover, since national anti-abuse measures of MS would be more consistent in their design, this option could reduce the adjustment costs for developing countries not having concluded with the EU MS concerned a double tax convention containing specific provisions on anti-abuse rules.

Social impact || No impact

Impact on taxpayers/tax administrations || Positive impact. The most positive impact would be for companies having cross-border activities in several MS, since the implementation of EU MS’s comparable anti-abuse rules would reduce the compliance costs for taxpayers. This option could is likely to have little impact on the number of audits made by tax administrations, but the consistent design of anti-abuse measures across EU MS is likely to reduce the number of potential ligations for U companies operating in several MS, thereby having a positive impact on MS’ administrative costs.

Impact on EU budget || No impact.

Impact on other parties || No impact.

              Policy option D1:
improve coordination towards third countries by elaborating a list of jurisdictions
not complying with minimum standards of good governance

Baseline
scenario: no EU action

Effectiveness in achieving policy objective || No impact

Fundamental rights || No impact

Economic impact || Negative impact: in the course of current economic and financial crisis it is likely that the lack of an EU action will not improve the current situation and even can lead to further losses in the MS budgets.

Social impact || Negative impact: the lack of EU definition of jurisdictions not complying with minimum standards of good governance is most likely to impact on small and medium-sized enterprises as the larger ones are likely to have tax advisers to help with using jurisdictions not complying with minimum standards of good governance.

Impact on taxpayers/tax administrations || Negative impact: No EU definition of jurisdictions not complying with minimum standards of good governance can lead to higher costs at level of tax payers and tax administrations since using individual MS definitions of jurisdictions not complying with minimum standards of good governance is more complicated to follow them.

Impact on EU budget || No impact

Impact on other parties || No impact

Policy option D1: Recommended EU
definition on jurisdictions not complying with minimum standards of good
governance (to be used by EU institutions and MS) based on the implementation of
principles of good governance in the tax area

Effectiveness in achieving policy objective || Positive impact

Fundamental rights || No impact

Economic impact || Positive impact: If the EU definition of jurisdiction not complying with minimum standards of good governance is commonly applied in all MS then the impact on a particular third country which is considered as a jurisdiction not complying with minimum standards of good governance by 27 MS is substantially different than if such a country is considered as a jurisdiction not complying with minimum standards of good governance by one MS only. This country can be then more forced to implement the principles of good governance in the tax area, i.e. to establish a transparent tax system, to exchange tax information and not to introduce harmful tax practices. This could shift profits and income from jurisdictions not complying with minimum standards of good governance back to MS limit and thus bring additional revenues to MS budget.

Social impact || Positive impact: The ability of larger companies to reduce their taxes could be limited and thus affecting public confidence in the fairness of the tax system.

Impact on taxpayers/tax administrations || Positive impact: a common understanding of the EU definition and a common identification which is applied in all MS can reduce costs to tax administrations since such a definition can be more easily followed in all MS.

Impact on EU budget || No impact

Impact on other parties || Negative impact: from the perspective of developing countries the possible shifting of profits and income from jurisdictions not complying with minimum standards of good governance back into MS could have a negative impact on their economies since some of these economies are fully depended on a worldwide recognition of being a capital market centre.

·
Policy option D2 :
toolbox of incentive and defensive measures to improve leverage towards third

·
Baseline scenario:
No EU action

Effectiveness in achieving policy objective || No impact:

Fundamental rights || No impact

Economic impact || Negative impact: In the course of current economic and financial crisis no coordinated measures at EU level can lead to further losses in the MS budgets.

Social impact || Negative impact: the lack of EU coordinated countermeasures towards jurisdictions not complying with minimum standards of good governance is most likely to impact on small and medium-sized enterprises as the larger ones are likely to have tax advisers to help with tax planning and using jurisdictions not complying with minimum standards of good governance.

Impact on taxpayers/tax administrations || Negative impact: No EU toolbox of countermeasures can lead to higher costs at both level, tax payers and tax administrations, since structures using jurisdictions not complying with minimum standards of good governance and ATP are getting more complicated and thus requesting additional financial as well as human resources to follow them.

Impact on EU budget || No impact

Impact on other parties || No impact

Policy option D2: Recommendation on a
Toolbox of measures (from incentives to defensives at national level) that
could be applied towards jurisdictions not complying with minimum standards of
good governance in a tailor made approach

Effectiveness in achieving policy objective || Positive impact:

Fundamental freedoms || No impact

Economic impact || Positive impact: The suggested option can strengthen the integrity and fairness of tax structures and courage compliance by all taxpayers. It is also expected to bring additional revenues to MS budget.

Social impact || Positive impact: The ability of larger companies to reduce their taxes could be limited and thus affecting public confidence in the fairness of the tax system.

Impact on taxpayers/tax administrations || Positive impact: A toolbox of coordinated measures is expected to eliminate a using of  jurisdictions not complying with minimum standards of good governance and ATP and thus to decrease costs of tax payers and tax administration which otherwise have to spend their financial and human resources to follow  them in order to use them or to fight against them. The compliance burdens on tax authorities and tax payers can be also decreased. This can also eliminate or decrease undesired shifts of part of the tax burden to less mobile tax bases, such as labour, property and consumption.

Impact on EU budget || No impact

Impact on other parties || Negative impact: from the perspective of developing countries the possible shifting of profits and income from jurisdictions not complying with minimum standards of good governance back into MS could have a negative impact on their economies since some of these economies are fully depended on a worldwide recognition of being a capital market centre.

ANNEX 9- Tables extracted from the Study including a data collection
and comparative analysis of information available in the public domain on
existing and proposed tax measures of the 14 EU Member States in relation to
non- cooperative jurisdictions and aggressive tax planning

·
Table 1: definition of non-cooperative
juridictions in the 14 MS reviewed by the PWC study

Table
2: Comparison of existing lists

COMMISSION STAFF WORKING DOCUMENT

IMPACT ASSESSMENT

Accompanying

the Communication from the
Commission to the European Parliament and the Council -
An Action Plan to strengthen the fight against tax fraud and tax evasion
the Commission Recommendation regarding measures intended to encourage third
countries to apply minimum standards of good governance in tax matters
the Commission Recommendation on aggressive tax planning

TABLE OF CONTENTS

COMMISSION STAFF WORKING DOCUMENT IMPACT ASSESSMENT......................... 2

1........... Introduction.................................................................................................................... 6

2........... Procedural issues and
consultations of interested parties................................................... 8

2.1........ Organisation and timing................................................................................................... 8

2.1.1..... Impact Assessment Steering Group................................................................................. 8

2.1.2..... Impact Assessment Board (IAB)
meeting........................................................................ 8

2.2........ Consultation and expertise sought.................................................................................... 9

2.2.1..... Public consultation on double non-taxation...................................................................... 9

2.2.2..... Data collection study from Price-Waterhouse-Coopers (PWC) on tax
measures in 14 Member States in relation to non-cooperative jurisdictions and
aggressive tax planning............................................... 10

2.2.3..... Consultation of Member States administrations: Fiscalis Seminar
"Administrative cooperation 2020" – May 2012.................................................................................................................................... 11

2.2.4..... Fiscalis Seminar on non- cooperative jurisdictions, aggressive tax
planning, tax fraud and tax evasion – July 2012..................................................................................................................................... 11

2.2.5..... Tax Policy Group and Council High-Level Working Party............................................. 12

2.2.5.1.. Tax policy group........................................................................................................... 12

2.2.5.2.. Council High Level Working Group (Brussels, 11 September 2012).............................. 13

3........... Policy context, problem
definition, and subsidiarity......................................................... 13

3.1........ Identification of the problems that may require action..................................................... 13

3.1.1..... Specific problems relating to tax fraud and evasion within the EU................................... 13

3.1.2..... Specific problems arising from
jurisdictions not complying with minimum standards of tax good governance, in
particular tax havens, and from aggressive tax planning................................................... 15

3.2........ Who is affected?........................................................................................................... 17

3.3........ The likely evolution of the problems if no action is taken (baseline
scenario).................... 18

3.4........ Does the EU have the right to act?................................................................................ 20

4........... Objectives.................................................................................................................... 20

4.1........ The general and specific policy objectives...................................................................... 20

4.2........ Are these objectives consistent with other EU policies?.................................................. 21

5........... Policy options............................................................................................................... 22

5.1........ Overview of policy options........................................................................................... 22

5.1.1..... Baseline scenario : no EU change.................................................................................. 23

5.1.2..... Policy option relating to the
fight against cross-border tax fraud and evasion in direct taxation   23

5.1.3..... Policy options relating to jurisdictions not complying with minimum standards of good
governance in tax matters and aggressive tax planning........................................................................................... 23

5.2........ Summary of policy options............................................................................................ 24

6........... Description and impact analysis
of policy options (see also annex 12)............................. 24

6.1........ Baseline scenario: No EU Action (see also section 3.3)................................................. 24

6.2........ Objective 1 - Enhance tax co-operation, tax
administration, tax enforcement and tax collection for cross-border operations
between Member States tax authorities......................................................... 26

6.2.1..... Policy option A1:
Presenting an action plan including prioritising specific measures.......... 26

6.2.1.1.. Description................................................................................................................... 26

6.2.1.2.. Impacts........................................................................................................................ 29

6.3........ Objective 2: Close loopholes and potential for abuse in MS’ direct
tax legislation and double tax conventions)  30

6.3.1..... Policy option B1: Address loopholes in national legislation in the Code of Conduct Group for business
taxation.................................................................................................................................... 30

6.3.2..... Policy option B2: Recommendation
to prevent double non taxation in double tax conventions   31

6.4........ Objective 3 - Improve the efficiency of measures taken at national
level to counter international tax avoidance  33

6.4.1..... Policy option C1: Recommendation of EU compliant and effective
general anti-abuse measures in MS 33

6.5........ Objective
4 (Options D1 and D2) - Improve in an EU context the leverage that MS might
have in convincing third countries to implement good governance in tax matters.................................................. 35

6.5.1..... Policy option D1: Recommended EU
definition of jurisdictions not complying with minimum
standards of good governance in tax matters.............................................................................................. 36

6.5.2..... Policy option D2: Recommendation
for a Toolbox of measures to be applied to jurisdictions not complying with
minimum standards of good governance........................................................................ 38

7........... Assessment of the impact on
small and medium enterprises (SME)................................. 40

8........... Comparison of main options.......................................................................................... 41

8.1........ Definition of the assessment criteria............................................................................... 41

8.2........ Comparative assessment of Policy Option A1: Enhance tax
administration, tax enforcement and tax collection in the case of cross-border
transactions.................................................................................. 42

8.3........ Comparative assessment of Policy Option B2 : Close loopholes
stemming from double tax conventions            44

8.4........ Comparative
assessment of policy option C1: Adopt EU compliant and
effective anti-abuse measures in MS    45

8.5........ Comparative assessment of policy options D1 : a definition of
jurisdictions not complying with minimum standards of good governance in tax
matters................................................................................. 46

8.6........ Assessment of policy options D2: Toolbox of measures that could be
applied towards jurisdictions not complying with minimum standards of good
governance in tax matters............................................ 47

9........... The preferred options................................................................................................... 48

10......... Monitoring and Evaluation............................................................................................. 49

10.1...... Fraud and Evasion........................................................................................................ 49

10.2...... Jurisdictions not complying with minimum standards of good governance,
as well as aggressive tax planning      49

11......... List of annexes.............................................................................................................. 50

1.           Introduction

The common purpose of national tax systems of
EU Member states (MS) is to be effective and fair, i.e. to provide the revenues
necessary to public finances and to share the burden amongst taxpayers in a
fair way according to the democratic choices of each State. However, EU MS tax
systems are vulnerable to revenue loss in a complex international environment
where national tax systems struggle to cope with the challenges of the modern
internationalised world.

EU MS budgets are currently under heavy
pressure, as underlined in the Annual Growth Survey 2012[1] and there is a need for a
concentration of tax policy priorities on the potential of Member States for
making their respective tax structures more growth-friendly as well as improving
the design and functioning of individual taxes.

In particular, the VAT gap, which is the amount
of VAT not collected due to fraud, legitimate avoidance, errors, bankruptcies
etc. and therefore represents an upper boundary for evasion related VAT revenue
losses, represented 12-14 % of the theoretical VAT liability in the EU-25
between 2000 and 2006[2]. A study[3]
revealed that while some Member States had a theoretical VAT gap below 5% (Denmark, Spain, Ireland, Luxembourg, the Netherlands, Portugal and Sweden), for others the
theoretical VAT gap was above 20% (Greece, Hungary, Italy, Lithuania, Latvia and Slovakia). The total theoretical VAT gap for the EU-25 excluding Cyprus was above €100 billion in 2006. Assuming that a 12% VAT gap prevails, that would
amount to a revenue loss of about 0.9% of GDP or EUR 114 bn in 2012.

Furthermore, EU Member States lose both
individual and corporate income tax revenue, from the shifting of profits and
income into other jurisdictions. The revenue losses which can arise from both
illegal tax evasion and legal tax avoidance are difficult to estimate.
According to some estimates concerning only the United States the revenue cost
of profit shifting towards "tax havens" by US multinationals could be
up to $60 billion (b), while individual tax evasion could cost up to $50 b yearly[4]. Estimates of this kind are not
available for the EU, but on the basis of the similar amount of FDI stocks in "tax
havens" in both USA and the EU the tax revenue losses can be estimated to
be of similar magnitude (see annex 6).

The Commission has promoted a policy for
tackling tax fraud and tax evasion which has been mainly based on transparency,
exchange of information and fair tax competition. Since 2004, when the so
called "Parmalat" Communication on preventing and combating corporate
and financial Malpractice within and beyond the EU[5] was adopted, the EU policy has
been further developed, in particular in the Communications on co-ordinated
strategy to improve the fight against fiscal fraud (2006)[6], and more recently on "Promoting
Good Governance in Tax Matters" (2009)[7]
and on "Tax and Development" (2010)[8].
Nevertheless progress has been uneven and the basic problems arising from a
lack of common vision and coordination remain.

In this context on 2 March 2012, the European
Council called on the Council and the Commission 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 took the
form of a Communication[9] adopted
on 27th June 2012. The Commission also announced that it would come forward
later this year with an action plan on these suggestions and a complementary
initiative on jurisdictions not complying with minimum
standards of good governance in tax matters, in particular tax havens, as well as aggressive tax planning.

The action plan is designed to mobilise the
different actors by identifying areas where they need to act both in relation
to existing law and initiatives as well as new areas of potential activity. Its
purpose is to give a focus and prioritisation to common and individually
supportive work in this area in response to the European Council's call for
action.

The impact assessment also focuses on the
particular issues posed by jurisdictions not complying
with minimum standards of good governance in tax matters, as well as aggressive tax planning (with a particular emphasis on company
taxation). Although the distinction between illegal evasion and legal avoidance
(or planning) is well known the subdivision of avoidance into 'aggressive' or
'unacceptable' and perfectly acceptable 'planning' is a source of on-going
disputes between governments and taxpayers.

Other institutions and organisations are also
paying close attention to the issue of tax avoidance and tax evasion in
relation to tax havens: the European Economic and Social Committee adopted in
May 2012 an opinion on Tax and financial havens: a threat to the EU’s
internal market[10],
the Council of Europe adopted in April 2012 a report on Promoting an
appropriate policy on tax havens[11] and the
G20 has actively promoted and monitored the work of the OECD Global Forum on
transparency and information exchange since 2008 (see the latest report of June
2012 to the G20 in Los Cabos[12]).

The purpose of this impact assessment is to assist
the Commission in identifying policy orientations and priorities to be promoted
and developed at EU level. Given the policy orientation nature of the
initiatives this impact assessment analyses in a manner commensurate with each
of the problems at stake the actions that could be considered to address the
problems. In the event of further decisions on legislative action, this impact
assessment would be supplemented by individual focused impact assessments.

Terms used in this document can be found in a
comprehensive glossary in annex 14 (also see COM(2012)351 unless otherwise
stated)

Tax fraud is 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 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 havens, also sometimes referred to
as 'non-cooperative jurisdictions' (NCJ) are 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 avoidance is 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).

2.           Procedural
issues and consultations of interested parties

2.1.        Organisation and timing

2.1.1.     Impact Assessment Steering Group

The Commission Work Programme for 2012 includes
the adoption of a Communication on good governance in relation to tax havens and
aggressive tax planning.

The Impact Assessment Steering Group was set up
by DG Taxation and Customs Union (DG TAXUD) of the Commission met three times,
in January, July and September 2012.

2.1.2.     Impact
Assessment Board (IAB) meeting

A draft of this impact assessment (IA) was
submitted to the Impact Assessment Board and discussed at its meeting of 17th
October 2012. In its opinion dated 19 October 2012, the Board suggested some
improvements of the draft IA report.

In its overall assessment, the Board
recommended that the IA report should strengthen the problem definition by
better focussing on the concrete problems the initiative aims to address. The
report should describe those problems in a non-technical language and, where
possible, provide concrete examples. Second, the report should better describe the
content of the options, streamline their presentation, for instance by merging
all ‘no EU action’ options, and provide greater clarity on the discarded
options. Third, the report should better assess impacts on the administrative
burden, SMEs and competitiveness. It should include quantitative elements, for
instance regarding the number of national anti-abuse measures and its expected
evolution. Finally, the report should provide greater detail on stakeholders’
different views, in particular Member States’ support to the envisaged
measures.

In order to take into account the
recommendations of the Board a number of changes have been made to the IA
report. The problem description has been significantly streamlined, the
objectives have been better linked to the corresponding problems, a glossary of
technical terms has been added, the analysis has been expanded to wider market
actors, several concrete examples have been added, the baseline scenario has
been consolidated amongst objectives, the impact analysis on SME has been
strengthened, and more details have been provided on stakeholders’ views.

2.2.        Consultation
and expertise sought

The Commission has been consulting widely and
has received input from various sources on this impact assessment work.
However, the assessment has suffered from a lack of quantitative data in the
whole process.

2.2.1.     Public
consultation on double non-taxation

Double non-taxation in the sense discussed here
occurs as a result of the exploitation of loopholes and mismatches
between the tax systems of different jurisdictions. This exploitation can
undermine EU MS’s budgets and, ultimately impact on other taxpayers.

On 29 February 2012, the Commission launched a
three month public consultation[13]
to gather contributions on factual examples and possible ways to tackle double
non-taxation cases. The purpose of this public consultation was to establish evidence concerning double non-taxation within the EU and in relation with third countries. Members of the public were encouraged to provide factual
examples of cases of double non-taxation on cross-border activities that they
had encountered or had knowledge of.

There were in total 25 replies from different
stakeholders, including 15 from business community, 4 from non-governmental
organisations, and 4 from academics and other tax professionals. Several
contributions were also sent from non-EU stakeholders (i.e. USA). Although half of the replies came from contributors resident in two Member States (United Kingdom and Belgium), most of these were from international organisations. So a reasonable
range of national views was received. Given the limited number of total replies
this fact did not have further impact on the current analysis.

The non-governmental organisations that contributed
to the consultation welcomed it and provided some input, while underlining the practical
difficulties to provide factual examples of double non-taxation.

On the other hand, the business community
expressed some concerns on the scope of the consultation. In the general
comments provided by the business community the following points are worth
highlighting:

–
Several found it important to make a clear
distinction between actual double non-taxation (e.g. due to mismatches of
hybrid entities and hybrid instruments) and other related concepts raising
similar concerns (such as harmful tax competition and low taxation). Others
called for a definition of "double non-taxation".

–
Most of the organisations stressed that direct
taxation falls within the competence of the Member States' sovereignty. Several
therefore found that any measures against double non-taxation should be handled
at the Member State level, while others found some coordination appropriate
(e.g. to avoid mismatches).

–
Many of the organisations felt that the issue of
double non-taxation should not be addressed separately from that of double
taxation. The two phenomena are seen as two sides of the same coin.

–
Some organisations stressed that measures
against double non-taxation could have an adverse impact on European economic
competitiveness.

–
Several organisations also called for
coordination with other initiatives on EU and international level that address
aspects of double (non-) taxation e.g. the EU Code of Conduct Group and the
OECD report on Hybrid Mismatches.

2.2.2.     Data collection study from Price-Waterhouse-Coopers (PWC) on tax
measures in 14 Member States in relation to non-cooperative jurisdictions and
aggressive tax planning

Given the difficulties of direct measurement of
the effects of fraud, evasion and aggressive tax planning PWC were asked to
collect data and analyse relevant information available in the public domain on
existing and proposed tax measures of 14 EU Member States (Belgium, Cyprus, Denmark, Estonia, France, Germany, Hungary,
Ireland, Luxemburg, Malta, Spain, Sweden, the Netherlands, the United Kingdom) in relation to non-cooperative jurisdictions and aggressive tax
planning. The sample was selected on a judgement basis to provide a cost
effective method of collecting a representative sample of EU wide information.

The purpose of the study was to obtain factual
information on the measures taken and envisaged by EU MS in relation to
non-cooperative tax jurisdictions and aggressive tax planning, with a possible
estimate of the cost and benefits of such measures.

Only limited quantified data on the impact of the identified
problems and defensive measures was available. For example in Denmark the
benefit of two recent measures had been estimated at 13 million (m) Euro, in
France the thin capitalisation rules were estimated to raise over 100 m Euro
per year, in Germany tax loss restrictions nearly 1500 m Euro per year, in the
Netherlands interest rules more than 300 m over the period 2012 to 2015 and a
further 150 m thereafter. Swedish interest rules were estimated to increase
taxable profits by more than 7 bEuro and the UK estimated that the 2011 CFC
reforms would cost nearly £2.4 b between 2012 and 2016. In summary some MS are
able to raise tax revenues by taking specific protective measures, although the
precise types of measures differ (see also Annex 9 and 10).

The main findings of the study are:

·
Only 2 of the reviewed MS (FR, EE) have a formal
definition of the term "Non-Cooperative Jurisdictions", and no MS has
a definition of "Aggressive Tax Planning", although many of them did
report having various concepts that are akin to these key concepts. In this
respect, MS apply anti-abuse measures on the basis of two series of criteria
taking into consideration either the level of taxation of the country concerned
(e.g. no taxation at all or a lower nominal/effective tax level as compared to
the situation of the MS itself), or the level to which countries cooperate in
terms of exchange of information.

·
Many Member States have a significant number of
anti-abuse provisions covering many different forms of potentially abusive
behaviour.

·
All MS (except UK) have at least one general
anti-abuse rule (none of them applies only to Third Countries)

·
There is no clear picture if the examined
measures can be considered as effective in combating what the Member States
consider as abusive.

·
Due to the different concepts in place, the
taxpayer doing business in the EU has to cope with a complex and differing
array of measures designed to protect individual Member State tax bases.

The Study is included as Annex 7 and will be
published on the DG Taxation and Customs Directorate web site.

2.2.3.     Consultation of Member States administrations: Fiscalis Seminar
"Administrative cooperation 2020" – May 2012

The FISCALIS seminar aimed at launching
reflections on the results of the improvements of the mechanisms of
administrative cooperation including aspects of tax administration between
Member States. All Member States were represented.

The Seminar offered an opportunity to exchange
views as regards the future actions that could be undertaken in the area of
administrative cooperation to improve the efficiency and effectiveness of
existing mechanisms, to look at the critical aspects of tax administration, to
discuss whether possible future actions could be taken within the framework of
Council Directive 2011/16/EU or whether they would a priori require other types
of legal instrument and, in this context, to also discuss the possible
synergies with the actions undertaken by the OECD.

The main conclusions were recommendations to:
(i) extend EUROFISC for VAT to direct taxation and to better address fraud
schemes and trends, (ii) better identify taxpayers in cross-border situations
by establishing a single EU Tax Identification Number, (iii) adopt a real and
concrete common approach to risk management for direct taxation to better
identify fraudsters, (iv) promote closer collaboration and cross fertilization
between direct and indirect taxes as well as between tax administrations and
other administrative bodies, especially judicial and criminal authorities, and
(v) develop high common standards for tax administrations, aimed at ensuring
better tax compliance.

2.2.4.     Fiscalis Seminar on non- cooperative jurisdictions, aggressive tax
planning, tax fraud and tax evasion – July 2012.

The objective of this seminar was to exchange
views and experience with the Member/Candidate States on existing measures, and
discuss the aspects of possible future measures including a possible strategy
at EU level.

Member States' tax officials were, in general, supportive
of 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). In particular, they supported measures to enhance
existing instruments of co-operation and the development of automatic exchange
of information, as well as measures to fight against VAT fraud and evasion. The
Commission also invited to this seminar different representatives of business,
NGOs and academia who also reacted positively to an EU coordinated approach for
concretely fighting against tax fraud and tax evasion but some stressed that
any new measure had to replace an existing one in order not to increase the administrative
burden and not to affect competition. Overall, the business community and NGOs
stressed the importance of developing further automatic exchange of
information, also from a practical point of view in relation to document formats.
A pivotal outcome of the seminar was support for clear common definitions of
the concepts tax havens, aggressive tax planning, and tax avoidance,
intentional and non-intentional double non-taxation. Some MS suggested in this
respect a reference to the level of taxation. However, a possible EU strategy
should be coordinated with other international fora in order to create
synergies and to avoid any overlaps. The improvement of administrative
cooperation and exchange of information between MS was considered as a way
forward. Some NGOs pointed out that concerns of developing countries and impacts
on them must be taken into account before any measures in developed countries
are introduced.

Although some written comments were received
after the seminar none of these included the requested quantitative data. The
reports on the seminar are in Annexes 1, 2 and 3.

The Commission services have taken into account
all of above-mentioned observations in the present impact assessment. It is
worth noting that in both the consultation on double taxation and the July
seminar that businesses were keen to emphasise that non-taxation should be
distinguished from low taxation – low taxation often being a national choice
and an aid to competiveness. This was not stressed as much by Member States.
The debate is similar to that of 'fair' avoidance and 'aggressive' avoidance –
with similar differences in opinion between administrations and taxpayers.
Other members of civil society, NGOs etc., tended to stress the need for
governments to be able to collect fair taxes and to combat aggressive
avoidance. Both subsidiarity and the Common Consolidated Corporate Tax Base (CCCTB)
were mentioned in this context. Subsidiarity concerns generally being raised by
those against greater coordination and the CCCTB being recognised as a
potential 'cure' for many of the problems – but only when it is finally
implemented– which seems some way in the future and of course as it is optional
providing only a partial solution. The case for coordinated action in direct
tax by way of the CCCTB proposal being in line with subsidiarity was covered in
detail in the CCCTB proposal and the Commission responses to the reasoned
opinions received.

2.2.5.     Tax Policy Group and Council High-Level Working Party

2.2.5.1.  Tax policy group

The high level Tax Policy Group met in Brussels on 14 July 2012. All Member States contributed to a debate based on the
Commission's Communication of 27 July 2012[14]
and there was general agreement that enhancing action against tax fraud and
evasion is a key priority for them. Enhancing coordinated action was seen as
crucial not only to increase the revenue raising capacity of the Member States
but also to ensure the fairness of tax systems. There was also considerable
agreement among the Member States on the need to fully exploit the potential of
existing instruments for administrative assistance (in particular the recently
adopted Mutual Assistance Directive, the provisions of which are to be
transposed into national law by January 2013). In particular, they stressed the
need to develop practical tools and instruments (IT and exchange of best
practices) for exchange of information and in particular for automatic
exchange; they also underlined the importance of promoting these instruments to
non EU countries. Member States also stressed the need for the Council to adopt
the pending proposals for amending the EU Savings Directive and the negotiating
mandate to ensure application of equivalent measures by certain third
countries.

Many Member States representatives indicated
that new initiatives could also help to enhance the fight against tax fraud and
tax evasion– as long as such measures were proportionate and did not
unnecessarily increase the costs and complexity of compliance for taxpayers. As
regards such possible new initiatives most Member States indicated that these could
be particularly useful in the area of VAT and that in anticipation of the more
comprehensive VAT system reform envisaged by the Commission in its
Communication from December 2011, the proposal to develop a "quick
reaction mechanism" for tackling VAT fraud appears particularly promising.
The majority of Member States also supported the suggestion to examine the scope
for introducing an EU Tax Identification Number (TIN) for cross border
operations. Many Member States were supportive of on-going and possible future
efforts to enhance exchange of information with third countries.

2.2.5.2.  Council High Level Working Group (Brussels, 11 September 2012)

Again focusing on the above Communication Member
States confirmed the priorities that their high level representatives had
already indicated at the Tax Policy Group should be contained in the action
plan.

They also insisted on the need for all Member
States to fully and loyally implement and apply the existing legislation on
administrative cooperation, in particular through the development and use of
concrete tools and instruments.

3.           Policy
context, problem definition, and subsidiarity

Tax evasion and avoidance threaten government
revenues in all Member States. In addition the globalisation of economies,
fluid capital movements and technological developments have undermined the
traditionally closed tax systems of jurisdictions around the world[15]. In current times of economic
crisis and severe budgetary constraints there is a strong need to improve the
efficiency of national tax systems and close opportunities for abuses so as to
secure sustainable tax revenues and support high levels of compliance based fair
and fairly applied tax systems.

3.1.        Identification of the problems that may require action

3.1.1.     Specific problems relating to tax fraud and evasion within the EU

In recent years, the challenge posed by tax
fraud and evasion has increased considerably. The globalisation of the economy,
technological developments, the internationalisation of fraud, and the resulting
interdependence of Member States' tax authorities reveal the limits of strictly
national approaches and reinforce the need for joint action. The interaction of
many different tax systems in the context of a global economy creates many
possibilities for the undermining of Member States tax systems. Even where
there exists a high degree of harmonisation within the EU, such as in the case
of VAT, issues of fraud and evasion are significant. Indeed, as highlighted in
the introduction, the VAT gap amounted to 12-14% of the theoretical VAT
liability between the years 2000 and 2006 in the EU-25, with a considerable
variation across member states: the highest VAT gap was 30% while the lowest
only 1% in 2006 [16].
At present, tens of billions of euro remain offshore, often unreported and
untaxed, reducing national tax revenues. The size of the shadow economy varies
between 7.9% and 32.3% of GDP according to some estimation.

Figure 1: Estimate of the size of the shadow
economy in 2011 (% of GDP)[17]

There is a need therefore to tackle fraud and
evasion. Firstly, because tax fraud and tax evasion are limiting the capacity
of Member States to raise revenues, to carry out their economic policy and to
proceed to necessary structural reforms. Secondly, because it is an issue of
fairness: the vast majority of EU taxpayers generally seek to comply with their
tax obligations. Particularly in these difficult economic times, these honest
taxpayers should not suffer additional tax increases to make up for revenue
losses incurred due to tax fraudsters and evaders.

The specific problems divide into three main
areas. Firstly, there is a problem of tax collection within Member States
related also to standards of taxpayer compliance: the broad analysis carried
out by the Commission in the context of the European Semester has revealed that
for many Member States there are real and substantial problems of domestic and
cross border tax evasion sometimes linked to poor administrative capacity.
Country-specific recommendations regarding these issues were addressed to 10
Member States. Secondly, there is a lack of effectiveness in cross-border
administrative co-operation despite the existence of EU level mechanisms and
procedures: the difficulty to properly identify taxpayers in the context of
automatic exchange of information and the existing loopholes in the taxation of
savings (with difficulties in agreeing further steps forward at Council level)
are two significant examples of the limits of efficient cross border cooperation,
a necessary complement to national tax sovereignty. Thirdly, there is a
question of the quality of tax legislation and its fitness for purpose because
of an insufficient use of existing legal instruments: the possibilities offered
by the existing legislation to spontaneously exchange information or for
foreign officials to be present during tax audits in other Member States are
not sufficiently used.

The June 2012 Communication provides an
overview of the problems and possible actions (see Annex 13).

3.1.2.     Specific
problems arising from jurisdictions not complying with minimum standards of tax
good governance, in particular tax havens, and from aggressive tax planning

In an international context, the effectiveness
of a tax system can be undermined in several ways:

- because of unintended loopholes within the
national tax system and mismatches occurring with other countries’ tax systems (national
legislation and double tax conventions), leading to double non-taxation in
cross-border situations. Such loopholes and mismatches can take a multitude of
forms, ranging from mismatches between tax systems leading to double deductions
(e.g. the same loss is deducted both in the state of source and residence) to
occurrences of double non-taxation (e.g. income which is not taxed in the state
of source is exempt in the state of residence). A specific example of this
could be a profit participating loan (PPL) granted from a parent company in a
Member State (MS1) to its subsidiary in MS2. Interest under such a loan
arrangement would only be due if the MS2 subsidiary makes a profit in a given
year. Also the amount of interest due could depend on the amount of profit made
and be conditional to various other circumstances. Given these special
conditions, the PPL arrangement could be classified as a capital contribution
by the MS1 authorities under a "substance over form approach",
whereas the authorities of MS2 might not apply such approach and continue to
treat the arrangement as a loan. As a result, payments due would be treated as
deductible interest payments in MS2 while they are treated as profit
distributions exempt under a participation exemption in MS1. The effect
(deduction in MS2, no-inclusion in MS1) is the result of a mismatch in the
classification of the PPL arrangement.

Double non-taxation deprives Member States of
significant revenues and creates unfair competition between businesses in the
Single Market. In the EU Internal Market, double non-taxation gives a
competitive advantage to some taxpayers, and may be detrimental for those
Member States which see their tax bases eroded.

- because of taxpayers exploiting these
loopholes and mismatches (aggressive tax planning). Tax planning increasingly involves ever-more sophisticated
structures which develop across various jurisdictions and effectively, shift
taxable profits towards states with beneficial tax regimes. Member States find
it difficult to protect their national tax bases from this erosion. Thus,
individual measures are often deprived of effectiveness, especially due to the
cross-border dimension of many structures and the increased mobility of capital
and persons in the Internal Market.

- by other jurisdictions actively or
passively facilitating the erosion of other countries’ tax bases. This scenario can be involve aggressive tax planning schemes,
specific tax regimes providing a low level of taxation to non-residents, or a
very low general level of taxation together with a reluctance to cooperate with
other countries’ tax administrations. Generally speaking "tax havens"
are countries that base their attractiveness on opacity and harmful tax
competition in the direct tax area. They offer the possibility for taxpayers of
other countries to relocate their tax bases in their low-tax jurisdictions, and
to conceal this from their country of residence (through means such as
obstacles to the identification of beneficial ownership, bank secrecy and
conduit companies).

This is increasingly relevant in the global
context of economic liberalisation and in the particular case of the EU
Internal Market. Free movement and new technologies offer many opportunities
for using aggressive tax planning schemes which make use of 'tax havens'. The
Internal Market offers enormous benefits to businesses operating within it, but
protection against abuse continues to vary as between Member States. Against
this background, by refusing transparency, exchange of information, and the
removal of harmful tax regimes, jurisdiction not complying with good governance
minimum standards, in particular ‘tax havens’, continue to undermine tax revenues,

Protection against such jurisdictions, in
particular tax havens is difficult. Member States
take a variety of defensive measures to limit the harmful effects for their tax
base of tax structures using, in particular ´tax havens´. However, defensive
measures by one State can often be circumvented by routing business or
transactions through another State with a lower level of protection. This is
especially true within the EU given the protection of the freedoms available
for businesses operating within the Internal Market and secondary legislation
in the area of direct taxation. Consequently, protection against the erosion of
the tax base by the use of such jurisdictions is essentially only as effective
as the lowest level of protection offered in a single Member State.

The precise dimensions of the revenue losses incurred
are difficult to estimate precisely as mentioned above but are measured in the
billions of Euro. Individual countries do sometimes estimate losses in revenue
and academics have used a range of different methods to quantify the losses.
These sometimes mix evasion and avoidance, combine direct and indirect taxes,
include non-EU country data and use proxies such as the size of the 'shadow
economy' to estimate tax losses. In addition some of the terms – evasion,
avoidance and tax-havens for example are used in different ways.

All these factors make precise quantification
difficult but overall it is clear there is a problem which needs resolving as
quickly as possible.

Example

The UK[18]
recently stated that 14% of the tax gap (the difference between tax collected
and the tax they thought should be collected) was due to avoidance – several
billion pounds annually.

Further examples of quantification are contained in Annex 6 and 10.

In addition to the primary problem – loss of
tax revenue there is a secondary issue. MS’ reactions to newly detected tax
avoidance situations can result in additional administrative costs for tax
administrations (audits and enquiries) and compliance burdens on taxpayers that
could, in some cases, even lead to discouraging a number of taxpayers.

Example:

The Disclosure of Tax Avoidance (DOTAS) Schemes regime in the UK- which was introduced in 2004- engages taxpayers to disclose certain tax avoidance
schemes to the UK Tax Administration so that the state is informed about the
use of the schemes and is in the position to consider how to counteract them,
for example by changing the tax law. In 2012 its Guidance Notes were updated
explaining in 115 pages the application of the DOTAS regime. If all MS
introduced different and individually tailored disclosure schemes there would
clearly be significant compliance costs.

Current leverage to influence third
countries is of limited efficiency.

At EU level, a number of efforts have been made
to try to influence third countries to apply minimum standards of good
governance in tax matters, both at policy and operational levels.
Communications in 2009 and 2010[19]
promoted good tax governance, particularly in relations with developing
countries.

At operational level, the EU has already negotiated
inclusion of the clause on good governance in the tax area in 19 agreements
between the EU and its MS on the one side and a third country on the other
side. The full benefit of these clauses can only be evaluated when the
agreements have been fully implemented. The
Commission is waiting for their entry into force which has not yet taken place
pending their ratification from third countries. In addition, MS should
ensure the effective promotion of the principles
of the Code of Conduct for business taxation[20]
in selected third countries. Recently discussions have started with Switzerland and Liechtenstein. However a number of third countries remain reluctant in regard to
applying the minimum standards of good governance. There is no clear consensus
within the EU on a common approach to resolve difficulties. This hampers
implementation.

3.2.        Who is affected?

These issues affect EU MS, because of the
budgetary impact of tax fraud, tax evasion and tax avoidance on their revenues,
and the need to adopt corrective measures. Such measures can be of
administrative nature (increased enquiries and audits) and involve additional
costs for tax administrations. They can be of regulatory or legislative nature,
with the need to adopt appropriate legislation to adapt the compliance
requirements of taxpayers. They can be also of external policy nature, since
third countries are involved.

Taxpayers (individuals and businesses) are affected
in that those who profit from fraud and tax evasion have an unfair (and
illegal) advantage compared to compliant taxpayers. In the case of aggressive
tax planning the purpose and intention of Member States tax legislation can be
undermined and issues of competition arise in relation to those taxpayers who
do not choose or cannot afford to engage in such practices. Taxpayers may also
be affected because of the additional compliance requirements that the fight
against tax fraud, tax evasion and tax avoidance may lead the MS to adopt, and
by the tax treatment that applies to the activities they perform in countries
subject to anti-abuse measures.

Relating to SME, there is no indication that
they would be specifically affected, since such elaborated schemes based on
international configurations are less likely to involve SME than large
enterprises.

Welfare-state beneficiaries are also affected
in an indirect way as eroded state budgets could mean shrinking budgets for
public services and social benefits.

Third countries may be affected. Third
countries promoting non-compliance of EU MS tax rules benefit from aggressive
tax planning schemes in terms of additional revenues. The adoption of
anti-abuse measures by EU MS can affect the cross-border flows between these
countries and the EU. Some EU external policies are affected, to the extent
that international agreements concluded with countries being considered by MS
as non-cooperative or promoting aggressive tax planning might make it easier or
more difficult for EU taxpayers to operate with these countries. In addition,
development cooperation policy takes into account the need to assist developing
countries in designing efficient tax systems in line with international
standards, notably the ones of good governance in tax matters (transparency,
exchange of information and fair tax competition).

3.3.        The likely evolution of the problems if no action is taken (baseline
scenario)

Failure to act could lead to a general
undermining of the acceptance of many tax rules and thus lead to continuing or
even greater levels of unwanted fraud, evasion and tax avoidance.

If no action is taken, there is a risk that
revenues will continue to be lost and indeed that the problem may become
greater as Member States face increasing pressure to cut public services in a
situation where taxpayers come under more and more pressure. In this situation
perceived injustice or lack of fairness will undermine the legitimacy and
effectiveness of tax systems at a critical moment in time.

This will be in particular the case for the three
specific problem areas of tax fraud and evasion where action has been
identified as decisive and urgent. For example, in the field of direct
taxation, if the loopholes of the existing savings taxation directive are not
closed, taxpayers will continue to invest in products or through structures
allowing the avoidance of effective taxation of savings or similar income. The
absence of automatic exchange of information for more categories than purely
savings interests will furthermore deprive Member States of the invaluable
information on other income received and assets owned by their taxpayers in
another Member State, thereby preventing effective taxation but also hindering
risk analysis by tax administrations and not encouraging voluntary compliance
by taxpayers. Finally, the difficult identification of taxpayers engaged in
cross-border transactions will continue to generate important problems in tax
administration and collection, which the on-going cuts in expenditure for tax
control[21]
will in turn reinforce, thereby generating a vicious circle as more and more
taxpayers may be tempted by cross-border transactions to reduce their visible
taxable basis.

If no action is taken against jurisdictions
not complying minimum standards, in particular tax havens, as well as against aggressive
tax planning, it is likely that the problems of collecting tax for EU MS
will remain or possibly increase in the coming years. No progress will
materialise either in regard to third countries not complying with minimum
standards of good governance in tax matters, in particular tax havens, as well
as in regard to aggressive tax planning. It is likely that EU Member States
will react individually, within the limited effectiveness of such measures.

As Member States react individually with
measures at national level, adopted by each country according to its own
criteria this results in a great variety of measures and targets and this is
likely to continue in the absence of coordination (see Annex 10 for more
details). Because of the relatively limited efficiency of such measures,
Member States would logically attempt to strengthen them, which would risk adding
compliance costs for EU taxpayers.

In addition, there is little indication
currently that EU MS would launch spontaneously, i.e. in the absence of EU
initiative, initiatives at bilateral or multilateral levels to overcome jointly
the problems raised by the phenomena identified.

On the international side, some issues
of transparency and information exchange would be dealt with in the framework
of the OECD Global Forum, but this is unlikely to extend to issues of concern
in the EU such as fair tax competition, tax base erosion from aggressive tax
planning and tax havens.

Indeed, the restructured
and strengthened OECD Global Forum on transparency and exchange of information
(GF), which practically all EU Member States have now joined, monitors and
encourages effective implementation of the international agreed standards of
transparency and information exchange through the peer review of all its
members and other jurisdictions which may require special attention. However,
the principle of fair tax competition is not covered by the GF: the OECD work
against preferential tax regimes is dealt with by the Forum on Harmful Tax
Practices, which deals with tax regimes of OECD members only. The OECD criteria
are broadly similar to the ones of the Code of conduct for business taxation
(monitored by a Council group), although they apply to internationally mobile
activities only.

Therefore, since the EU on-going policy on good
governance in tax matters is based more generally on all three principles
(transparency, exchange of information and fair tax competition), i.e. the two
applied by the OECD Global Forum plus the principles of the Code of conduct for
business taxation prohibiting harmful tax regimes, it is unlikely that in the
absence of EU initiative the OECD work would compensate.

It is worth noting however that the OECD
Committee of Fiscal Affairs has, in June 2012, held a debate on base erosion
and profit shifting (BEPS) covering transfer pricing, aggressive tax planning
and harmful tax competition. This represents an opportunity to perhaps address those
issues which the EU has been addressing such as the principle of fair tax
competition (i.e. the principles, of the Code of conduct for business taxation)
in the wider OECD framework; and perhaps to expand the topics covered. This
potential widening is a positive step forward, providing it complements EU
action and allows the specific interests of the EU to be fully integrated into
a global consensus.

3.4.        Does the EU have the right to act?

Binding Union acts intended to improve, through
harmonisation or approximation, the proper functioning of the internal market can
be adopted under Articles 113 TFEU (in regard to indirect taxes) and 115 TFEU
(in regard to direct taxes).

The Commission can adopt recommendations on the
basis of Article 292.

Member States face difficulties in protecting
their national tax bases from erosion through aggressive tax planning and third
countries not complying with minimum standards of good governance, despite
important efforts. National provisions in this area are often not fully
effective, especially due to the cross-border dimension of many structures and
the increased mobility of capital and persons.

With the aim to achieve a better functioning of
the Internal Market, it is necessary to encourage Member States to take a
common approach towards a more effective and fair taxation, which would help
diminishing existing distortions.

To this end, it is expedient to address
instances in which a taxpayer derives fiscal benefits through engineering its
tax affairs in such a way that income is not taxed by any of the tax jurisdictions
involved (double non-taxation). The persistence of such situations can lead to
artificial flows within the Internal Market and thus harm its proper
functioning as well as erode Member States' tax bases.

Secondly, aggressive tax planning especially by
the use of third countries not complying with minimum standards, as well as tax
fraud result in shifting the tax burden to those who do not plan in this way.
Taxpayers who have access to costly tax advice implementing these structures
have a competitive advantage in comparison to other taxpayers, such as small
and medium- sized enterprises which creates distortions of competition. Member
States could be lead to individually to introduce countermeasures at national
level in a manner that would undermine regular business investment and create additional
tax obstacles.

Thus, these national actions (or lack of
action) have a direct impact on the functioning of the internal market at
large, as it can distort competition among EU businesses, and on the ability of
Member States to meet the commitments of the Stability and Growth Pact[22].

Therefore, action at Union level is better
fitted to achieve the objectives.

Any EU measure envisaged needs to respect the
rights and principles recognized in the charter of fundamental Rights of the
EU.

4.           Objectives

4.1.        The general and specific policy objectives

The general objective is to come, through a
Union approach commensurate with the need to ensure the functioning of the
internal market, to a better protection of MS tax systems against abuses and
loopholes and, in particular, against cross-border international tax fraud and avoidance.
Such practices are detrimental to EU MS tax revenues.

This general objective translates into the
following specific objectives:

·
In regard to cross-border fraud and evasion in
direct and indirect taxation:

·
(Objective 1) Enhance
tax co-operation, tax administration, tax enforcement and tax collection for
cross-border operations between Member States tax authorities

·
In regard to jurisdictions not complying with
minimum standards of good governance and to aggressive tax planning:

·
(Objective 2) Closing loopholes and
potential for abuse of MS’ direct tax systems (national legislation and double
tax conventions) – this would contribute to addressing the issues of double
non-taxation and aggressive tax planning

·
(Objective 3) Improving the efficiency of
measures taken at national level to counter international tax avoidance – this
would contribute to addressing the issue of aggressive tax planning

·
(Objective 4) Improving in an EU context
the leverage that MS have towards third countries in tax matters – this would
address the issue of jurisdictions not complying with minimum standards of good
governance.

The operational objective is to secure and
increase revenues for Member States. Given the differences of Member States tax
systems and economic structures it is not easy to measure appropriately and
consistently operational objectives across individual Member States. The
monitoring of this operational objective will therefore need to be considered
with each Member State individually in order to ensure consistency of relevant
figures when the Actions are eventually being implemented.

4.2.        Are these objectives consistent with other EU policies?

These objectives are consistent with other
policies. They build on the existing policy of good governance in the tax area,
which was subject to two Commission communications in 2009 and 2010 supported
by the Council, the EP and the EESC. Moreover, they respond to the request from
the European Council in March 2012 to enhance the fight against tax fraud and
evasion including in relation to third countries. The objectives are also
consistent with the Annual Growth Survey 2012 and its recommendations to Member
States to broaden tax bases and improve tax collection.

In a wider context the objectives can be seen as
being supported by the efforts made against money-laundering and terrorist
financing both at the EU level and by the financial action task force (FATF),
and by the rationale of Directive 2011/61/EU[23] (article 35), which sets
specific conditions (notably on compliance with the international standard for
transparency and information exchange) for non-EU alternative investment funds
(AIF) managed by EU AIF managers when marketing in the EU.

5.           Policy
options

5.1.        Overview of policy options

There is currently little harmonisation in the
area of corporate tax and none in relation to personal income tax, which leads
to wide differences amongst MS and affects their perception of what would be
acceptable or not.

One theoretical option would be harmonisation at
EU level in these areas through legally binding EU measures. This option cannot,
however, be reasonably envisaged with a view to solve the existing problems
quickly, given the difficulties to come to a consensus in this area , be it
because it would. Urgent action is however needed to deal with the situation
that MS are currently confronted with. Timing is therefore one of the factors to be
taken into account and pleads at this stage for solutions not involving legally
binding legislation, whose adoption often takes considerable amounts of time.

This does not of course rule out binding
legislation in specific areas such as further development of administrative
cooperation which is already the subject of detailed EU legislation. The
Commission has also made a proposal for a Common Consolidated Corporate Tax
Base (CCCTB)[24]
which proposes a common base, but crucially this has been proposed as an
optional base, i.e. companies and groups may opt for the CCCTB or remain within
the existing national rules. This is currently being discussed in Council and
will address some of the problems (for example it includes a GAAR) when adopted
but in the interim period pending adoption, and afterwards for those not opting
to use the CCCTB, the issues remain to be resolved.

The situation in relation to indirect taxation
is somewhat different, notably in relation to VAT. A harmonised VAT system
already exists. The Commission is in the process of reviewing the EU VAT system
with a view to updating it[25].
This process should allow for a substantial strengthening of the EU VAT
framework. Again however the urgency of dealing with current problems calls for
action in advance of the full updating of the VAT system.

Reaching the objectives requires an approach
based on a number of mutually reinforcing complementary actions. The analysis
that follows prioritises the actions that the action plan will focus on as the best
suited to respond to the problems identified (inefficient tax collection,
insufficient administrative co-operation, insufficient use of existing
instruments). Given that the initiative planned is of non-legislative nature ,
the analysis is confined to examining those elements which are likely to form
part of two separate packages for, on the one hand, an action plan against fraud
and evasion and, on the other hand, two Recommendations – one regarding
measures intended to encourage third countries to apply minimum standards of
good governance in tax matters and one on aggressive tax planning.

For the purposes of the following analysis of
elements to be included in an action plan a number of initiatives are discussed
which have already been adopted but where decisions or implementation still need
to be done. While it is true that these points should only form part of the
baseline scenario, it is necessary to describe the repartition of competences
and tasks between MS, the Council and the Commission to ensure the best
possible outcome.

Consideration was also given to options put
forward by stakeholders, such as the EU-wide list of non-transparent entities
for double taxation purposes or the central database for tax authorities
containing an equivalence matrix of legal entities (cf. annex 5, p. 14).
However, as these approaches are limited to detect mismatches between national
tax system and do not address the problem itself these options were not subject
to a deeper analysis.

5.1.1.     Baseline
scenario : no EU change

See description under section 3.3.

5.1.2.     Policy
option relating to the fight against cross-border tax fraud and evasion in
direct taxation

On the basis of
the specific objective identified, the policy options that could be considered
in the specific area of direct taxation are the following:

(1)
Objective 1 - Enhance
tax co-operation, tax administration, tax enforcement and tax collection for
cross-border operations between MS tax authorities

–
Action plan to enhance tax administration, tax
enforcement and tax collection in the case of cross-border transactions

5.1.3.     Policy
options relating to jurisdictions not complying
with minimum standards of good governance in tax matters and aggressive tax planning

On the basis of the three specific objectives
identified, the policy options that could be considered on the specific issue
of aggressive tax planning and jurisdictions not complying with minimum
standards of good governance in tax matters are the following:

(2)
Objective 2 - Close loopholes and potential for
abuse of MS’ direct tax systems (national legislation and double tax
conventions)

–
Address loopholes in national legislation through
discussions in the Code of conduct Group for business taxation;

–
Recommendation to prevent double non-taxation in
double tax conventions

(3)
Objective 3 - Improve the efficiency of measures
taken at national level to counter international tax avoidance.

–
Recommendation of EU compliant and effective general
anti-abuse rules as a standard in MS

(4)
Objective 4 - Improve in an EU context the
leverage that MS might have in convincing third countries to implement good
governance in tax matters

–
elaborate an EU definition of third countries
not complying with minimum standards of good governance in tax matters on the
basis of principles recognised in this area

–
toolbox of measures to be applied according to
whether or not the third countries concerned comply with the minimum standards
defined.

5.2.        Summary of policy options

Baseline scenario

No EU change

(Objective 1) Enhance tax co-operation, tax administration, tax enforcement and tax collection for cross-border operations between Member States tax authorities

- Option A1:    Presenting an action plan including prioritising specific measures

 (Objective 2) To close loopholes and potential for abuse of MS’ direct tax systems (national legislation and double tax conventions)

 - Option B1:    Address loopholes in national legislation through discussions in the Code of conduct Group for business taxation. As explained in 3.3.3 the Code of Conduct is currently discussing these issues and this option is therefore considered to be in place already - Option B2:     Recommendation to prevent double non-taxation in double tax conventions.

 (Objective 3) To improve the efficiency of measures taken at national level to counter international tax avoidance

- Option C1:     Recommendation of EU compliant and effective general anti abuse rule (GAAR) as a standard

 (Objective 4) To improve in an EU context the leverage that MS might have in convincing third countries to implement good governance in tax matters

- Option D1:    Elaborate an EU definition of third countries not complying with minimum standards of good governance on the basis of principles recognised in this area - Option D2:    Toolbox of measures to be applied according to whether or not the third countries concerned comply with the minimum standards defined.

6.           Description
and impact analysis of policy options (see also annex 12)

6.1.        Baseline scenario: No EU Action (see also section 3.3)

If no action is taken, the problem is
likely to persist or even aggravate in these times of severe economic crisis
and fiscal consolidation, when many Member States need to cut expenditure and
increase revenues. The inability to reduce fraud, evasion and aggressive tax
planning impairs Member States' ability to increase tax revenues and or
restructure their tax systems in a way that better promotes growth as outlined
in the 2012 Annual Growth Survey. Particularly in these difficult economic
times, some taxpayers will continue to suffer additional tax increases to make
up for revenue losses incurred due to tax fraudsters and evaders, and persons using
aggressive tax planning schemes and the possibilities provided by third
countries not complying with good governance minimum standards, in particular tax
havens, and the purchasing power of those other taxpayers will be adversely
affected. This undermines the fairness of tax systems.

Double non-taxation will continue to occur
on the basis of mismatches between tax systems of the two States involved, and
be used in schemes involving aggressive tax planning and tax havens. Tax
administrations will continue to support the costs of additional work to tackle
double non-taxation, by costly and time intensive audits. Moreover, it would
have a negative impact over taxpayers and administrations: since structures
using, notably, tax havens as well as aggressive tax planning are getting more
complicated and thus requesting additional financial as well as human resources
to follow them, this can lead to higher costs for tax payers and tax
administrations.

In addition to the negative impact on the
tax revenues of the countries concerned from the shifting of profits, both phenomena
will continue to cause harm by:

–          distorting financial and,
indirectly, real investment flows.

–          undermining the integrity and
fairness of tax structures. Taxpayers who have access to costly tax advice
implementing aggressive tax planning structures have an unjustified competitive
advantage in comparison with other taxpayers, such as small and medium- sized enterprises
which leads to distortive effects. The principle of fairness of taxation is in
danger as aggressive tax planning and the use of jurisdictions not complying
with minimum standards of good governance is more accessible for taxpayers with
income from capital who try to avoid the taxation of savings, rather than
labour.

–          discouraging compliance by all
taxpayers: The ability of a group of taxpayers to reduce their taxes could be
perceived as unfair, thus affecting public confidence in the fairness of the
tax system.

–          losing tax revenues in the EU
Member States.

In the following tables impacts and
effectiveness are presented on an ascending scale from --- to +++.

Effectiveness in achieving policy objective || ---        High negative impact, policy objective not achieved

Impact on the four freedoms || --         Medium negative impact. Some MS would continue to adopt national anti-abuse measures that would not comply with EU law. Within the EU, this could impact the four freedoms.

Economic impact || ---        High negative impact. In the course of the current economic and financial crisis it is likely that the lack of of EU action will lead to further losses in the MSs´ budget. This would affect essentially companies having cross-border activities within the EU (including SMEs) and in relation to third countries. The compliance costs (see below) resulting from multiple requirements could negatively affect the competitiveness of EU companies as compared to third countries having lower tax compliance costs and fewer tax regulation authorities. This could, together with other factors, contribute to relocation of economic activities outside the EU. In addition, this option could affect trade and investment flows involving third countries that would be considered as not complying with minimum standards by one or several MS and not by others, thereby leading to potential inconsistent approach between MS, and thus to malfunctioning of the internal market. However preferential trade arrangements between the EU and the third countries concerned should not, as such, be affected since these arrangements contain a tax carve-out provision protecting the possibility for the parties to adopt measures aimed at either adopting or enforcing national tax rules designed to combat avoidance or evasion of taxes. Moreover, this option might involve administrative or legislative actions for developing countries to prevent the misuse of their tax systems, unless these countries have concluded with the EU MS concerned a double tax convention (DTC) containing specific provisions on anti-abuse rules. There is also the possibility that national anti-abuse measures may not be able to cover triangular situations involving indirectly a developing country, such as the misuse of a DTC between an EU MS and a developing country.

Social impact || --         Medium negative impact, tends to create impression that taxation is unfair.

Impact on taxpayers/tax administrations || ----      High negative impact. The compliance burden on taxpayers will remain high as a result of anti-abuse measures implemented by several MS that may be inconsistent between them and create double taxation situations, in particular in triangular situations not covered by DTC. Tax administrations are likely to increase the number of audits in order to ensure that the anti-abuse measures have been correctly implemented. This could result in additional claims and judicial appeals, which are costly for both taxpayers and tax administrations. The absence of a EU definition of criteria of good governance can also lead to higher compliance costs at level of tax payers since using individual MSs´ definitions in cross border situations are more complicated to follow.

Impact on EU budget || =          No impact

Impact on other parties || =          No impact

6.2.        Objective 1 - Enhance tax co-operation, tax
administration, tax enforcement and tax collection for cross-border operations
between Member States tax authorities

6.2.1.     Policy option A1:
Presenting an action plan including prioritising specific measures

6.2.1.1.  Description

An increase in the efficiency and effectiveness
of tax collection is needed. In addition to the fact that Member States must
improve their internal mechanisms for tax collection, the problems posed by tax
fraud and evasion must be tackled through enhanced cross-border cooperation
between Member States' tax administrations.

The June Communication contained a catalogue of
26 possible concrete actions which could have their own added value and would
need to be subject to specific impact assessments where appropriate. Furthermore,
it suggested an action plan which would present a coherent EU strategy to
combat tax fraud and evasion as well as prioritise the different actions and
provide a timetable for their implementation, thereby giving a strong political
impetus to the process of implementing the proposed key actions and allowing to
benefit from the multiplier effect of an overall, comprehensive and coordinated
approach.

Within these 26 actions, 17 should be initiated
by the Commission while the others fall under the responsibility of Member
States tax administrations or the Council.

Concretely, the Action Plan will distinguish
between actions under way or likely to be completed in the short term and
actions to be developed in the medium to long term.

With regards to the prioritisation of the
actions, extensive consultations have taken place with Member States in the Tax
Policy Group, a FISCALIS seminar and at the Council High-Level Working Group and
with the other stakeholders in the FISCALIS seminar on tax havens, aggressive
tax planning, tax fraud and tax evasion (cf. paragraph 2.2). The aim of these
consulta­tions was to gauge MS' and stakeholder's reactions on the suggested
concrete actions and to establish which of these are considered particularly
important and urgent and should be prioritised versus those actions that are
considered less urgent or more complex and could therefore be taken forward at
varying speeds depending on the action.

Although all the parties consulted (Member
States and other stakeholders: business community, NGOs and academia) confirmed
their general support for the various actions, Member States had the
opportunity to express an opinion on each individual action and its priority whereas
the other stakeholders basically expressed a general view on the subject and a
specific opinion only on certain individual actions. Also, all the
consultations stressed the necessity for all actions to be undertaken to ensure
the greatest possible reduction of costs and burdens for both tax
administrations and taxpayers.

Further to these consultations, the majority of
Member States and other stakeholders expressed the following respective opinions
(+ means positive response, - negative, = no strong opinion, +/- some positive,
some negative):

Initiatives that the Commission has already taken and requiring now priority from actors other than the Commission || Member States || Other stake­holders\*

(i) Adoption of amended Savings Directive (ii) Adoption of the proposed negotiating mandate with Switzerland, Andorra, Monaco, Liechtenstein and San Marino (iii) Approval of the draft EU/Liechtenstein agreement on anti-fraud and tax cooperation matters (iv) Adoption of the proposed mandate to open similar negotiations with Andorra, Monaco, San Marino and Switzerland (v) Adoption of the proposal for a quick reaction mechanism in the field of VAT (vi) Implementation of the decision establishing an EU VAT forum || + + = = + = || + + = = = +

Actions proposed by the Commission at the same time as the action plan || Member States || Other stake­holders\*

(i) Recommendation regarding measures intended to encourage third countries to apply minimum standards of good governance in tax matters (ii) Recommendation on aggressive tax planning (iii) Improving administrative cooperation through the new application "TIN on EUROPA" (iv) The implementing regulation of Directive 2011/16/EU on administrative cooperation in the field of taxation (v) A Regulation amending Regulation No 3199/93 and providing for a Euro denaturant for completely and partly denaturated alcohol || + + + + || +/- = = =

Actions to be undertaken in the short term (December 2013) || Member States || Other stake­holders\*

(i) Better cooperation between all law enforcement services (including between direct and indirect taxation areas and not only on tax fraud and evasion but also on tax related crimes through e.g. Europol) (ii) Promotion of EU IT tools and standard of automatic exchange of information in international forums (iii) Promotion of the use of simultaneous controls and the presence of foreign officials for audits (iv) EU taxpayer's charter || + + + = || + + +/- +

Actions to be undertaken in the medium term (December 2014) || Member States || Other stake­holders\*

(i) Developing computerised formats for automatic exchange of information (ii) Paving the way for a potential legislative framework for an EU Tax Identification Number (TIN) for cross border operations[26] (iii) Guidelines for tracing money flows (iv) Enhancing risk management techniques (compliance risk management) (v) Extend Eurofisc to direct taxation (vi) Creation of a one-stop shop approach for all taxes in all Member States (vii) Developing motivational incentives (viii) Obtain a mandate for negotiating and concluding multilateral agreements for administrative cooperation in the field of indirect taxes with third countries || + +/- + + +/- +/- - = || + - = = = + + =

Actions to be undertaken in the longer term (beyond 2014) || Member States || Other stake­holders\*

(i) A methodology for joint audits by dedicated teams of trained auditors (ii) Develop mutual direct access to national data bases (iii) Propose a single legal instrument for administrative cooperation for all taxes (iv) Develop a tax web portal (v) Propose an approximation of administrative or criminal sanctions || - - - +/- - || + = = + -

Legend: +: Support / =: no opinion / -: No support / +/-: Diverging opinions \* Other stakeholders: business community, NGOs and academia

6.2.1.2.  Impacts

The consultations have also allowed the
Commission to fine-tune the possible orientations of several of these actions,
which are presented in Annex 13, in order to ensure the greatest benefits from
an overall and coordinated action plan.

In the following tables impacts and effectiveness
are presented on an ascending scale from --- to +++.

Expected impact

Effectiveness in achieving policy objective || ++     Medium positive impact: through the on-going and priority actions, the action plan allows reaping the invaluable benefits of the automatic exchange of information and enhanced identification of taxpayers in the case of cross-border transactions, reacting promptly against sudden and massive VAT frauds resulting in considerable loss for the treasuries, solving cross-border VAT problems through dialogue with traders and raising awareness and education of VAT taxpayers to ease compliance; the benefits of the other concrete actions will be obtained later on.

Fundamental rights || -        Low negative impact: the policy option might affect the right to the protection of personal data, recognized in Article 8 of the charter of Fundamental Rights of the EU, as the action plan may result in more personal data being exchanged in the interest of public finance; any personal data exchange should comply with the existing EU rules.

Economic impact || ++     Medium positive impact: Although the introduction of additional measures may trigger modifications in the behaviour of taxpayers, the functioning of the internal market will at the same time be improved through the elimination of various bias in tax administration, enforcement and collection.

Social impact || +++   High positive impact: by improving the administrative cooperation, this policy option will increase the effectiveness and timeliness of cross-border tax administration, enforcement and collection; the option will also result in a deterrent effect, encouraging taxpayers to report all relevant tax information and thus increasing voluntarily tax compliance on a go-forward basis; whereas the impact on employment is very much indirect, the actual existence of a level-playing field of all taxpayers and fair and equal treatment between them will also increase significantly social cohesion and tax morale in the society.

Impact on taxpayers || ++     Medium positive impact: The policy option will induce a positive effect on the horizontal equity between the various categories of income and capital and all taxpayers.

Impact on tax administrations || +++   High positive impact: although the action plan entail costs and change management, it will foremost strongly simplify procedures and administrative burdens on tax administrations through wider computerisation, exchange of best practices and common guidelines, thereby rationalising approaches and freeing resources.

Impact on EU budget || -        Low negative impact: further to the adoption of an action plan, the Commission services will have to study and potentially implement various concrete actions, requiring additional human and budgetary resources.

6.3.        Objective 2: Close loopholes and potential for abuse in MS’ direct
tax legislation and double tax conventions)

6.3.1.     Policy option B1: Address loopholes in national legislation in the Code of Conduct Group for business
taxation

The tax systems of EU MS are subject to a
number of loopholes stemming from national legislation. Some of them are
currently being examined by the Code of Conduct group.

Efforts to counter aggressive tax planning
schemes at EU level have recently taken place essentially in the work of the
Code of Conduct for business taxation, and focused on hybrid entities and
mismatches. The Code was specifically designed to detect measures which unduly
affect the location of business activity in the EU by providing a lower level
of taxation, including zero taxation, than those that generally apply in the
country concerned. For the purpose of identifying such harmful measures the
Code sets out the criteria against which any potentially harmful measures are
to be tested against, such as tax benefits reserved for (transactions with)
non-residents, the granting of tax advantages even in the absence of any real
economic activity, or lack of transparency.

Recently, within the Code of Conduct Group an
increasing amount of work has been directed at 'mismatches' (for example
hybrid, profit participating loans). The Code Group has clearly agreed on the
need to resolve these mismatches and it even identified a possible solution
based on mutual recognition but has not yet been able to implement this.

At broader international level, recent actions
by the OECD have also targeted aggressive tax planning (ATP), focusing
primarily on artificial tax avoidance issues[27].

The main conclusions are:

a) Hybrid mismatch arrangements that arguably
comply with the letter of the laws of two countries but that achieve
non-taxation in both countries, which result may not be intended by either
country, generate significant policy issues in terms of tax revenue,
competition, economic efficiency, fairness and transparency.

b) The same concern that exists in relation to
distortions caused by double taxation exists in relation to unintended double
non-taxation.

c) Specific and targeted rules which link the
tax treatment in the country concerned to the tax treatment in another country
in appropriate situations hold significant potential to address certain hybrid
mismatch arrangements and have recently been introduced by a number of
countries.

d) Countries' experience in relation to the
design, application and effects of specific and targeted rules denying benefits
in the case of hybrid mismatch arrangements is positive. The application of the
rules needs however to be constantly monitored to ensure that the rules apply
in appropriate circumstances and are not circumvented through the use of even
more complex arrangements.

The OECD has also set up a specific restricted
working group, dedicated to detecting aggressive tax planning schemes, of
which14 EU MS are members.

Because this option is already underway its impact
has not been formally assessed.

6.3.2.     Policy
option B2: Recommendation to prevent double non taxation in double tax
conventions

States often undertake, in their double tax
conventions (DTC), not to tax certain items of income without necessarily
taking into account whether such items are subject to tax in the other party of
that convention. This may lead to double non-taxation. There are examples of
DTC which contain a provision to ensure that double non taxation is avoided in
cross-border situations, by disallowing exemption of untaxed income. For
instance, the Protocol of the DTC between France and Italy in its point 15
provides that exemption shall only be granted if and to the extent such income
is taxable in the other State. However, this type of solution is rare, which
means that double non-taxation may occur in the implementing double taxation
conventions between EU MS.

Such type of solution could, assuming agreement
on article 1 of the revised Interest and Royalty proposal[28], be applied between MS, and
also between MS and third countries. It would ensure that, in bilateral relations
between MS (340 DTC) and between MS and third countries (almost 1349 DTC see
also annex 8) , double non-taxation would be avoided.

Concrete action by all Member States intended
to remedy the problems related to double non-taxation is needed and would improve
the operation of the internal market. Therefore, the Commission recommends MS
to include a clause in their DTC concluded with other EU MS and with third
countries to resolve a specific identified type of double non-taxation. Support
was received from Member States, the business community and NGOs.

Expected impact

Effectiveness in achieving policy objective || +++     High positive impact, in bilateral situations covering two EU MS or one MS and a third country. This option will bring to completion the specific policy objective of closing loopholes stemming from DTC provided that MS implement the recommendation. This will have however no impact on situations involving more than 2 countries.

Fundamental rights || +          Low positive impact. Given the expected effects of the planned measures on Member States' revenues, and the potential re-allocation of additional tax revenues to welfare institutions, a positive impact could be expected with regard to some rights, such as those enshrined in art. 34 (social security and social assistance), art. 35 (health care) and art. 36 (access to services of general interest).

Economic impact || ++        Medium positive impact. This option will contribute to reduce the scope of double non-taxation, and to improve accordingly the tax revenues of EU MS. It may lead tax administrations to more flexibility in dealing with cross-border situations. Insofar as the additional tax revenues would be collected from improved compliance, it may contribute to reducing compliance costs and improving competitiveness of EU companies (including SME in cross-border situations) in cross-border situations with other EU Member States or with third countries. In addition, although it is difficult to assess the impact of this measure on the overall competitiveness of economic operators, a qualitative assessment suggests that there will be an overall balance between the increases in taxes paid by current avoiders and the reduction in compliance costs due to simplification of procedures that should benefit to all operators (in addition to indirect benefits such as improved welfare and infrastructures that MS will be better enabled to finance).

Social impact || =          No impact

Impact on taxpayers/tax administrations || ++        Medium positive impact. By reducing the scope for double non-taxation this option would also reduce the opportunities for a small number of taxpayers to reduce their tax costs. However this could lead to reduce pressure on tax administrations and reduce compliance requirements for EU taxpayers in cross-border situations. This would apply between EU Member States having included such a provision in their DTCs, and also between EU Member States and third countries under the same condition.

Impact on EU budget || =          No impact

Impact on other parties || =          No impact

6.4.        Objective 3 - Improve the efficiency of measures taken at national
level to counter international tax avoidance

6.4.1.     Policy option C1: Recommendation of EU compliant and effective general
anti-abuse measures in MS

General anti abuse rules (GAAR) applied
currently by individual MS can be summarised as rules that generally prevent
taxpayers from entering into abusive transactions/planning, for the sole (or
main) purpose of avoiding or reducing a tax charge.

The measures are generally laid down in primary
law. Some of the measures are based on case law or derived from
tax-administration practices (Denmark, France, the Netherlands and Sweden). MS apply different types of GAARs which can be categorised according to the
following concepts/principles:

–
abuse of law: the law is formally complied with
but in a way that is not compatible with its spirit;

–
the 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;

–
the 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.

Existing anti-abuse measures cover a wide
variety of forms and targets, having been designed in a national context to
address the specific concerns of MS and features of their tax systems. However,
some anti-abuse measures adopted by MS may raise some compliance issues with EU
rules[29]
or other international rules when applied to third countries. Following the
2007 EC Communication on anti-abuse measures in the area of direct taxation
(COM(2007)785)[30]
and in reaction to the case law of the Court of Justice of the EU, the Council
adopted a resolution in 2010[31]
on coordination of tax policies in anti-abuse measures. This mainly focused on
CFC and thin capitalisation. Article 80 of the proposed CCCTB Directive[32] 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. This approach could be recommended for all company tax legislation, not
just the CCCTB.

The Commission could recommend to counteract
aggressive tax planning practices which fall outside the scope of Member
States´ specific anti-avoidance rules and that Member States adopt the
following general anti-abuse rule, fitted to domestic and cross-border
situations confined to the Union and situations involving third countries:
"An artificial arrangement or an artificial series of arrangements which
has been put in place for the essential purpose of avoiding taxation and leads
to a tax benefit shall be ignored. National authorities shall treat these
arrangements for tax purposes by reference to their economic substance."
This GAAR is in compliance with Treaty Freedoms, as interpreted by the Court of
Justice. This common approach towards third countries will establish a minimum
protection standard against aggressive tax planning. Some support was received
from Member States, the business community and NGOs.

Expected impact

Effectiveness in achieving policy objective || ++        Medium positive impact. However the effectiveness of this option will depend on EU MS’ willingness to implement it at their level.

Fundamental rights || + Low positive impact. Given the expected effects of the planned measures on Member States' revenues, and the potential re-allocation of additional tax revenues to welfare institutions, a positive impact could be expected with regard to some rights, such as those enshrined in art. 34 (social security and social assistance), art. 35 (health care) and art. 36 (access to services of general interest).

Impact on the four freedoms || ++        Medium positive impact. This option would ensure that the anti-abuse measures adopted and implemented by EU MS on the basis of this template would raise no EU compliance issue.

Economic impact || +++     High positive impact. This would affect essentially companies having cross-border activities within the EU (including SMEs) and in relation to third countries. It would reduce the compliance costs (see below) of EU companies resulting from current multiple anti-abuse requirements and could positively affect the competitiveness of EU companies by bringing their compliance costs closer to those of third countries. This could, together with other factors, contribute to reducing the motivation for relocating economic activities outside the EU. This option could positively affect trade and investment flows in cases involving third countries by reducing inconsistencies in regulations implemented by MS towards these countries. The reduction of such inconsistencies would improve the operation of the internal market. Preferential trade arrangements between the EU and the third countries concerned should not, as such, be affected since these arrangements contain a tax carve-out provision protecting the possibility for the parties to adopt measures aimed at either adopting or enforcing national tax rules designed to combat avoidance or evasion of taxes. Moreover, since national anti-abuse measures of MS would be more consistent in their design, this option could reduce the adjustment costs for developing countries not having concluded with the EU MS concerned a DTC containing specific provisions on anti-abuse rules.

Social impact || =          No impact

Impact on taxpayers/tax administrations || +++     High positive impact. The most positive impact would be for companies having cross-border activities in several MS, since the simplification of administrative burden, resulting from the implementation of EU MS’s comparable anti-abuse rules, would reduce the compliance costs for taxpayers. This option is likely to have little impact on the number of audits made by tax administrations, but the consistent design of anti-abuse measures across EU MS is likely to reduce the number of potential litigations for EU companies operating in several MS, thereby having a positive impact on MS’ administrative costs.

Impact on EU budget || =          No impact

Impact on other parties || =          No impact

6.5.        Objective
4 (Options D1 and D2) - Improve in an EU context the leverage that MS might
have in convincing third countries to implement good governance in tax matters

In order to add leverage in convincing third
countries to implement the principles of good governance in the tax area, the
Commission could recommend a common EU definition of jurisdictions
not complying with minimum standards of good governance in tax matters (D1) that could be used for the purposes of national anti-abuse
rules, and as second step a toolbox of measures to be applied according to
whether or not those jurisdictions comply with those standards (D2).

6.5.1.     Policy
option D1: Recommended EU definition of jurisdictions
not complying with minimum standards of good governance in tax matters

Currently, only few MS have a formal definition
of jurisdictions not complying with minimum standards
of good governance in tax matters, including tax havens,
although many of them have various concepts which describe such jurisdictions. Those
concepts are generally based on the level of taxation in the country concerned
or its level of cooperation on the principles of transparency and information
exchange. Different MS also use different terms for such countries (low tax territories,
non-cooperative states or territories, non-treaty countries, countries with a
low tax burden, countries with a low tax burden, tax havens). This leads MS to consider
different third countries as tax havens and makes difficult the setting-up of
any coordinated action within the EU.

It was highly recognised by MS and stakeholders
present at the July Fiscalis seminar that a prerequisite for possible joint
action at EU level should be based on a common definition of jurisdictions not complying with minimum standards of good
governance in tax matters..

In order to prepare for a general approach and add
leverage to EU action it is suggested to elaborate an EU definition of jurisdictions not complying with minimum standards of good
governance in tax matters.

This definition could be based potentially on various
criteria:

–
the two criteria of transparency and information
exchange, known as the ‘international standard on transparency and information
exchange’ and recognised by the OECD and the UN. Since the assessment of these
criteria is made by the OECD Global Forum on transparency and exchange of
information, the EU could rely on the OECD assessment and no specific work
would be considered at EU level;

–
the technical criteria of tax havens developed
by the OECD in its 1998 report. However, since this route is not currently
being actively followed by the OECD, and is not based on an EU- agreed work,
there seems to be little chance for the EU to reach agreement within a
reasonable period of time;

–
the sole criteria of the Code of Conduct for
business taxation, as already implemented by the 27 MS and their dependent and
associated territories. This route would address the concerns of a number of
MS, and could be the basis for a political agreement, but still lacks any
assessment of the international standard of transparency and exchange of
information;

–
the three principles of good governance in the
tax area, i.e. including fair tax competition. Some MS have suggested the level
of taxation should also be taken into account- others are less keen on this
aspect.

Expected impact

Effectiveness in achieving policy objective || +++     High positive impact. This option would be of high effectiveness, although its effectiveness depends on how many MS adopt it. The higher effectiveness would occur if all 27 MS would adopt this list.

Fundamental rights || +          Low positive impact. Given the expected effects of the planned measures on Member States' revenues, and the potential re-allocation of additional tax revenues to welfare institutions, a positive impact could be expected with regard to some rights, such as those enshrined in art. 34 (social security and social assistance), art. 35 (health care) and art. 36 (access to services of general interest).

Economic impact || +++     High positive impact: If the EU definition of minimum standards of good governance is commonly applied in all MS then the impact on a particular third country which is considered as not complying with such standards (which includes tax havens) is substantially different than if such a country is considered as a tax haven by one MS only. This country can be then more forced to implement the principles of good governance in the tax area, i.e. to establish a transparent tax system, to exchange tax information and not to introduce harmful tax practices. This could shift profits and income from the third countries concerned back to MS limit and thus bring additional revenues to MS budget. It would also improve the competitiveness of EU companies by broadening the geographical scope of tax requirement currently being applied mostly in the EU. In addition, although it is difficult to assess the impact of this measure on the overall competitiveness of economic operators, a qualitative assessment suggests that there will be an overall balance between the increases in taxes paid by current avoiders and the reduction in compliance costs due to simplification of procedures that should benefit to all operators (in addition to indirect benefits such as improved welfare and infrastructures that MS will be better enabled to finance).

Social impact || ++        Medium positive impact: The ability of larger companies to reduce their taxes could be limited and thus affecting public confidence in the fairness of the tax system.

Impact on taxpayers/tax administrations || ++        Medium positive impact: a common understanding of the EU definition and a common definition, allowing to ascertain whether a third country complies or not with standards of good governance, can reduce costs to tax administrations since such a definition can be more easily followed in all MS.

Impact on EU budget || =          No impact

Impact on other parties || -           Low negative impact: from the perspective of developing countries the possible shifting of profits and income from the third countries concerned back into MS could have a negative impact on tax havens economies since some of these economies are fully depended on a worldwide recognition of being a capital market centre.

6.5.2.     Policy
option D2: Recommendation for a Toolbox of measures to be applied to
jurisdictions not complying with minimum standards of good governance

Introduction of a toolbox of 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 in a tailor made approach by countries.

So far, MS have reacted individually with
measures at national level, adopted by each country according to its own
criteria. To address international tax challenges involving, in particular,
third countries national remedies only are often of limited efficiency. During
the consultation process it was broadly recognised by MS that these individual
or specific actions often had limited effectiveness given the international
scope of the problem. Strong support was received from Member States, the
business community and NGOs to introduce this toolbox. This option describes a
set of measures to be used in convincing third countries to cooperate with EU
MS in tax matters operated by the MS.

1. Removal from national blacklists /
Blacklisting (MS level)

Once a third country would be considered as a
cooperative jurisdiction by MS and the EU institutions on the basis if the EU
definition of jurisdictions not complying with minimum
standards of good governance, it would be recommended
to remove such a country from existing blacklists of individual MS. MS would
then stop from applying anti-abuse measures toward this country. Such a measure
would add leverage in convincing this third country to implement the principles
of good governance in the tax area and thus be considered as a cooperative
jurisdiction by 27 MS.

On the contrary, if a third country is
considered as a jurisdictions not complying with minimum
standards of good governance, then MS could be
recommended to include such a country in their national blacklists and apply the
measures contained in the toolbox.

2. Conclusion of double tax conventions
(DTC) / Suspension/ termination of DTC (MS level)

Once a third country implements the principles
of good governance in the tax area it may be recommended to the MS to conclude DTCs
with this country. A third country to which such a benefit is promised to be
granted may be convinced more easily to cooperate. On the contrary, if a third
country refuses the application of principles of good governance, then MS could
be recommended to suspend or terminate their double tax conventions with such a
country. However, in certain cases, it could be more advantageous for the
overall situation, in terms of good governance, if the Member State concerned initiated re-negotiation of its double taxation agreements.

3. Ad hoc detachment of experts from EU MS (MS
level) to developing countries

Some third countries, especially the developing
ones suffer from a lack of resources to effectively fight against tax evasion
and aggressive tax planning, for instance, to exchange of tax information
properly. In order to assist such countries with providing the relevant
information EU MS could be recommended to offer closer cooperation with those
countries and detach their own tax experts there for a limited period of time.
This would avoid having third countries opposing capacity constraints to refuse
exchanging information.

In addition to measures recommended to
Member States, and in order to accompany their efforts, the following measures of
EU competence could be considered by the Commission.

1. Possible enhancement of development aid
for capacity building (EU level – outside the toolbox)

The Commission provides technical assistance for
the implementation of the principles of good governance in the tax area (transparency,
exchange of information and fair tax competition) to developing countries that
are committed to these principles. In this respect further EU assistance in the
tax area should continue to focus, as a priority, on supporting efforts in
third countries to implement compliance with the three principles of good
governance in the tax area. With this EU assistance would not run the risk of
being used by countries that would ultimately engage in harmful tax practices
against EU MS.

2. Impact to be taken into account when
concluding preferential economic relations such as free trade agreements (EU
level – outside the toolbox)

The conclusion of preferential economic
relations, such as access to EU markets, with third countries identified as not
complying with minimum standards of good governance, should be considered in
the overall context of a costs/benefits analysis including tax aspects. In
practice it means that conclusion of free trade related agreements could be
accompanied by agreement on the principles of tax good governance, and their
implementation, for example.

Expected impact

Effectiveness in achieving policy objective || +++     High positive impact: the effectiveness of this option would be moderate if very few MS subscribe to it. It is likely to be high, if a large majority of (or all) the 27 MS agree on the set of measures. By raising awareness of third countries on possible measures from MS, this option would have some effectiveness.

Fundamental freedoms || =          No impact

Economic impact || +++     High positive impact: The suggested option can strengthen the integrity and fairness of tax structures and encourage compliance by all taxpayers. It is also expected to bring additional revenues to MS budget. In addition, although it is difficult to assess the impact of this measure on the overall competitiveness of economic operators, a qualitative assessment suggests that there will be an overall balance between the increases in taxes paid by current avoiders and the reduction in compliance costs due to simplification of procedures that should benefit to all operators (in addition to indirect benefits such as improved welfare and infrastructures that MS will be better enabled to finance).

Social impact || ++        Medium positive impact: the ability of larger companies to reduce their taxes could be limited and thus affecting public confidence in the fairness of the tax system.

Impact on taxpayers/tax administrations || +++     High positive impact: the approach is expected to help eliminating the use of tax non-compliant jurisdictions, and and thus to decrease costs of tax payers and tax administration which otherwise have to spend their financial and human resources to follow them in order to use them or to fight against them. The compliance burdens on tax authorities and tax payers can be also decreased. This can also eliminate or decrease undesired shifts of part of the tax burden to less mobile tax bases, such as labour, property and consumption.

Impact on EU budget || =          No impact

Impact on other parties || -           Low negative impact: from the perspective of developing countries the possible shifting of profits and income from the third countries concerned back into MS could have a negative impact on tax havens economies since some of these economies are fully depended on a worldwide recognition of being a capital market centre.

7.           Assessment
of the impact on small and medium enterprises (SME)

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.

However, 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.

In addition, 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.

Overall, 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 (see
annex 11).

8.           Comparison
of main options

8.1.        Definition of the assessment criteria

For assessing the Policy Options to protect MS's tax systems (Policy
Option A), and for closing loopholes and potential for abuses of MS’ direct tax
systems and improving the efficiency of measures taken at national level to
counter international tax avoidance (Policy Options B, C, and D ) the following
criteria will be used:

–
Incentive: Incentive for MS to strengthen their
rules

–
Effectiveness: in terms of achieving the
objective

–
Proportionality: Going no further in terms of EU
measures than is necessary to achieve the objective

–
Efficiency: The extent to which the objective
can be achieved for a given level of resources/ at least cost

–
Flexibility: Ease of adjustment to react to
changes of the economic circumstances

8.2.        Comparative assessment of Policy Option A1: Enhance tax
administration, tax enforcement and tax collection in the case of cross-border
transactions

Criteria || Baseline scenario (no EU action) || A1: Action plan

Incentive || =: No incentive effect || +++: As demonstrated by the call[33] addressed in March 2012 by the European Council to the Council and the Commission as well as the resolution[34] of the European Parliament one month later, there is a clear interest and a political will to develop rapidly concrete actions against tax fraud and tax evasion. As the action plan will be a central element in the way forward to this end, there is a clear incentive for Member States to adopt the action plan and later on support the implementation of the derived concrete actions and adapt their rules, procedures and systems as far as necessary.

Effectiveness || =: No effectiveness || +++: The action plan will permit to put in place streamlined working methodologies and approaches to tax administration, enforcement and collection.

Proportionality || =: Not relevant || +++: The proportionality of the action plan is ensured by: - The focus of action plan is on clear priorities where action has been identified as necessary in consultation with Member States ; - The commitment to carry out specific (proportionate) impact assessments analysing various options for each of the concrete actions before a proposal is made; - The participation of Member States in both the preparation and the adoption of the options.

Efficiency || =: No proportionality issue || +++: : The action plan will lead to better results for tax administration in terms of tax enforcement and tax collection and thereby to a better protection of MS tax systems.

Flexibility || =: Not relevant || +++: The action plan offers flexibility as it sets out concrete actions on the basis of a priority list whereas the option to be retained for each of these concrete actions will be determined on the basis of further work (including potentially studies, public consultations, seminars with Member States...) assessing the various possible ways forward.

Conclusion: The policy option 2 foreseeing an action plan presenting concrete measures reinforcing the fight against tax fraud and tax evasion is the preferred option as it is the only option both achieving the effectiveness of the policy objective while ensuring that the requirements to proportionality, efficiency and flexibility are respected.

8.3.        Comparative assessment of Policy Option B2 : Close loopholes
stemming from double tax conventions

Criteria || Baseline scenario (no EU action) || B2: Recommendation

Effectiveness || ----: No effectiveness. Loopholes remain. || +++: This option would contribute to achieving the objective of closing loopholes stemming from DTC. The implementation would be left to the MS concerned, unless in the course of the discussions with MS it appears relevant to provide for a monitoring process. If a clause to avoid double non taxation was included in a comprehensive network of double taxation treaties between Member States, this would help meeting the objective of reducing double non taxation of cross-border activities within the EU. However, consideration should be given to possible differences of interpretation or implementation given the differences amongst the 27 tax systems.

Proportionality || =: this option does not conflict with proportionality standards. || +++: This option would be in line with the principle of proportionality standards as it directed to solve only limited cases of double non- taxation. The measures would not go beyond what is necessary to address the problems identified. At this stage, it would not involve harmonisation of Member States' law.

Efficiency || =: Not relevant || +++:From an efficiency point of view this option would be the best solution, allowing to design at EU level a template on which basis MS would amend their existing DTC or negotiate new ones, thereby closing loopholes in their DTC. MS should ensure the implementation. However, Member States would have to reopen their existing bilateral tax conventions to include such tax provisions, which could take some time and involve some administrative costs for tax administrations and for businesses covered by these conventions. The scale of these costs should be similar to those of minor changes in tax legislation. Tax conventions require regular updating to reflect changes in laws if they are to eliminate double taxation successfully. Furthermore, because of their bilateral nature, DTC might not be capable of addressing problems resulting from taxation by more than two countries.

Flexibility || =: Not relevant || +++: This option would not impose any binding obligation on Member States to eliminate double non-taxation.

Conclusion: as regards policy options, the preferred option is Policy

8.4.        Comparative
assessment of policy option C1: Adopt EU compliant
and effective anti-abuse measures in MS

Criteria || Baseline scenario (no EU action) || C1: Recommendation

Effectiveness || ----: No effectiveness. This option would not achieve the objective. || +++: The effectiveness of this option would rely on the decision of MS, and would improve the incentive for Member States to design efficient anti- abuse rules.

Proportionality || =: this option does not conflict with proportionality standards. || ++++: By leaving it to the MS to decide on the design of their own measures, the option would remain proportionate. The GAAR is designed to counteract situations which fall outside the scope of national anti avoidance rules in line with the law of the EU. This option would improve knowledge about the applicable anti abuse rule, thereby complementing Commission's actions to tackle incompatibilities with EU law by way of infringement proceedings.

Efficiency || =: Not relevant || +++: The option would be efficient since only MS considering their current measures as inefficient would adapt their rules

Flexibility || =: Not relevant || +++: The option would allow MS to have a flexible approach according to their needs. They would remain free to adopt other anti-abuse measures designed to address some specific features of their tax systems. This rule can be adapted to cater for evolutions in Court of Justice case law and new developments in Member States' laws.

Conclusion: As regards policy options, the preferred option is Policy Option C1. It would rely on MS’ willingness to implement. In addition, option C1 is proportionate and flexible: it takes into account the comments received from experts that an anti-abuse measure designed at EU level should leave open the possibility for MS to adopt relevant other measures corresponding to the specific features of their tax systems.

8.5.        Comparative assessment of policy options D1 : a definition of jurisdictions
not complying with minimum standards of good governance in tax matters

Criteria || Baseline scenario (no EU action) || D1: Recommendation

Effectiveness || ----: No effectiveness. This option would not achieve the objective. || ++: This option would be of medium effectiveness, since its effectiveness depends on how many MS adopt it. The higher effectiveness would occur if all 27 MS would adopt this list[35].

Proportionality || =: this option does not conflict with proportionality standards. || +++: This option remains within the proportionality rules since it is based on the criteria of good governance in tax matters, which are recognised at EU level and implemented by all EU MS. In addition, the policy option would be implemented on a voluntary basis by MS.

Efficiency || =: Not relevant || +++: Adefinition of jurisdictions not complying with minimum standards of good governance in tax matters elaborated together with the MS would be a simplification that would save costs at national level. The measure is therefore efficient.

Flexibility || =: Not relevant || +++: The criteria would be reviewed on a regular basis (time period to be agreed with the EU MS and that could be annual for instance), which would therefore ensure its flexibility.

Conclusion: The preferred option is Policy Option D1, which would have the higher efficiency in achieving the objective of adding leverage towards third countries and sending a strong message to them of it were to be adopted by all 27 MS, as underlined by some experts consulted, while remaining proportionate and flexible.

8.6.        Assessment of policy options D2: Toolbox of measures that could be
applied towards jurisdictions not complying with minimum standards of good
governance in tax matters

Criteria || Baseline scenario (no EU action) || D2: Recommendation

Effectiveness || ----: No effectiveness. || +++: The effectiveness of this option would be moderate if very few MS subscribe to it. It is likely to be high, if a large majority of (or all) the 27 MS agree on the set of measures. By raising awareness of third countries on possible measures from MS, this option would have some effectiveness.

Proportionality || =: this option does not conflict with proportionality standards. || +++: MS have to take a variety of measures to limit harmful effects which can be circumvented by routing business through another state with a lower level of protection. A common apporach towards jurisdictions not complying with minimum standards of good governance in tax matters is therefore proportionate. In addition, the EU level is the lowest level where the 27 MS could discuss together and agree on a potential list of measures to be applied towards third countries.

Efficiency || =: No efficiency || +: The option would be efficient since only MS considering their current measures as inefficient would adapt their rules. When all Member States adopt the measures proposed then jurisdictions not complying with minimum standards of good governance will have a higher motivation to reform their tax systems implementing good governance in the tax area in such a way that they are no longer considered to fall within the definition compared to the situation where each MS apply different or no countermeasures.

Flexibility || =: Not relevant || ++: The option is flexible because it leaves open the possibility for MS to apply some or all of the measures, and does not prevent them from applying other measures if need be.

Conclusion: The preferred option is Policy Option D2 because of its higher effectiveness in addressing a strong message of EU determination and consistency to third countries, as underlined by experts consulted, and its flexibility leaving to the MS the possibility to adopting additional measures if need be.

9.           The
preferred options

In view of its effectiveness, proportionality
and flexibility, the preferred option for meeting objective 1, i.e. enhance tax
co-operation, tax administration, tax enforcement and tax collection for
cross-border operations between Member States tax authorities, is the issuance
of an action plan in which measures will be presented and prioritised. Choosing
the no-change option would carry high risks.

The plan can focus on actions for different
stakeholders and establish priorities in line with clear stakeholder
preferences with emphasis on:

–
Measures to enhance existing instruments of
co-operation: strong support was received from Member States, the business
community and NGOs, in particular to enhance automatic exchange of information
and develop common formats to facilitate this type of co-operation. Support to
the identification of taxpayers was given by Member States but some of them and
the business community expressed reservations on the setting up of an EU TIN as
potentially likely to generate administrative burden and costs;

–
Prioritisation of VAT actions: strong support
was received from Member States, the business community and NGOs, to develop
instruments and tools aiming at fighting against VAT fraud and evasion, in
particular as regards a quick reaction mechanism;

–
Other supporting measures subject to further
consultation and assessment.

The individual elements to be brought into the
plan as identified in the Commission's June Communication[36] cover a variety of actions as
set out in this Impact Assessment.

The preferred options for dealing with third
countries not complying with minimum standards of good governance in tax
matters, as well as with aggressive tax planning flow from the comparison
tables above, as a combination of Policy Options B2, C1, D1, and D2. This is a
more detailed series of measures where rapid progress in the short term could
be achieved.

Four main actions could be envisaged relating
to:

–
A template for a double non-taxation provision
to be inserted in double tax conventions between EU MS and between EU MS and
third countries,

–
A recommended EU wide anti-abuse measure for MS
to adopt,

–
A recommended EU definition of third countries
not complying with minimum standards of good governance in tax matters on the
basis of the principles recognised in this area (transparency, exchange of
information and fair tax competition), and

–
A recommended toolbox of measures to be applied
according to whether or not the third countries concerned comply with the minimum
standards defined;

The final choice of actions will depend on a
political appreciation of the feasibility and relevance thereof given the
potential effect on MS budget resources.

10.         Monitoring
and Evaluation

10.1.      Fraud
and Evasion

The monitoring and evaluation of the effects of
the elements of the Action Plan and the specific measures on tax havens and
aggressive tax planning will need to be foreseen in the proposals for the
concrete actions. However, in order to ensure that the action plan itself is
actually converted into concrete actions and that the expected results are
delivered, the Commission could issue progress reports on a regular basis. Such
progress reports would include details on the proposals made and their
implementation status, building for example on the following indicators:

- number and types of practical instruments
(including IT tools) developed by the EU and its Member States to enhance
exchange of information;

- number and type of practical instruments
(including IT tools) developed by the EU and its Member States to improve the
identification of taxpayer;

- number and types of measures adopted in the
realm of the fight against VAT fraud and evasion;

- number and types of guidelines or other tools
developed by the Commission and its Member States to enhance taxpayers'
compliance in the realm of VAT.

10.2.      Jurisdictions not complying with minimum standards of good
governance, as well as aggressive tax planning

Given the nature of the preferred options, it
is not easy at this stage to define appropriate indicators.

Indeed, the best quantitative indicator would
probably be based on the evolution of MS revenue losses stemming from tax
fraud, evasion, as well as from the use of tax havens and aggressive tax
planning. However, establishing a reliable quantitative baseline for monitoring
has not been possible.

Progress could therefore be monitored by
preparing regular reports from the Commission on the implementation of any
recommendations to be discussed at ECOFIN level.

Such reports could cover the following
information:

–
the number of double tax conventions of the MS
that include the clause for avoiding double non-taxation. Given the time
necessary for bilateral negotiations, the assessment of the application of this
measure could be made after in 3 years’ time;

–
the number of MS having made use of any
recommended Anti-abuse measures and principles;

–
the application of a common definition of third
countries not complying with minimum standards of good governance in tax
matters (which includes tax havens), and on adopting a toolbox of measures to
be applied according to whether or not the third countries concerned comply
with the minimum standards defined.

–
difficulties encountered and progress achieved
in convincing third countries to cooperate in tax matters. This would include
as appropriate progress achieved in the Code of conduct Group on business
taxation, in specific negotiations with third countries, and in international
fora.

11.         List
of annexes

1.           Annex 1:        Agenda
of the Fiscalis Seminar, Brussels, 17th July 2012 on non-
cooperative jurisdictions, aggressive tax planning, tax fraud and tax evasion

2.           Annex 2:        Discussion
Paper on possible future measures against non- cooperative jurisdictions and
aggressive tax planning and a possible strategy at EU level, discussed at the
Fiscalis Seminar, Brussels, 17th July 2012

3.           Annex 3:        Report
of the Fiscalis Seminar, Brussels, 17th July 2012

4.           Annex 4:        Public
Consultation Paper: factual examples of double taxation cases

5.           Annex 5:        Summary
report of the responses received on the public consultation on factual examples
and possible ways to tackle double non-taxation cases

6.           Annex 6:        Tax
havens: Review of economic literature and quantitative estimations

7.           Annex 7:        Study
including a data collection and comparative analysis of information available
in the public domain on existing and proposed tax measures of the 14 EU Member
States in relation to non- cooperative jurisdictions and aggressive tax planning

8.           Annex 8:        Table
of Tax treaties with third countries

9.           Annex 9:        Tables
extracted from the study including a data collection and comparative analysis
of information available in the public domain on existing and proposed tax
measures of the 14 EU Member States in relation to non- cooperative
jurisdictions and aggressive tax planning

10.         Annex 10:      Extract
of the study including a data collection and comparative analysis of
information available in the public domain on existing and proposed tax measures
of the 14 EU Member States in relation to non- cooperative jurisdictions and
aggressive tax planning

11.         Annex 11:      SME
Test

12.         Annex 12:      Impact
of Policy Options

13.         Annex 13:      List
of actions considered in the Communication of 27 June 2012

14.         Annex 14:      Glossary

[1]               COM
(2011) 815 final

[2]               Reckon LLP, 2009, Study to quantify and analyse the
VAT gap in the EU-25 member states. Available at: http://ec.europa.eu/taxation\_customs/resources/documents/taxation/tax\_cooperation/combating\_tax\_fraud/reckon\_report\_sep2009.pdf

[3]               Idem.

[4]               J. G. Gravelle (2009): Tax Havens: Tax Avoidance and
Evasion. CSR Report for congress.

[5]               COM(2004) 611 final

[6]               COM(2006)
254 final

[7]               COM
(2009) 201 final

[8]               COM
(2010) 163 final

[9]               COM (2012) 351 final

[10]             INT/587
– CESE 1289/2012, http://www.eesc.europa.eu/?i=portal.en.int-opinions.19620

[11]             http://assembly.coe.int/ASP/Doc/XrefViewPDF.asp?FileID=18151&Language=EN

[12]             http://www.oecd.org/ctp/exchangeofinformation/G20\_Progress\_Report\_June\_2012.pdf

[13]             Consultation and Summary report is provided as annexes
4 and 5

[14]             COM(2012) 351

[15]             Since the late 1990’s both the OECD (see the 1998 OECD
report ‘Harmful tax competition: an emerging global issue’) and the EU (with
the 1997 tax package) with the Code of conduct for business taxation have made
efforts to counter the erosion of tax bases.

[16]             Reckon LLP, 2009, Study to quantify and analyse the VAT
gap in the EU-25 member states.

[17]             Source: Schneider, F. (2012),
"Size and development of the Shadow Economy from 2003 to 2012: some new
facts". The figures contained in this study are necessarily based on
assumptions and should therefore be considered cautiously as their certainty is
not demonstrated.

[18]             Lifting the Lid on Tax Avoidance Schemes – July 2012 –
http://www.hmrc.gov.uk/

[19]             See footnotes 7 and 8

[20]             OJ C 2, 6.1.1998, p. 2.

[21]             Because of the difficult
economic situation and the reduced revenues, many Member States are currently
reviewing the resources allocated to their various services, including in the
area of taxation.

[22]             http://ec.europa.eu/economy\_finance/economic\_governance/sgp/index\_en.htm

[23]             Directive 2011/61/EU of the European Parliament and of
the Council of 8 June 2011 on Alternative Investment Fund Managers and
amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC)
No 1060/2009 and (EU) No 1095/2010 (OJ L 174, 1.7.2011, p. 1).

[24]             COM(2011)121

[25]             COM(2010) 695 final, Green Paper on the future of VAT -
Towards a simpler, more robust and efficient VAT system, 1.12.2010.

[26]             Some Member State and other stakeholders expressed
doubts as regards the possibility to introduce an EU TIN, highlighting that
other solutions could be studied such as an improved national TIN.

[27]             Reports: "Hybrid Mismatch Arrangements: Tax Policy
and Compliance Issues, March 2012; Tackling Aggressive Tax Planning through
Improved Transparency and Disclosure, February 2011

[28]             Proposal for a 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.

[29]             Jurisprudence of the Court of Justice, e.g. Case C-
196/04 Cadbury Schweppes [2006] ECR I- 7995.

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

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

[32]             COM (2011) 121

[33]             Council of the European Union, 7824/1/12 REV1

[34]             European Parliament resolution of 19 April 2012 on the
call for concrete ways to combat tax fraud and tax evasion, P7\_TA(2012)0137

[35]             An empiric example of this effect is the Global Forum
on Transparency and Exchange of Information - many States took action to be
removed from its black list.

[36]             COM (2012) 351 final

Annex
8 - Tax Treaties signed between EU MS and Third Countries

|| BE || BG || CZ || DK || DE || EE || IE

Albania || 14/11/2002 || 9/12/1998 || 22/06/1995 || || 6/04/2010 || 5/04/2010 || 16/10/2009

Algeria || 15/12/1991 || 25/10/1998 || || || 12/11/2007 || ||

Antigua & Barbuda || || || || || || ||

Argentina || 12/06/1996 || || || 12/12/1995 || 13/07/1978 || ||

Armenia || 7/06/2001 || 10/04/1995 || 6/07/2008 || 21/10/1986 || 24/11/1981 || 13/04/2001 ||

Aruba || || || || || || ||

Australia || 13/10/1977 || || 28/03/1995 || 1/04/1981 || 24/10/1972 || || 31/05/1983

Azerbaijan || 18/05/2004 || 12/11/2007 || 24/11/2005 || || 25/08/2004 || 30/10/2007 ||

Bahamas || || || || || || ||

Bahrain || || 26/06/2009 || 24/05/2011 || || || || 29/10/2009

Bangladesh || 18/10/1990 || || || 16/07/1996 || 29/05/1990 || ||

Barbados || || || 26/10/2011 || || || ||

Belarus || 7/03/1995 || 8/12/1996 || 14/10/1996 || 21/10/1986 || 30/09/2005 || 21/01/1997 || 3/11/2009

Belize || || || || || || ||

Benin || || || || || || ||

Bermuda || || || || 16/04/2009 || || ||

Bolivia || || || || || 30/09/1992 || ||

Bosnia & Herzegovina || 21/11/1980 || || 20/11/2007 || 19/03/1981 || 26/03/1987 || || 3/11/2009

Botswana || || || || || || ||

Brazil || 23/06/1972 || || 26/08/1980 || 27/08/1974 || || ||

UK Virgin Islands || || || || 18/05/2009 || || ||

Brunei || || || || || || ||

Burkina Faso || || || || || || ||

Cameroon || || || || || || ||

Canada || 23/05/2002 || 3/03/1999 || 25/05/2001 || 17/09/1997 || 19/04/2001 || 2/06/1995 || 8/10/2003

Cape Verde || || || || || || ||

Cayman Islands || || || || 17/06/2009 || || ||

Central African Rep || || || || || || ||

Chile || 6/12/2007 || || || 20/09/2002 || || || 2/06/2005

China || 18/04/1985 || 6/11/1989 || 28/08/2009 || 26/03/1986 || 10/06/1985 || 12/05/1998 || 19/04/2000

Colombia || || || || || || ||

Congo (Dem. Rep.) || 23/05/2007 || || || || || ||

Congo (Rep.) || || || || || || ||

Costa Rica || || || || || || ||

Croatia || 31/10/2001 || 15/07/1997 || 22/01/1999 || 14/09/2007 || 6/02/2006 || 3/04/2002 || 21/06/2002

Cuba || || || || || || ||

Curaçao || || || || || || ||

Dominica || || || || || || ||

Dominican Republic || || || || || || ||

Ecuador || 18/12/1996 || || || || 7/12/1982 || ||

Egypt || 3/01/1991 || 5/06/2003 || 19/01/1995 || 9/02/1989 || 8/12/1987 || ||

El Salvador || || || || || || ||

Ethiopia || || || 25/07/2007 || || || ||

Falkland Islands || || || || || || ||

Faroe Islands || || || || 23/09/1996 || || ||

Fiji || || || || || || ||

French Polynesia || || || || || || ||

Gabon || 14/01/1993 || || || || || ||

Gambia || || || || || || ||

Georgia || 14/12/2000 || 26/11/1998 || 23/05/2006 || 10/10/2007 || 1/06/2006 || 18/12/2006 || 20/11/2008

Ghana || 22/06/2005 || || || || 12/08/2004 || ||

Greenland || || || || 18/10/1979 || || ||

Grenada || || || || || || ||

Guernsey || || || || 28/10/2008 || || || 26/03/2009

Guinea || || || || || || ||

Guyana || || || || || || ||

Hong Kong || 10/12/2003 || || 6/06/2011 || || || || 22/06/2010

Iceland || 23/05/2000 || || 18/01/2000 || 23/09/1996 || 18/03/1971 || 16/06/1994 || 17/12/2003

India || 26/04/1993 || 26/05/1994 || 1/10/1998 || 8/03/1989 || 19/06/1995 || 19/09/2011 || 6/11/2000

Indonesia || 16/09/1997 || 11/01/1991 || 4/10/1994 || 28/12/1985 || 30/10/1990 || ||

Iran || || 28/04/2004 || || || 20/12/1968 || ||

Isle of Man || || || || 30/10/2007 || || 8/05/2009 || 24/04/2008

Israel || 13/07/1972 || 18/01/2000 || 8/12/1993 || 9/11/2009 || 9/07/1962 || 29/06/2009 || 20/11/1995

Ivory Coast || 25/11/1977 || || || || 3/07/1979 || ||

Jamaica || || || || 16/08/1990 || 8/10/1974 || ||

Japan || 28/03/1968 || 7/03/1991 || 11/10/1977 || 3/02/1968 || 22/04/1966 || || 18/01/1974

Jersey || || || || 28/10/2008 || 4/07/2008 || 21/12/2010 || 26/03/2009

Jordan || || 9/11/2006 || 10/04/2006 || || || ||

Kazakhstan || 16/04/1998 || 13/11/1997 || 9/04/1998 || || 26/11/1997 || 1/03/1999 ||

Kenya || || || || 13/12/1972 || 17/05/1977 || ||

North Korea || || 16/06/1999 || 2/03/2005 || || || ||

South Korea || 29/08/1977 || 11/03/1994 || 27/04/1992 || 11/12/1977 || 10/03/2000 || 23/09/2009 || 18/07/1990

Kosovo || || || || || || ||

Kuwait || 10/03/1990 || 29/10/2002 || 5/06/2001 || || 18/05/1999 || ||

Kyrgyzstan || 17/12/1987 || || || 21/10/1986 || 1/12/2005 || ||

Lebanon || || 1/06/1999 || 28/08/1997 || || || ||

Lesotho || || || || || || ||

Liberia || || || || || 25/11/1970 || ||

Libya || || || || || || ||

Liechtenstein || || || || || || ||

Macau || || || || || || ||

Macedonia (FYR) || 21/11/1980 || 22/02/1999 || 21/06/2001 || 20/03/2000 || 13/07/2006 || 20/11/2008 || 14/04/2008

Madagascar || || || || || || ||

Malawi || || || || || || ||

Malaysia || 24/10/1973 || || 8/03/1996 || 4/12/1970 || 23/02/2010 || || 28/11/1998

Mali || || || || || || ||

Mauritania || || || || || || ||

Mauritius || 4/07/1995 || || || || 15/03/1978 || ||

Mayotte || || || || || || ||

Mexico || 24/11/1992 || || 4/04/2002 || 11/06/1997 || 9/07/2008 || || 22/10/1998

Moldova || 17/12/1987 || 15/09/1998 || 12/05/1999 || || 24/11/1981 || 23/02/1998 || 28/05/2009

Monaco || || || || || || ||

Mongolia || 26/09/1995 || 28/02/2000 || 27/02/1997 || || 22/08/1994 || ||

Montenegro || 21/11/1980 || 14/12/1998 || 11/11/2004 || || 26/03/1987 || || 7/10/2010

Montserrat || || || || || || ||

Morocco || 31/05/2006 || 22/05/1996 || 11/06/2001 || 8/05/1984 || 7/06/1972 || ||

Mozambique || || || || || || ||

Myanmar || || || || || || ||

Namibia || || || || || 2/12/1993 || ||

Nepal || || || || || || ||

New Caledonia || || || || || || ||

New Zealand || 15/09/1981 || || 26/10/2007 || 10/10/1980 || 20/10/1978 || || 19/09/1986

Niger || || || || || || ||

Nigeria || 20/11/1989 || || 31/08/1989 || || || ||

Norway || 14/04/1988 || 1/03/1988 || 19/10/2004 || 23/09/1996 || 4/10/1991 || 14/05/1993 ||

Oman || || || || || || ||

Pakistan || 17/03/1980 || || || 22/10/1987 || 14/07/1994 || || 13/04/1973

Panama || || || || || || ||

Papua New Guinea || || || || || || ||

Philippines || 2/10/1976 || || 13/11/2000 || 30/06/1995 || 22/07/1983 || ||

Qatar || || 22/03/2010 || || || || ||

Quebec || || || || || || ||

Russia || 16/06/1995 || 8/06/1993 || 17/11/1995 || 8/02/1996 || 29/05/1996 || || 29/04/1994

Rwanda || 16/04/2007 || || || || || ||

San Marino || 21/12/2005 || || || || || ||

Saudi Arabia || || || || || || ||

Senegal || 29/09/1987 || || || || || ||

Serbia || 21/11/1980 || 14/12/1998 || 11/11/2004 || 15/05/2009 || 26/03/1987 || 24/09/2009 || 23/09/2009

Seychelles || || || || || || ||

Sierra Leone || || || || || || ||

Singapore || 6/11/2006 || 13/12/1996 || 21/11/1997 || 3/07/2000 || 28/06/2004 || 18/09/2006 || 28/10/2010

Solomon Islands || || || || || || ||

South Africa || 1/02/1995 || 29/04/2004 || 11/10/1996 || 21/06/1995 || 25/01/1973 || || 7/10/1997

Sri Lanka || 3/02/1983 || || 26/07/1978 || 22/12/1981 || 13/09/1979 || ||

St Kitts and Nevis || || || || || || ||

St Maarten || || || || || || ||

St Martin || || || || || || ||

St Pierre and Miquelon || || || || || || ||

Sudan || || || || || || ||

Suriname || || || || || || ||

Swaziland || || || || || || ||

Syria || || 20/03/2001 || 18/05/2008 || || 17/02/2010 || ||

Switzerland || 28/08/1978 || 28/10/1991 || 4/12/1995 || 23/11/1973 || 11/08/1971 || 11/06/2002 || 8/11/1966

Taiwan || 13/10/2004 || || || 30/08/2005 || || ||

Tajikistan || 17/12/1987 || || 7/11/2006 || || 27/03/2003 || ||

Tanzania || || || || 6/05/1976 || || ||

Thailand || 16/10/1978 || 16/06/2000 || 12/02/1994 || 23/02/1998 || 10/07/1967 || ||

Togo || || || || || || ||

Trinidad & Tobago || || || || 20/06/1969 || 4/04/1973 || ||

Tunisia || 7/10/2004 || || 14/03/1990 || 5/02/1981 || 23/12/1975 || ||

Turkey || 2/06/1987 || 7/07/1994 || 12/11/1999 || 30/05/1991 || 19/09/2011 || 25/08/2003 || 24/10/2008

Turkmenistan || 17/12/1987 || || || 21/10/1986 || 24/11/1981 || ||

Tuvalu || || || || || || ||

Uganda || || || || 14/01/2000 || || ||

Ukraine || 20/05/1996 || 20/11/1995 || 30/06/1997 || 5/03/1996 || 3/07/1995 || 10/05/1996 ||

U.A.E. || 30/09/1996 || 26/06/2007 || 30/09/1996 || || 1/07/2010 || 20/04/2011 || 1/07/2010

United States || 27/11/2006 || 23/02/2007 || 16/09/1993 || 19/08/1999 || 29/08/1989 || 15/01/1998 || 28/07/1997

Uruguay || || || || || 9/03/2010 || ||

Uzbekistan || 14/11/1996 || 24/11/2003 || 2/03/2000 || || 7/09/1999 || ||

Venezuela || 22/04/1993 || || 26/04/1996 || 3/12/1998 || 8/02/1995 || ||

Vietnam || 28/02/1996 || 24/05/1996 || 23/05/1997 || 31/05/1995 || 16/11/1995 || || 10/03/2008

Zambia || || || || 13/09/1973 || 30/05/1973 || || 29/03/1971

Zimbabwe || || 12/10/1988 || || || 22/04/1988 || ||

Total || 65 || 43 || 55 || 57 || 67 || 25 || 36

|| EL || ES || FR || IT || CY || LV || LT

Albania || 14/07/1995 || 2/07/2010 || 24/12/2002 || 12/12/1994 || || 21/02/2008 ||

Algeria || || 7/10/2002 || 1/10/1980 || 3/02/1991 || || ||

Antigua & Barbuda || || || || || || ||

Argentina || || 21/07/1992 || 4/04/1979 || 15/11/1979 || || ||

Armenia || 12/05/1999 || 16/12/2010 || 9/12/1997 || 14/06/2002 || 29/10/1982 || 15/03/2000 || 13/03/2000

Aruba || || || || || || ||

Australia || || 24/03/1992 || 20/06/2006 || 14/12/1982 || || ||

Azerbaijan || 16/10/2009 || || 20/12/2001 || 21/07/2004 || 29/10/1982 || 3/10/2005 || 2/04/2004

Bahamas || || || || || || ||

Bahrain || || || 10/05/1993 || || || ||

Bangladesh || || || 9/03/1987 || 20/03/1990 || || ||

Barbados || || 1/12/2010 || || || || ||

Belarus || || 1/03/1985 || 4/10/1985 || 11/08/2005 || 29/05/1998 || 7/09/1995 || 18/07/1995

Belize || || || || || || ||

Benin || || || 27/02/1975 || || || ||

Bermuda || || || || || || ||

Bolivia || || 30/06/1997 || 15/12/1994 || || || ||

Bosnia & Herzegovina || 23/07/2007 || 5/12/2008 || 28/03/1974 || 24/02/1982 || 29/06/1985 || ||

Botswana || || || 15/04/1999 || || || ||

Brazil || || 14/11/1974 || 10/09/1971 || 3/10/1978 || || ||

UK Virgin Islands || || || || || || ||

Brunei || || || || || || ||

Burkina Faso || || || 11/08/1965 || || || ||

Cameroon || || || 21/10/1976 || || || ||

Canada || 29/06/2009 || 10/11/1986 || 2/05/1975 || 3/06/2002 || 2/05/1984 || 26/04/1995 || 29/08/1996

Cape Verde || || || || || || ||

Cayman Islands || || || || || || ||

Central African Rep || || || 13/12/1969 || || || ||

Chile || || 7/07/2003 || 7/06/2004 || || || ||

China || 3/06/2002 || 22/11/1990 || 30/05/1984 || 31/10/1986 || 25/10/1990 || 7/06/1996 || 3/06/1996

Colombia || || 31/03/2005 || || || || ||

Congo (Dem. Rep.) || || || || || || ||

Congo (Rep.) || || || 27/11/1987 || || || ||

Costa Rica || || 4/03/2004 || || || || ||

Croatia || 18/10/1996 || 19/05/2005 || 19/06/2003 || 28/10/1999 || || 19/05/2000 || 4/05/2000

Cuba || || 3/02/1999 || || || || ||

Curaçao || || || || || || ||

Dominica || || || || || || ||

Dominican Republic || || 1/07/2004 || || || || ||

Ecuador || || 20/05/1991 || 16/03/1989 || 23/05/1984 || || ||

Egypt || 27/11/2004 || 10/06/2005 || 19/06/1980 || 7/05/1979 || 18/12/1993 || ||

El Salvador || || 10/03/1997 || || || || ||

Ethiopia || || || 15/06/2006 || 8/04/1997 || || ||

Falkland Islands || || || || || || ||

Faroe Islands || || || || || || ||

Fiji || || || || || || ||

French Polynesia || || || 28/03/1957 || || || ||

Gabon || || || 20/09/1995 || || || ||

Gambia || || || || || || ||

Georgia || 10/05/1999 || 7/06/2010 || 7/03/2007 || 31/10/2000 || || 13/10/2004 || 11/09/2003

Ghana || || || 5/04/1993 || 19/02/2004 || || ||

Greenland || || || || || || ||

Grenada || || || || || || ||

Guernsey || || || || || || ||

Guinea || || || 15/02/1999 || || || ||

Guyana || || || || || || ||

Hong Kong || || 1/04/2011 || 21/10/2010 || || || ||

Iceland || 7/07/2006 || 22/01/2002 || 29/08/1990 || 10/09/2002 || || 19/10/1994 || 13/06/1998

India || 11/02/1965 || 8/02/1993 || 29/09/1992 || 19/02/1993 || 13/06/1994 || || 26/07/2011

Indonesia || || 30/05/1995 || 14/09/1979 || 18/02/1990 || || ||

Iran || || 19/07/2003 || 7/11/1973 || || || ||

Isle of Man || || || || || || ||

Israel || 24/10/1995 || 30/11/1999 || 31/07/1995 || 8/09/1995 || || 20/02/2006 || 11/05/2006

Ivory Coast || || || 6/04/1966 || 30/07/1982 || || ||

Jamaica || || 8/07/2008 || 9/08/1995 || || || ||

Japan || || 13/02/1974 || 3/03/1995 || 20/03/1969 || || ||

Jersey || || || 28/05/1984 || || || ||

Jordan || || || || 16/03/2004 || || ||

Kazakhstan || || 2/07/2009 || 3/02/1998 || 22/09/1994 || || 6/09/2001 || 7/03/1997

Kenya || || || 4/12/2007 || || || ||

North Korea || || || || || || ||

South Korea || 20/03/1995 || 17/01/1994 || 19/06/1979 || 10/01/1989 || || 15/06/2008 || 20/04/2006

Kosovo || || || || || || ||

Kuwait || 2/03/2003 || || 7/02/1982 || 17/12/1987 || 15/12/1984 || ||

Kyrgyzstan || || 1/03/1985 || 4/10/1985 || || 29/10/1982 || 7/12/2006 ||

Lebanon || || || 24/07/1962 || 22/11/2000 || 18/02/2003 || ||

Lesotho || || || || || || ||

Liberia || || || || || || ||

Libya || || || 22/12/2005 || || || ||

Liechtenstein || || || || || || ||

Macau || || || || || || ||

Macedonia (FYR) || || 20/06/2005 || 10/02/1999 || 20/12/1996 || 29/06/1985 || 8/12/2006 || 29/08/2007

Madagascar || || || 22/07/1983 || || || ||

Malawi || || || 5/11/1963 || || || ||

Malaysia || || 24/05/2006 || 24/04/1975 || 28/01/1984 || || ||

Mali || || || 22/09/1972 || || || ||

Mauritania || || || 15/11/1967 || || || ||

Mauritius || || || 11/12/1980 || 9/03/1990 || 21/01/2000 || ||

Mayotte || || || 27/03/1970 || || || ||

Mexico || 13/04/2004 || 24/07/1992 || 7/11/1991 || 8/07/1991 || || ||

Moldova || 29/03/2004 || 8/10/2007 || 4/10/1985 || 3/07/2002 || 28/01/2008 || 25/02/1998 || 18/02/1998

Monaco || || || 18/05/1963 || || || ||

Mongolia || || || 18/04/1996 || || || ||

Montenegro || 25/06/1997 || || 28/03/1974 || 24/02/1982 || 29/06/1985 || 22/11/2005 ||

Montserrat || || || || || || ||

Morocco || 20/03/2007 || 10/07/1978 || 29/05/1970 || 7/06/1972 || || 24/07/2008 ||

Mozambique || || || || 14/12/1998 || || ||

Myanmar || || || || || || ||

Namibia || || || 29/05/1996 || || || ||

Nepal || || || || || || ||

New Caledonia || || || 31/03/1983 || || || ||

New Zealand || || 28/07/2005 || 30/11/1979 || 6/12/1979 || || ||

Niger || || || 1/01/1965 || || || ||

Nigeria || || || 27/02/1990 || || || ||

Norway || 27/04/1988 || 6/10/1999 || 19/12/1980 || 17/06/1985 || 18/05/1955 || 19/07/1993 || 27/04/1993

Oman || || || 1/06/1989 || 6/05/1998 || || ||

Pakistan || || 2/06/2010 || 15/06/1994 || 22/06/1984 || || ||

Panama || || 7/10/2010 || 30/06/2011 || || || ||

Papua New Guinea || || || || || || ||

Philippines || || 14/03/1989 || 9/01/1976 || 5/12/1980 || || ||

Qatar || 26/10/2008 || || 4/12/1990 || 15/10/2002 || 11/11/2008 || ||

Quebec || || || 1/09/1987 || || || ||

Russia || 26/06/2000 || 16/12/1998 || 26/11/1996 || 9/04/1996 || 5/12/1998 || || 29/06/1999

Rwanda || || || || || || ||

San Marino || || || || || 27/04/2007 || ||

Saudi Arabia || 19/06/2008 || 19/06/2007 || 18/02/1982 || 13/01/2007 || || ||

Senegal || || || 29/03/1974 || 20/07/1998 || || ||

Serbia || 25/06/1997 || 9/03/2009 || 28/03/1974 || 24/02/1982 || 29/06/1985 || 22/11/2005 || 28/08/2007

Seychelles || || || || || 28/06/2006 || ||

Sierra Leone || || || || || || ||

Singapore || || 13/04/2011 || 9/09/1974 || 29/01/1977 || 24/11/2000 || 6/10/1999 || 18/11/2003

Solomon Islands || || || || || || ||

South Africa || 19/11/1998 || 23/06/2006 || 8/11/1993 || 16/11/1995 || 26/11/1997 || ||

Sri Lanka || || || 17/09/1981 || 28/03/1984 || || ||

St Kitts and Nevis || || || || || || ||

St Maarten || || || || || || ||

St Martin || || || 21/12/2010 || || || ||

St Pierre and Miquelon || || || 30/05/1988 || || || ||

Sudan || || || || || || ||

Suriname || || || || || || ||

Swaziland || || || || || || ||

Syria || || || 17/07/1998 || 23/11/2000 || 15/03/1992 || ||

Switzerland || 16/06/1983 || 26/04/1966 || 9/09/1966 || 9/03/1976 || || 31/01/2002 || 27/05/2002

Taiwan || || || 24/12/2010 || || || ||

Tajikistan || || 1/03/1985 || 4/10/1985 || || 29/10/1982 || 9/02/2009 ||

Tanzania || || || || 7/03/1973 || || ||

Thailand || || 14/10/1997 || 27/12/1974 || 22/12/1977 || 27/10/1998 || ||

Togo || || || 24/11/1971 || || || ||

Trinidad & Tobago || || 17/02/2009 || 5/08/1987 || 26/03/1971 || || ||

Tunisia || 31/10/1992 || 26/02/2001 || 28/05/1973 || 16/05/1979 || || ||

Turkey || 3/12/2003 || 5/07/2002 || 18/02/1987 || 27/07/1990 || || 3/06/1999 || 24/11/1998

Turkmenistan || || 1/03/1985 || 4/10/1985 || 26/02/1985 || 29/10/1982 || ||

Tuvalu || || || || || || ||

Uganda || || || || 6/10/2000 || || ||

Ukraine || 6/11/2000 || 1/03/1985 || 31/01/1997 || 26/02/1997 || 29/10/1982 || 21/11/1995 || 23/09/1996

U.A.E. || || 5/03/2006 || 19/07/1989 || 22/01/1995 || || ||

United States || 20/02/1950 || 22/02/1990 || 31/08/1994 || 25/08/1999 || 19/03/1984 || 15/01/1998 || 15/01/1998

Uruguay || || 9/10/2009 || || || || ||

Uzbekistan || 1/04/1997 || || 22/04/1996 || 21/11/2000 || 29/10/1982 || 3/07/1998 || 18/02/2002

Venezuela || || 8/04/2003 || 7/05/1992 || 5/06/1990 || || ||

Vietnam || || 7/03/2005 || 10/02/1993 || 26/11/1996 || || ||

Zambia || || || 5/11/1963 || 27/10/1972 || || ||

Zimbabwe || || || 15/12/1993 || || || ||

Total || 30 || 61 || 100 || 66 || 30 || 26 || 23

|| LU || HU || MT || NL || AT || PL || PT

Albania || 14/01/2009 || 14/11/1992 || 2/05/2000 || 22/07/2004 || 14/12/2007 || 5/03/1993 ||

Algeria || || || || || 17/06/2003 || || 2/12/2003

Antigua & Barbuda || || || || || || ||

Argentina || || || || 27/12/1996 || || ||

Armenia || 23/06/2009 || 9/11/2009 || || 31/10/2001 || 27/02/2002 || 14/07/1999 ||

Aruba || || || || 28/10/1964 || || ||

Australia || || 29/11/1990 || 9/05/1984 || 17/03/1976 || 1/04/1992 || 7/05/1991 ||

Azerbaijan || 16/06/2006 || 18/02/2008 || || 22/09/2008 || 4/07/2000 || 26/08/1997 ||

Bahamas || || || || || || ||

Bahrain || 6/05/2009 || || 12/04/2010 || 16/04/2008 || 2/07/2009 || ||

Bangladesh || || || || 13/07/1993 || || 8/07/1997 ||

Barbados || 1/12/2009 || || 5/12/2001 || 28/11/2006 || 27/02/2006 || ||

Belarus || || 19/02/2002 || || 26/03/1996 || 16/05/2001 || 18/11/1992 ||

Belize || || || || || 8/05/2002 || ||

Benin || || || || || || ||

Bermuda || || || || 8/06/2009 || || ||

Bolivia || || || || || || ||

Bosnia & Herzegovina || || 17/10/1985 || || 22/02/1982 || 16/12/2010 || 10/01/1985 ||

Botswana || || || || || || ||

Brazil || 8/11/1978 || 20/06/1986 || || 8/03/1990 || 24/05/1975 || || 16/05/2000

UK Virgin Islands || || || || || || ||

Brunei || || || || || || ||

Burkina Faso || || || || || || ||

Cameroon || || || || || || ||

Canada || 10/09/1999 || 15/04/1992 || 25/07/1986 || 27/05/1986 || 9/12/1976 || 4/05/1987 || 14/06/1999

Cape Verde || || || || || || || 22/03/1999

Cayman Islands || || || || || || ||

Central African Rep || || || || || || ||

Chile || || || || || || 10/03/2000 || 7/07/2005

China || 12/03/1994 || 17/06/1992 || 23/10/2010 || 13/05/1987 || 10/04/1991 || 7/06/1988 || 21/04/1998

Colombia || || || || || || ||

Congo (Dem. Rep.) || || || || || || ||

Congo (Rep.) || || || || || || ||

Costa Rica || || || || || || ||

Croatia || || 30/08/1996 || 21/10/1998 || 23/05/2000 || 21/09/2000 || 19/10/1994 ||

Cuba || || || || || 26/06/2002 || || 30/10/2000

Curaçao || || || || 28/10/1964 || || ||

Dominica || || || || || || ||

Dominican Republic || || || || || || ||

Ecuador || || || || || || ||

Egypt || || 5/11/1991 || 20/02/1999 || 21/04/1999 || 16/10/1962 || 24/06/1996 ||

El Salvador || || || || || || ||

Ethiopia || || || || || || ||

Falkland Islands || || || || || || ||

Faroe Islands || || || || || 11/07/1967 || ||

Fiji || || || || || || ||

French Polynesia || || || || || || ||

Gabon || || || || || || ||

Gambia || || || || || || ||

Georgia || 15/10/2007 || 16/02/2012 || 23/10/2009 || 21/03/2002 || 11/04/2005 || 5/11/1999 ||

Ghana || || || || 10/03/2008 || || ||

Greenland || || || || || || ||

Grenada || || || || || || ||

Guernsey || || || || || || ||

Guinea || || || || || || ||

Guyana || || || || || || ||

Hong Kong || 2/11/2007 || 12/05/2010 || 8/11/2011 || 22/03/2010 || 25/05/2010 || || 22/03/2011

Iceland || 4/10/1999 || 23/11/2005 || 23/09/2004 || 25/09/1997 || || 19/06/1998 || 2/08/1999

India || 2/06/2008 || 3/11/2003 || 28/09/1994 || 30/07/1988 || 8/11/1999 || 21/06/1989 || 11/09/1998

Indonesia || 14/01/1993 || 19/10/1989 || || 29/01/2002 || 24/07/1986 || 6/10/1992 || 9/07/2003

Iran || || || || || 11/03/2002 || 2/10/1998 ||

Isle of Man || || || 23/10/2009 || || || 7/03/2011 ||

Israel || 13/12/2004 || 14/05/1991 || || 2/07/1973 || 29/01/1970 || 22/05/1991 || 26/09/2006

Ivory Coast || || || || || || ||

Jamaica || || || || || || ||

Japan || 5/03/1992 || 13/02/1980 || || 25/08/2010 || 20/12/1961 || 20/02/1980 ||

Jersey || || || 25/01/2010 || || || ||

Jordan || || || 16/04/2009 || 31/10/2006 || || 4/10/1997 ||

Kazakhstan || || 7/12/1994 || || 24/04/1996 || 10/09/2004 || 21/09/1994 ||

Kenya || || || || || || ||

North Korea || || || || || || ||

South Korea || 7/11/1984 || 29/03/1989 || 25/03/1997 || 25/10/1978 || 8/10/1985 || 21/06/1991 || 26/01/1996

Kosovo || || || || 22/02/1982 || || ||

Kuwait || || 17/01/1994 || 24/07/2002 || 29/05/2001 || 13/06/2002 || 16/11/1996 ||

Kyrgyzstan || || || || || 18/09/2001 || 19/11/1998 ||

Lebanon || || || 23/02/1999 || || || 26/07/1999 ||

Lesotho || || || || || || ||

Liberia || || || || || || ||

Libya || || || 28/12/2008 || || || ||

Liechtenstein || 26/08/2009 || || || || 5/11/1969 || ||

Macau || || || || || || || 28/09/1999

Macedonia (FYR) || || 13/04/2001 || || 11/09/1998 || 10/09/2007 || 28/11/1996 ||

Madagascar || || || || || || ||

Malawi || || || || 7/06/1969 || || ||

Malaysia || 21/11/2002 || 22/05/1989 || 3/10/1995 || 7/03/1988 || 20/09/1989 || 16/09/1977 ||

Mali || || || || || || ||

Mauritania || || || || || || ||

Mauritius || 15/02/1995 || || || || || ||

Mayotte || || || || || || ||

Mexico || 7/02/2001 || 24/06/2011 || || 27/09/1993 || 13/04/2004 || 30/11/1998 || 11/11/1999

Moldova || 11/07/2007 || 19/04/1995 || || 3/07/2000 || 5/09/2011 || 16/11/1994 || 11/02/2009

Monaco || 27/07/2009 || || || || || ||

Mongolia || 5/06/1998 || 13/09/1994 || || 8/03/2002 || 3/07/2003 || 18/04/1997 ||

Montenegro || || 20/06/2001 || 4/11/2008 || 22/02/1982 || 1/06/2010 || 12/06/1997 ||

Montserrat || || || || || || ||

Morocco || 19/12/1980 || 12/12/1991 || 26/10/2001 || 12/08/1977 || 27/02/2002 || 24/10/1994 || 29/10/1997

Mozambique || || || || || || || 21/03/1991

Myanmar || || || || || || ||

Namibia || || || || || || ||

Nepal || || || || || 15/12/2000 || ||

New Caledonia || || || || || || ||

New Zealand || || || || 15/10/1980 || 21/09/2006 || 21/04/2005 ||

Niger || || || || || || ||

Nigeria || || || || 11/12/1991 || || ||

Norway || 6/05/1983 || 21/10/1980 || 2/06/1975 || 12/01/1990 || 28/11/1995 || 9/09/2009 || 10/03/2011

Oman || || || || 5/10/2009 || || ||

Pakistan || || 24/02/1992 || 8/10/1975 || 24/03/1982 || 4/08/2005 || 25/10/1974 || 23/06/2000

Panama || 7/10/2010 || || || 6/10/2010 || || || 27/08/2010

Papua New Guinea || || || || || || ||

Philippines || 3/07/2009 || 13/06/1997 || || 24/04/2008 || 9/04/1981 || 9/09/1992 ||

Qatar || || 18/01/2012 || 26/08/2009 || 9/03/1989 || 30/12/2010 || 18/11/2008 ||

Quebec || || || || || || ||

Russia || 28/06/1993 || 1/04/1994 || || 1/09/1996 || 13/04/2000 || 22/05/1992 || 29/05/2000

Rwanda || || || || || || ||

San Marino || 27/03/2006 || 15/09/2009 || 3/05/2005 || || 24/11/2004 || ||

Saudi Arabia || || || || 13/10/2008 || 19/03/2006 || 22/02/2011 ||

Senegal || || || || || || ||

Serbia || || 20/06/2001 || 9/09/2009 || 22/02/1982 || 7/05/2010 || 12/06/1997 ||

Seychelles || || || || || || ||

Sierra Leone || || || || 17/11/1982 || || ||

Singapore || 6/03/1993 || 17/04/1997 || 21/03/2006 || 19/02/1971 || 30/11/2001 || 23/04/1993 || 6/09/1999

Solomon Islands || || || || || || ||

South Africa || 23/11/1998 || 4/03/1994 || 16/05/1997 || 10/10/2005 || 4/03/1996 || 10/11/1993 || 13/11/2006

Sri Lanka || || || || || || 25/04/1980 ||

St Kitts and Nevis || || || || || || ||

St Maarten || || || || 28/10/1964 || || ||

St Martin || || || || || || ||

St Pierre and Miquelon || || || || || || ||

Sudan || || || || || || ||

Suriname || || || || 25/11/1975 || || ||

Swaziland || || || || || || ||

Syria || || || 22/02/1999 || || || 15/08/2001 ||

Switzerland || 21/01/1993 || 9/04/1981 || 25/02/2011 || 26/10/2010 || 30/01/1974 || 2/09/1991 || 26/09/1974

Taiwan || || 19/04/2010 || || 27/02/2001 || || ||

Tajikistan || || || || 21/11/1986 || 7/06/2011 || 27/05/2003 ||

Tanzania || || || || || || ||

Thailand || 6/05/1996 || 18/05/1989 || || 11/09/1975 || 8/05/1985 || 8/12/1978 ||

Togo || || || || || || ||

Trinidad & Tobago || 7/05/2001 || || || || || ||

Tunisia || 27/03/1996 || 22/10/1992 || 31/05/2000 || 16/05/1995 || 23/06/1977 || 30/03/1993 || 24/02/1999

Turkey || 9/06/2003 || 10/03/1993 || || 27/03/1986 || 28/10/1999 || 3/11/1993 || 11/05/2005

Turkmenistan || || || || || 10/04/1981 || ||

Tuvalu || || || || || || ||

Uganda || || || || 31/08/2004 || || ||

Ukraine || || 19/05/1995 || || 24/10/1995 || 16/10/1997 || 12/01/1993 || 9/02/2000

U.A.E. || 20/11/2005 || || 13/03/2006 || 8/05/2007 || 22/09/2003 || 31/01/1993 || 17/01/2011

United States || 3/04/1996 || 12/02/1979 || 8/08/2008 || 18/12/1992 || 21/06/1982 || 8/10/1974 || 6/09/1994

Uruguay || || 25/10/1988 || || || || ||

Uzbekistan || 2/07/1997 || 17/04/2008 || || 18/10/2001 || 14/06/2000 || 11/01/1995 ||

Venezuela || || || || 29/05/1991 || 12/05/2006 || || 23/04/1996

Vietnam || 4/03/1996 || 26/08/1994 || || 24/01/1995 || 2/06/2008 || 31/08/1994 ||

Zambia || || || || 19/12/1977 || || ||

Zimbabwe || || || || 18/05/1989 || || 9/07/1993 ||

Total || 40 || 47 || 34 || 70 || 60 || 56 || 31

|| RO || SI || SK || FI || SE || UK || Total

Albania || 11/05/1994 || 27/02/2008 || 27/02/2008 || || 26/03/1998 || || 21

Algeria || 28/06/1994 || || || || || || 9

Antigua & Barbuda || || || || || || 19/12/1947 || 1

Argentina || || || || 13/12/1994 || 31/05/1995 || 3/01/1996 || 10

Armenia || 25/03/1996 || || || 16/10/2006 || 13/10/1981 || 13/07/2011 || 22

Aruba || || || || || || || 1

Australia || 2/10/2000 || || 24/08/1999 || 20/11/2006 || 14/01/1981 || 21/08/2003 || 18

Azerbaijan || 29/10/2002 || || || 29/09/2005 || || 23/02/1994 || 19

Bahamas || || || || || || 29/10/2009 || 1

Bahrain || || || || || || || 8

Bangladesh || 13/03/1987 || || || || 3/05/1982 || 8/08/1979 || 10

Barbados || || || || 15/06/1989 || 1/07/1991 || 26/03/1970 || 9

Belarus || 22/07/1997 || 6/10/2010 || 12/07/1999 || 18/12/2007 || 10/03/1994 || 31/07/1985 || 23

Belize || || || || || || 19/12/1947 || 2

Benin || || || || || || || 1

Bermuda || || || || 16/04/2009 || 16/04/2009 || || 4

Bolivia || || || || || 14/01/1994 || 3/12/1994 || 5

Bosnia & Herzegovina || 28/04/1986 || 16/05/2006 || 2/11/1981 || 8/05/1986 || 18/06/1980 || 6/11/1981 || 20

Botswana || || || || || 19/10/1992 || 9/09/2005 || 3

Brazil || || || 26/08/1986 || 2/04/1986 || 25/04/1975 || || 14

UK Virgin Islands || || || || 18/05/2009 || 18/05/2009 || 29/10/2008 || 4

Brunei || || || || || || 8/12/1950 || 1

Burkina Faso || || || || || || || 1

Cameroon || || || || || || 22/04/1982 || 2

Canada || 8/04/2004 || 15/09/2000 || 22/05/2001 || 20/07/2006 || 27/08/1996 || 8/09/1978 || 27

Cape Verde || || || || || || || 1

Cayman Islands || || || || 17/06/2009 || 17/06/2009 || 15/06/2009 || 4

Central African Rep || || || || || || || 1

Chile || || || || || 4/06/2004 || 12/07/2003 || 9

China || 16/01/1981 || 13/02/1995 || 11/06/1987 || 25/05/2010 || 16/05/1986 || 26/07/1984 || 27

Colombia || || || || || || || 1

Congo (Dem. Rep.) || || || || || || || 1

Congo (Rep.) || || || || || || || 1

Costa Rica || || || || || || || 1

Croatia || 25/01/1996 || 10/06/2005 || 12/02/1996 || 8/05/1986 || 18/06/1980 || 6/11/1981 || 24

Cuba || || || || || || || 3

Curaçao || || || || || || || 1

Dominica || || || || || || 31/03/2010 || 1

Dominican Republic || || || || || || || 1

Ecuador || 24/04/1992 || || || || || || 6

Egypt || 13/07/1979 || || || 1/04/1965 || 26/12/1994 || 25/04/1977 || 19

El Salvador || || || || || || || 1

Ethiopia || 6/11/2003 || || || || || || 4

Fakland Islands || || || || || || 17/12/1997 || 1

Faroe Islands || || || || 23/09/1996 || 23/09/1996 || 20/06/2007 || 5

Fiji || || || || || || 21/11/1975 || 1

French Polynesia || || || || || || || 1

Gabon || || || || || || || 2

Gambia || || || || || 8/12/1993 || 20/05/1980 || 2

Georgia || 11/12/1997 || || 27/10/2011 || 11/10/2007 || || 13/07/2004 || 23

Ghana || || || || || || 20/01/1993 || 6

Greenland || || || || || || || 1

Grenada || || || || || || 4/03/1949 || 1

Guernsey || || || || 28/10/2008 || 28/10/2008 || || 4

Guinea || || || || || || || 1

Guyana || || || || || || 31/08/1992 || 1

Hong Kong || || || || || || 25/10/2000 || 12

Iceland || 19/09/2007 || || 15/04/2002 || 23/09/1996 || 23/09/1996 || 30/09/1991 || 23

India || || 13/01/2003 || 27/01/1986 || 15/01/2010 || 24/06/1997 || 25/01/1993 || 25

Indonesia || 3/07/1996 || || 12/10/2000 || 15/10/1987 || 28/02/1989 || 5/04/1993 || 19

Iran || 3/10/2001 || || || || || || 7

Isle of Man || || || || 30/10/2007 || 30/10/2007 || 29/07/1955 || 8

Israel || 15/06/1997 || 31/01/2007 || 8/09/1999 || 8/01/1997 || 22/12/1959 || 26/09/1962 || 25

Ivory Coast || || || || || || 26/06/1985 || 5

Jamaica || || || || || 13/03/1985 || 16/03/1973 || 6

Japan || 12/02/1976 || || 11/10/1977 || 29/02/1972 || 21/01/1983 || 2/02/2006 || 19

Jersey || || || || 28/10/2008 || 28/10/2008 || 24/06/1952 || 9

Jordan || 10/10/1983 || || || || || 22/07/2001 || 8

Kazakhstan || 21/09/1998 || || 21/03/2007 || 24/03/2009 || 19/03/1997 || 21/03/1994 || 19

Kenya || || || || || 28/06/1973 || 31/07/1973 || 5

North Korea || 23/01/1998 || || || || || || 3

South Korea || 11/10/1993 || 25/04/2005 || 27/08/2001 || 8/02/1979 || 27/05/1981 || || 25

Kosovo || || || || || || || 1

Kuwait || 26/07/1992 || || || || || 23/02/1999 || 15

Kyrgyzstan || || || || 3/04/2003 || || || 10

Lebanon || 28/06/1995 || || || || || || 8

Lesotho || || || || || || 29/01/1997 || 1

Liberia || || || || || || || 1

Libya || || || 20/02/2009 || || || 17/11/2008 || 4

Liechtenstein || || || || || || || 2

Macau || || || || || || || 1

Macedonia (FYR) || 12/06/2000 || 15/05/1998 || 5/10/2009 || 25/01/2001 || 17/02/1998 || 8/11/2006 || 23

Madagascar || || || || || || || 1

Malawi || || || || || || 25/11/1955 || 3

Malaysia || 26/11/1982 || || || 28/03/1984 || 12/03/2002 || 10/12/1996 || 18

Mali || || || || || || || 1

Mauritania || || || || || || || 1

Mauritius || || || || || 23/04/1992 || 11/07/1981 || 8

Mayotte || || || || || || || 1

Mexico || 20/07/2000 || || 13/05/2006 || 12/02/1997 || 21/09/1992 || 2/06/1994 || 20

Moldova || 21/02/1995 || 31/05/2006 || 25/11/2003 || 16/04/2008 || || 8/11/2007 || 24

Monaco || || || || || || || 2

Mongolia || || || || || || 23/04/1996 || 11

Montenegro || 16/05/1996 || 11/06/2003 || 26/02/2001 || 8/05/1986 || 18/06/1980 || 6/11/1981 || 21

Montserrat || || || || || || 19/12/1947 || 1

Morocco || 2/07/2003 || || || || || 8/09/1981 || 19

Mozambique || || || || || || || 2

Myanmar || || || || || || 13/03/1950 || 1

Namibia || 25/02/1998 || || || || 16/07/1993 || 8/08/1962 || 5

Nepal || || || || || || || 1

New Caledonia || || || || || || || 1

New Zealand || || || || 12/03/1982 || 21/02/1979 || 4/08/1983 || 14

Niger || || || || || || || 1

Nigeria || 21/07/1992 || || 31/08/1989 || || || 9/06/1987 || 7

Norway || 14/11/1980 || 18/02/2008 || 27/06/1979 || 23/09/1996 || 23/09/1996 || 12/10/2000 || 26

Oman || || || || || || 23/02/1998 || 4

Pakistan || 27/07/1999 || || || 30/12/1994 || 22/12/1985 || 24/11/1986 || 17

Panama || || || || || || || 5

Papua New Guinea || || || || || || 17/09/1981 || 1

Philippines || 18/05/1994 || || || 13/10/1978 || 24/06/1998 || 10/06/1976 || 16

Qatar || 24/10/1999 || 10/01/2010 || || || || 25/06/2009 || 13

Quebec || || || || || 20/09/1986 || || 2

Russia || 27/09/1993 || 29/09/1995 || 24/06/1994 || 4/05/1996 || 14/06/1993 || 15/02/1994 || 24

Rwanda || || || || || || || 1

San Marino || 23/05/2007 || || || || || || 7

Saudi Arabia || 26/04/2011 || || || || 24/05/1995 || 31/10/2007 || 10

Senegal || || || || || || || 3

Serbia || 16/05/1996 || 11/06/2003 || 26/02/2001 || 8/05/1986 || 18/06/1980 || 6/11/1981 || 25

Seychelles || || || || || || || 1

Sierra Leone || || || || || || 19/12/1947 || 2

Singapore || 21/02/2002 || 8/01/2010 || 9/05/2005 || 7/06/2002 || 17/06/1968 || 12/02/1997 || 26

Solomon Islands || || || || || || 10/05/1950 || 1

South Africa || 12/11/1993 || || 28/05/1998 || 26/05/2005 || 24/05/1995 || 31/07/1978 || 23

Sri Lanka || 19/10/1984 || || 26/07/1978 || 18/05/1982 || 23/02/1983 || 21/05/1979 || 12

St Kitts and Nevis || || || || || || 19/12/1947 || 1

St Maarten || || || || || || || 1

St Martin || || || || || || || 1

St Pierre and Miquelon || || || || || || || 1

Sudan || 31/05/2007 || || || || || 8/03/1975 || 2

Suriname || || || || || || || 1

Swaziland || || || || || || 26/11/1968 || 1

Syria || 24/06/2008 || || 18/02/2009 || || || || 10

Switzerland || 25/10/1993 || 12/06/1996 || 14/02/1997 || 16/12/1991 || 7/05/1965 || 8/12/1977 || 26

Taiwan || || || 10/08/2011 || || 8/06/2001 || 8/04/2002 || 8

Tajikistan || 6/12/2007 || || || || || || 11

Tanzania || || || || || 2/05/1976 || || 3

Thailand || 26/06/1996 || 11/07/2003 || || 25/04/1985 || 19/10/1988 || 18/02/1981 || 19

Togo || || || || || || || 1

Trinidad & Tobago || || || || || 17/02/1984 || 31/12/1982 || 8

Tunisia || 23/09/1987 || || 14/03/1990 || || 7/05/1981 || 15/12/1982 || 19

Turkey || 1/07/1986 || 19/04/2001 || 2/04/1997 || 6/10/2009 || 21/01/1988 || 19/12/1986 || 25

Turkmenistan || 16/07/2008 || || 26/03/1996 || || 13/10/1981 || 31/07/1985 || 12

Tuvalu || || || || || || 10/05/1950 || 1

Uganda || || || || || || 23/12/1992 || 4

Ukraine || 29/03/1996 || 23/04/2003 || 23/01/1996 || 14/10/1994 || 14/08/1995 || 10/02/1993 || 24

U.A.E. || 11/04/1993 || || || 12/03/1986 || || || 17

United States || 4/12/1973 || 21/06/1999 || 8/10/1993 || 21/09/1989 || 1/09/1994 || 24/07/2001 || 27

Uruguay || || || || || || || 3

Uzbekistan || 6/06/1996 || || 6/03/2003 || 9/04/1998 || || || 18

Venezuela || || || || || 8/09/1993 || 11/03/1996 || 12

Vietnam || 8/07/1995 || || 27/10/2008 || 21/11/2001 || 24/03/1994 || 9/04/1994 || 19

Zambia || 21/07/1983 || || || 3/11/1978 || 18/03/1974 || 23/02/1972 || 10

Zimbabwe || || || || || 10/03/1989 || 19/10/1982 || 7

Total || 59 || 22 || 38 || 51 || 64 || 93 || 1349

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

Annex 5

Brussels, 5 July 2012

TAXUD D1 D(2012)

Summary report

of

the responses received on the public
consultation

on

factual examples and possible ways to tackle
double non-taxation cases

Main
conclusions

Background

In a period when Member
States 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 both double taxation and double non-taxation. Both situations can
jeopardize the idea of a single market and are therefore unacceptable.

Cross border double non-taxation
and double taxation occur when taxpayers trade or invest across the borders.
The globalisation, or the increasing economic integration of markets that is
being driven by rapid technological change and policy liberalisation, has
significantly increased cross-border trade and investments in recent years. It
can therefore be feared that the problems with both phenomena have increased.

As the Commission
previously has indicated there is - while having full regard to the principle
of subsidiarity - a need to ensure more coherence between Member States
individual positions in the international tax arena and the good governance
principles. This requires a greater degree of coordination at EU level so as to
ensure that the momentum towards a more open and constructive tax co-operation
continues at a global level.[1]

In November 2011 the
Commission stated in the Communication on Double Taxation in the Single Market[2]
that it would take some concrete initiatives in order to address double
taxation problems and that it would launch a fact-finding consultation
procedure in order to gather evidence of double non-taxation.

The Commission launched
the public consultation on February 29, 2012.

Some highlights from the
consultation[3]

The non-governmental
organisations who contributed to the consultation welcomed the consultation but
found it difficult to provide factual examples of double non-taxation, although
some input was provided. The non-governmental organisations find most of the
issues mentioned in the consultation relevant for the future work on double
non-taxation.

On the other hand the
business community expressed concerns on the scope of the consultation. Many of
the contributors from the business community did not provide answers to the
specific questions in the public consultation note, but instead provided
broader and more general comments on the issues raised in the public
consultation note. There were however some business contributors who provided
answers to the different questions in the public consultation.

In the general comments
provided by the business community the following points are worth highlighting:

-
Several
found it important to make a clear distinction between actual double
non-taxation (e.g. due to mismatches of hybrid entities and hybrid instruments)
and tax competition (low taxation). Others called for a definition of
"double non-taxation".

-
Most
of the organisations stressed that direct taxation falls within the competence
of the Member States' sovereignty. Several therefore found that any measures
against double non-taxation should be handled at the Member State level, while
others found some coordination appropriate (e.g. to avoid mismatches).

-
Many
of the organisations felt that the issue of double non-taxation should not be
addressed separately from that of double taxation. The two phenomena are seen
as two sides of the same coin.

-
Some
organisations stressed that measures against double non-taxation could have an
adverse impact on European economic competitiveness.

-
Several
organisations also called for coordination with other initiatives on EU and
international level that address aspects of double (non-) taxation e.g. the EU
Code of Conduct Group and the OECD report on Hybrid Mismatches.

Summary analysis

The number of
contributions could be perceived as limited if the number of contributions to
this public consultation is compared with the number of contributions to
previous public consultations, e.g. the consultation on double taxation. It is
however not possible to make such a simple comparison.

Firstly, this public
consultation only concerns the direct taxation of companies. It does not
concern the taxation of individuals. Fewer people are therefore directly
affected by the issues examined.

Secondly, the public was
asked for contributions on factual examples of double non-taxation for
corporate taxpayers. The corporate tax system is a highly technical area where
it is very difficult for the public to contribute with factual examples. As
stated by Tax Justice Network (TJN):

"One thing we want
to address, is that for TJN and its members it is very difficult to identify
the concrete examples the European Commission is looking for, since of their
nature it is needed to access to internal company accounts."

This is probably also
one of the reasons why the contributors in general have only been able to
identify concrete factual examples of double non-taxation to a limited extent.

The contributors have on
the other hand not been able to identify additional examples of double
non-taxation to the ones presented in the consultation paper in the area of
direct corporate taxation either. This could perhaps indicate that the
Commission have identified those issues that can be perceived as resulting in
double non-taxation (or at least the major issues). However it should be noted
that some argue that not all of the issues are real double non-taxation cases.

The double non-taxation
issue which most contributors find least acceptable is double-non taxation due
to mismatches between countries qualification of hybrid entities and hybrid
financial instruments. Several contributors also found application of Double
Tax Conventions leading to double non-taxation relevant for the future
discussions.

On the other issues
mentioned in the consultation paper the contributors were divided; while some
found the issues relevant for future discussion others found the issues
irrelevant.

Furthermore most
contributors from the business community would prefer solutions to be found on Member State level as direct taxation falls within the competence of the Member States
sovereignty. Several of these organisations however support the Common
Consolidated Corporate Tax Base and community action against double taxation.

The Business Community
believe that solutions should deal with both double taxation and double
non-taxation issues.

Follow-up

Notwithstanding on-going
initiatives such as the Common Consolidated Corporate Tax Base (CCCTB) there
seems to be a need for a more in-depth analysis of double non-taxation especially
on qualification of hybrid entities and hybrid financial instruments.

DG TAXUD agrees with the
contributors stating that duplication of work already undertaken in other EU
forums, e.g. the Code of Conduct Group (Business Taxation), and in the OECD should
be avoided. The OECD has already conducted analysis of arrangements that
exploits national differences in the tax treatment of instruments and entities
to deduct the same expense in several different countries or to make income
"disappear".[4]
The Code of Conduct Group has already performed analysis on profit
participating loans and has started to work on other mismatches.[5]

DG TAXUD expects that
the Code of Conduct Group (Business Taxation) will continue its work regarding
anti abuse and mismatches. The Group is expected to take the extensive work
already conducted by OECD into account in order to avoid duplication of work.
DG TAXUD will discuss with the OECD how best to cooperate on these issues.

DG TAXUD will also –
building on the positive Joint Transfer Pricing Forum (JTPF) experiences -
continue to examine the potential benefits of setting up a Forum on double
taxation for purely EU tax matters and will examine whether it should also
cover double non-taxation. This could be relevant for a possible examination of
issues of double taxation and double non-taxation arising from the application
of double tax conventions.

The Commission intends
to publish a Communication on good governance in the tax area in relation to
tax havens and aggressive tax planning before the end of 2012.

Annex 1

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

Introduction

The Commission launched
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 were encouraged to provide factual examples of cases of double
non-taxation on cross-border activities that they have encountered or have
knowledge of.

This Consultation had
been announced in the Communication on Double Taxation in the Single Market. [6]

The key issues to which
stakeholders were invited to reply were the following[7]:

Issue 1 – Mismatches of
entities

Issue 2 – Mismatches of
financial instruments

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

Issue 4 – Transfer
Pricing and unilateral Advance Pricing Arrangements

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

Issue 6 – Debt financing
of tax exempt income

Issue 7 – Different
treatment of passive and active income

Issue 8 – Double Tax
Conventions with third countries

Issue 9 – Disclosure

Issue 10 – Other issues?

The dead-line for
contributions was on 30th May 2012. Later answers were also
accepted.

The Commission have
received 25 contributions to the public consultation - 15 from Business
Community (Business and Accounting Organisations), 4 from Tax Advisors or Tax
Practitioners, 4 from Non-Governmental Organisations (NGOs), 1 from an
International Organisation (OECD) and 1 Anonymous[8].

16 of the contributors
are registered at the Interest Representative Register.

6 of the contributors
are resident in the United Kingdom, 5 in Belgium, 3 in France, the Netherlands and USA, 2 in Germany and 1 in Italy and Hungary.[9]

The list of contributors
can be found in Annex 2.

General remarks

In the contributions
received there were numerous general remarks on the consultation especially by
the business community. In the following these general remarks are divided into
the general remarks by the business community and the general remarks by
non-governmental organisations and others. The reason for this split is that
the general remarks by the business community are quite similar and many of the
positions are shared among the business contributors. The general remarks by
non-governmental organisations are in general shorter than the ones from the
business community as all of the non-governmental organisations concentrated on
the questionnaire.

Non-Governmental
organisations and others

The non-governmental
organisations concentrated their contributions on the questionnaire in the
consultation and did not provide many general comments. They did however
welcome this consultation on double non-taxation. One contributor [EURODAD]
wrote:

"[The contributor]
welcomes this consultation on double non-taxation. Given the devastating
consequences of double non-taxation within the EU and not least across
developing countries and the enormous potential for domestic resource
mobilisation that lays in taxation, we highly appreciate this initiative and
would like to thank you for the opportunity to contribute to shaping EU
policies on this specific area.".

Another non-governmental
organisation [Tax Justice Network] made the general comment that they found it
difficult to contribute concrete examples:

"One thing we want
to address, is that for [the contributor] and its members it is very difficult
to identify the concrete examples the European Commission is looking for, since
of their nature it is needed to access to internal company accounts. We have
called on the advisory and accountancy sector (notably the Big 4) to deliver
these examples, which the[y] advice and account on. We hope they did so in a
large extent."

A third non-governmental
organisation [HU IFA branch] found that double non-taxation should be solved
together with double taxation:

"From the point of
view of taxpayers, double non-taxation is not really a problem.  Most taxpayers
would actually strive to exploit these possibilities. Therefore, tax advisors,
we would generally be reluctant to comment on these issues. However, we believe
that where double non-taxation occurs, double taxation could also usually occur
in the reverse situation. Therefore, we would welcome and promote an approach
whereby double non-taxation issues are solved together with (and not instead
of) double taxation problems.  This is a major driver for us to participate in
this process."

A tax professional
(Jarass) found that tackling double non-taxation for fairer and more robust tax
systems is very important. The contributor therefore proposes to tax earnings
before interests and taxes (EBIT) instead of profit in order to tax all income
once and only once. The contributor believes:

"Our proposal would
systematically tax all income once and only once. Double as well as non
taxation would be systematically avoided"

Business

Scope of the
consultation

A number of contributors
belonging to the Business Community criticized the structure of the public
consultation. Many of the contributors therefore only made general remarks on
the public consultation. One contributor [AmCham] wrote:

"The consultation
identifies a number of issues where different cases of double non-taxation
could occur based on various sources including international tax literature,
articles and lectures and presents a ‘non-exhaustive’ list of examples in a
questionnaire format. However, this structure does not allow for comments on
whether the examples listed present a problem or not, which makes it very
difficult to respond in a meaningful way. Therefore, rather than answering the
questions within the consultation document, this position paper provides
broader comments on the arguments against a general prohibition of double
non-taxation."

Another contributor
[CBI] found it:

"somewhat
disturbing that normal EC procedures have not been followed, and anonymous
submissions have been invited. As a result, there will be no way to check the
accuracy of any assertions or allegations made in such anonymous submissions.
[The contributor] has been publicly supportive of ending aggressive, artificial
tax schemes. This consultation, however, will damage that process by its
confusion – perhaps especially in anonymous replies – between aggressive
schemes, normal tax planning and, legitimate responses to government-enacted
incentives."

Some contributors were
also calling for a wider perspective on the issues as they believe tax cannot
be considered in isolation. One contributor [AmCham] wrote:

"Even though the scenarios
discussed in the consultation may arise because of asymmetry in tax treatment,
the consultation needs to look wider than just tax and include an understanding
of the associated legal and accounting analysis before concluding on the impact
of targeting double non-taxation. The latter cannot be considered in isolation
without understanding the interaction with other legislative systems."

Double non-taxation or
tax competition

Most contributors from
the business community found it important to define 'double non-taxation or to
make a clear distinction between double non-taxation and tax competition. One
contributor [BusinessEurope] wrote:

"the questions in
the consultation paper go beyond what we normally consider to be double
non-taxation. We believe it is important to make a clear distinction between
actual double non-taxation cases (e.g. due to mismatches of hybrid entities and
hybrid instruments) and tax competition (low taxation). However, some of the
questions in the Consultation paper seem to relate to the latter."

Similarly another
contributor [CBI] wrote:

"Although the
consultation only covers direct taxes, the paper defines double non-taxation
much more broadly than simply the use of hybrid instruments and entities which
comprise true “double non-taxation”. In fact the consultation seeks to include
examples of territorial non-taxation (or relatively low taxation) of specific
activities compared to other Member States."

A third contributor
[CIOT] asked for a definition of "double non-taxation":

"it would have been
helpful if, before this consultation was undertaken, more consideration had
been given to the precise meaning of double non-taxation. A limited definition
of double non-taxation in an effort to narrow the scope so that only the most
egregious schemes with artificiality were targeted would have been preferable.
Currently the extremely broad definition of double non-taxation in the
consultation document seems to be targeting both such ’schemes’ and genuine tax
planning by EU multi-national companies in member states who choose to
structure their EU operations efficiently to remain competitive."

Several contributors
stressed that Member States have the right within the rules on state aid to
adapt more or less attractive tax regimes. One contributor [BusinessEurope]
stressed that non-taxation therefore often is intentional.

"It must be
recognized that non-taxation is not always a result of aggressive tax planning.
On the contrary, non-taxation is often an intentional consequence of national
tax policy objectives. A general prohibition of double non-taxation would
depart from such national objectives.

It is therefore crucial
to have a very clear notion of “double non-taxation”. Some fiscal
administrations consider e.g. tax incentives for research and development or
notional interest deductions as double non-taxation. [The contributor]
considers that tax measures that have been introduced by national legislators
to incentivize certain behaviour of tax payers should not be stigmatized.
Otherwise every deviation between two national tax systems (e.g. differences in
depreciation rules) would have to be regarded as double non-taxation."

Several contributors are
supportive of fighting artificial tax schemes. They stressed that the European
Court of Justice has allowed genuine economic establishment. They also stressed
that the court clearly ruled in support of the right to take advantage of lower
rates, unless "the arrangements are wholly artificial". One
contributor [TEI] further explained that it

"wholly supports
focused action dealing with abusive structuring that takes advantage of double
non-taxation. [The contributor] welcomes the opportunity to discuss the
conditions and consequences of such abuse with the Commission. We regret,
however, that developing various instruments and requirements for Member States
to include in their local legislation to deal with the consequences of tax
competition (such as the examples given under points 5 through 8 of the
Consultation) would create tax uncertainty and limit competitiveness and growth
within the EU. The recent ECJ decision in favour of 3M Italia SpA held that
there is no EU law obligation for a Member State to enact anti-avoidance
provisions where there is no abuse of EU law."

Member States
sovereignty

According to several
contributors any measures against double non-taxation should be handled at
Member States level. One contributor [AmCham] wrote:

"EU Member States
retain extensive competences in direct tax matters and can determine the scope
of their tax jurisdiction, either unilaterally or bilaterally. This allows
Member States to introduce domestic rules on anti-avoidance, which we believe
remains the better approach to address double non-taxation rather than a new
EU-wide regime. If EU-wide restrictions were to go ahead, they would constrain
normal commercial transactions and also reduce the attractiveness of Europe as a place to invest."

The same contributor
[AmCham] pointed out that Member States already have national rules that deal
with avoiding double non-taxation:

"The UK anti-arbitrage rules, introduced in 2005, apply to both deductions of interest and receipts, and
are designed to counter artificial arrangements avoiding UK tax. The deduction rules apply to companies within the charge to corporation tax, which
includes UK resident companies and the UK permanent establishments of overseas
companies. Likewise, many other EU jurisdictions already have a limitation on
exempt dividends derived from passive income along with limitations on deductible
interest on acquisition of subsidiaries which generate tax exempt dividends.
These are all relevant examples of how things can and do work at individual Member State level."

Another contributor
[NFTC]

"believes that
bilateral tax treaties remain the only appropriate tool to address differences
between independent sovereigns’ tax rules on income from cross-border
activities, and in doing so, are the appropriate mechanism for separating the
permissible from the impermissible tax arbitrage."

On the other hand a
third contributor [BusinessEurope] wrote:

"There is an
obvious risk that there will be a variety of national non coordinated
initiatives in this area. In order to avoid double taxation as well as double
non-taxation it is of utmost importance that countries can agree on a common
set of principles and apply them consistently."

The same contributor
[BusinessEurope] also wrote:

"The only way such
mismatches (double non-taxation but also double taxation) could be avoided
would be for governments to liaise on their tax policy with other governments
to mutually agree a policy to avoid these mismatches. Such a review would also
need to consider how to avoid any unintended consequences and in particular any
double taxation caused by any actions considered. In these circumstances it is
difficult to see how business could comment on the policy changes that would
need to be considered as changes could be made in either national
context."

A fourth contributor
[ICAEW] also believes there could be some co-ordination:

"it is appropriate
for the European Commission to undertake work to ensure that the tax systems of
the member states are co-ordinated to achieve agreed policy objectives. It is,
however, important to ensure that the tax systems of the member states remain
competitive in the current world where business is genuinely global and has
real choices between different geographical locations."

A contributor [EBIT]
believes that the EU should also recognise the sovereignty of third countries.
The contributor wrote

"that Third
Countries are free to design their own tax systems including the provision of
tax incentives and that the EU should target only those Third Countries which
maintain or introduce harmful tax practices. In practice this should lead the
EU to at least exclude from the scope of the Consultation's outcome any genuine
economic activities which are taxed at a low effective tax rate."

Double taxation and
double non-taxation

Several contributors see
double non-taxation and double taxation as two sides of the same coin. They
therefore stressed that double taxation should also be addressed by the
Commission. One contributor [STEP] wrote:

"We would begin by
noting that double non-taxation arises in the same manner as double taxation as
a result of a lack of co-ordination between national tax authorities regarding
the basis on which taxes are levied. The problems of double non-taxation and
double taxation should therefore be addressed via similar remedies."

Another contributor
[PwC] stressed that

"The crucial point
is that the phenomena of both double taxation and double non-taxation – are
inevitable consequences of the fact that the corporate income tax systems of EU
Member States have not been harmonised. There are strong arguments both for and
against such harmonisation and there seems limited desire by many Member States
at present to move in that direction. In our view, both phenomena – double
taxation and double non-taxation – are two sides of the same coin. One should
not be addressed without the other."

Coordination with other
international initiatives

A number of the
contributors from the business community pointed out that any initiative should
be coordinated with other relevant international initiatives: A contributor
[EBIT] wrote:

"[The contributor]
is concerned that the Commission initiative duplicates other pre-existing
initiatives such as those of the Code of Conduct Group.

The same contributor
also wrote:

[The contributor] was
concerned that the Consultation document has apparently not been coordinated
with the OECD‟s report on Hybrid Mismatch Arrangements, and vice versa.
This is a very worrying development as the phenomena of double taxation and
double non-taxation are global issues which should be addressed globally in a
coordinated way."

Another contributor [CIOT]
similarly drew the attention to

"the OECD document
on Hybrid Mismatch Arrangements published very shortly after this consultation
(March 2012). It advocates a different approach to countering these situations.
We agree with the OECD that the better way to address these issues is with
specific domestic anti avoidance rules and/or rules specifically addressing
hybrid mismatch arrangements rather than harmonisation. This is the only way in
which problems can be addressed without interfering with the rights of member
states to set their own tax policy.

Where there are cases of
countries applying different policies and tax rates (for example where
participation exemption is given to very low or nil taxed dividends), this
should be left to each EU Member State to decide how to implement tax policy;
to do otherwise will equate to tax harmonisation.

We would also mention
that the Code of Conduct Group has also recently considered hybrid instruments
(PPLs). We are surprised, therefore, to see this parallel initiative from the
Commission without reference to the Code of Conduct Group's prior and ongoing
work in this area."

Impact on European
economic competitiveness

There were several
contributors who were concerned with the impact on European economic
competitiveness. One contributor [EBIT] stated that:

"[The contributor]
considers that care should be taken that the current initiative will not
adversely impact the European economy's competitiveness which would be the case
if measures were unilaterally introduced in Europe whilst -ideally- still
building on an international consensus within the OECD regarding their parallel
initiative in respect of hybrid mismatch arrangements and the fight against
harmful tax competition.

Should the EU adopt any
new rule targeting double non-taxation, especially as regards transactions with
non-EU Third Countries, this should in [the contributor's] view be applicable
only to the extent that those countries would apply the same principles (as
done in the EU Savings Directive approach). The key word is reciprocity here,
and the application of the same principles in non-EU Third Countries should not
be simply aspirational as it currently is (see the Commission's strategy to
promote “good governance” with Third Countries), otherwise EU-based companies
will be subject to stricter rules than companies located in most non-EU
countries and therefore disadvantaged competitively. So, any action should be
undertaken in cooperation with relevant Third Countries."

Another contributor
[CIOT] wrote:

"Another
significant omission from the consultation is any consideration of the impact
that the proposals would have on EU headquartered multi-national companies. If
all of the situations addressed in the consultation were prohibited, this would
result in an increase in the tax base of all EU Member States, which would
significantly impact the ability of multi-national companies headquartered in
the EU to remain globally competitive unless statutory headline tax rates were
lowered. It would also hinder legitimate business restructuring and constrain
normal commercial transactions both within and outside the EU."

Responses to the
questions in the consultation paper

Issue 1 – Mismatches of
entities

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

Yes || 6

No || 0

Do not Know || 0

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

Yes || 5

No || 1

Do not Know || 0

Question C – Please give
relevant details about these mismatches of entities

It should be noted that
several of the contributors who only provided general remarks acknowledged that
hybrid entity mismatches can lead to double non-taxation (see also the summary
of the general remarks).

One contributor informed
that there is a mismatch as the French SNC (société en nom collectif) are
transparent for tax purposes in the United Kingdom and can opt to be subject to
corporate tax in France. The contributor however stressed that
such mismatches do not necessarily lead to double non-taxation.

Another contributor also
gives the example of an entity that can opt for transparency: Amongst the
transparent entities, there could be some entities having the same legal nature
in two countries but which, in one country only, can be treated as transparent
entities by option. E.g., under Italian tax legislation (Art. 115 and 116 of
the TUIR- Unified Direct Taxation Code) private limited liability companies
meeting some conditions relating to their members can opt for the same tax
transparency regime applicable to partnerships. This possibility was introduced
in order to eliminate economic double taxation in the event of dividends
distribution, as in Italy the distribution of dividends is taxed in the hands
of receiving shareholders. There could according to the contributor lead to
both economic double non-taxation and juridical double non-taxation of
dividends whenever the Member State of residence of the (two or more) corporate
shareholders applies a total participation exemption regime. A regime – the
optional tax transparency for certain private limited companies – which was
introduced to prevent economic double taxation in light of the tax treatment of
domestic dividends could thus be used beyond its purpose and could give rise to
unintentional double non-taxation. The contributor thus believe that, amongst
the “hybrid entities”, it would be necessary to include also those entities
that can benefit from tax transparency by virtue of an option, and not only
those that have access to this regime by their own legal nature.

A third contributor has
certain doubts as to whether the example quoted by the public consultation is
really relevant. In any case, they feel that in order for double non-taxation
to occur in the given example, a number of specific circumstances must be
present: Country A must not regard the “hybrid” to be a PE of the Parent (as
otherwise, it would probably not allow the deduction of interest, save for
special circumstances such as cross-border tax grouping), and Country B must
have in place a group relief regime, which, for instance, Hungary does not
have. Notably, as a Hungarian registered partnership is fiscally opaque,
interest deduction with a Hungarian partnership as a debtor is available
irrespective of the fact that the same entity is treated as a transparent
entity from the perspective of the parent company’s jurisdiction.  As such,
interest deduction could be possible with the parent as well.  Hungarian tax
deduction cannot be denied for this reason.

This contributor however
finds that mismatch of entities can be relevant in a number of other cases, the
most prominent of which is where Country A (in which the parent is located)
considers its hybrid subsidiary in Country B to be a transparent PE whereas
Country B regards the same entity as a company. When the hybrid is sold,
Country B would generally regard that it is not entitled to tax the capital
gains on such a sale whereas Country A does not regard it either as being
entitled to tax those gains (treating the gains as the income attributable to
the PE).  The result will be double non-taxation, and this is indeed a mismatch
that has frequently been exploited in the past.  Notably, no effective
Hungarian double tax treaty has yet had a provision equivalent to Article 23A,
Paragraph 4, in the OECD model.

Question D – Please
provide any suggestions you might have for ways in which these mismatches of
entities could be tackled

One contributor thinks
that there would be at least two alternative ways to tackle mismatches of
entities, which would allow each national authority to immediately identify
these mismatches.

The introduction of an
“automatic information exchange” mechanism. EU Member States should
systematically exchange a list of all entities which, in their respective
jurisdictions, are treated as tax transparent. This list should indicate the
legal nature and conditions (if any) for transparency, and should include both
those entities which are tax transparent by legal nature and those that can be
tax transparent by way of option; it should also be updated at the occasion of
any tax regime change.

Alternatively, as the
forms of business organisations tend to coincide (from the company law
viewpoint) from one Member State to another, each Member State could
communicate this list to the Commission, which could use it for creating a
central database (accessible to any national tax authority) containing an
“equivalence matrix” of legal entities, in which each national tax authority
could check what legal entities, set up in other Member States, correspond to
the entities which are treated as tax transparent in its own jurisdiction, and
what is the tax treatment of these correspondent entities.

Another contributor on a
similar note believes that an EU-wide list of non-transparent entities for
double taxation purposes could go a long way towards solving this problem. The
lists in the Merger and Parent-Subsidiary Directives could be used as a very
good starting point.

Another contributor
believes that in the example given in the Public Consultation, interposing a
company can be justified by other reasons (in particular, legal or statutory
reasons). If it is not the case, double non-taxation can be tackled by the
doctrine of abuse of rights (abus de droit). The different treatment of
the same entity can be the result of not only differences in the tax rules, but
very profound differences between legal and statutory systems. The debate
should therefore be taken within a broader context.

Issue 2 – Mismatches of
financial instruments

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

Yes || 5

No || 0

Do not Know || 0

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

Yes || 4

No || 1

Do not Know || 0

Question C – Please give
relevant details about these mismatches of financial instruments

It should be noted that
several of the contributors who only provided general remarks acknowledged that
hybrid financial instrument mismatches can lead to double non-taxation (see
also the summary of the general remarks).

One contributor gives
the following example: The treatment of ORA (Obligation Remboursable en
Actions) in French-American schemes. These are treated as debt instruments in France allowing the deduction of coupons and as capital instruments in USA generating tax-exempt
income.

Another contributor
believes that this is one of the most typical and most exploited forms of
double non-taxation, and it is impossible to list the many kinds and
circumstances.  However, most of them do seem to follow the basic pattern as
described in the Commission’s example. Mismatching is thus not precluded even
in Hungary. Participating loan is always considered in Hungary as a loan. The Hungarian debtor can thus get access to interest deduction in the
case where the income the creditor receives may be qualified in the
non-Hungarian situation as dividends received and exempt from taxation there.
Hungarian interest deduction cannot be denied for this reason. Such a scheme
has proliferated, for example, in respect of the Netherlands – Hungary double tax convention.

Question D – Please
provide any suggestions you might have for ways in which these mismatches of
financial instruments could be tackled

One contributor believes
that double non-taxation results from the different tax and accounting
approach.

Another contributor
stresses that the underlying problem is that companies can exploit differences
in the definition of the tax base, and that tax treaties are an inadequate way
of dealing with this problem. This proves the necessity of a Common
Consolidated Corporate Tax Base, and to make it compulsory, not voluntary, to
address mismatches within the EU.

Another contributor
thinks that the mismatching addressed by Issue 2 goes to the heart of the tax
and accounting legislation of each country, which is very difficult to overcome
by definitions in any treaties. This issue may primarily be solved by promoting
some kind of harmonisation of these rules, such as the CCCTB initiative.
Switch-over clauses (as domestic, unilateral measures) could also be a good way
of coping with his problem, but those clauses are much more restrictive on
taxpayers and therefore on the fundamental freedoms of Community law.

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

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

Yes || 5

No || 0

Do not Know || 0

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

Yes || 3

No || 1

Do not Know || 1

Question C – Please give
relevant details about these cases

A contributor points out
that the Tax Convention between France and Italy can lead to a situation of
double non-taxation in the case of a French enterprise that has a building site
in Italy that lasts slightly less than 12 months. As France adopts the
territoriality principle, the building site will not be taxed in either of both
countries.

A second example is a
triangular situation where a company from State A has its place of effective
management in a State with low taxation; like Serbia that exempts the business
income.

Another contributor
gives the example of the treatment of real estate income and capital gains
arising from SPI (Société a Prépondérance Immobilière) in the tax convention
between France and Luxembourg. The contributor notes that the DTC between France and Luxembourg has been changed to address this problem.

According to another
contributor, one of the problems in relation to Double Tax Conventions is the
tension between source and residence taxation, as a result of which double
non-taxation can occur. Broadly speaking there is a difference between
countries using the model treaties of the United Nations (source-based, used by
a lot of developing countries) and the OECD (residence-based). The problem can
be clarified in a hypothetical Dutch example. The Netherlands has an extensive
network of DTC’s in which the Netherlands strives to lower (preferably to 0%)
the withholding tax levied by source countries on dividends, royalties and
interest. The Netherlands themselves don’t levy a withholding tax on most
interest payments or on royalties. When one takes the hypotheses of a DTC
between the Netherlands and source-country X with a 0% withholding tax on
interest and royalties, and residence-country Y being a country with no
corporate income tax this could lead to the following situation: interest and
royalties are not being taxed when entering the Netherlands, nor when leaving
the Netherlands. In residence-country Y the income is not taxed. So the
hypothetical company could end up untaxed on the income it transfers out of
country X through interest and royalty payments via the Netherlands to country Y.

Another contributor
believes that this issue is also a typical source of double non-taxation as
well as double taxation.  From the point of view of the taxpayers, it is mostly
problematic where either there is a mismatch of facts or that of timing.  The
first issue should be easy to avoid by adequate communication between the tax
authorities, whereas the second one should be overcome by a less formal
application of the concept of “tax period” or “tax year”, combined with better
communication. Foreign earned business income can be exempted from taxation in
a Hungarian treaty situation irrespective of the fact whether the Hungarian
beneficiary does or does not pay in fact tax abroad. The Hungarian tax
authorities do not usually request the taxpayer to prove that tax has been paid
in the other jurisdiction on the income to be exempted from Hungarian taxation.
In a few recent cases (see, e.g., the new Hungarian treaty concluded with the US in 2010, and with the UK and Germany in 2011), exemption is subject on the Hungarian side to
effective taxation applied in the other contracting state.  The contributor
reiterates that no effective Hungarian double tax treaty has yet had a
provision equivalent to Article 23A, Paragraph 4, in the OECD model.

Question D – Please
provide any suggestions you might have for ways in which this problem could be
tackled

One contributor suggests
the renegotiation of tax conventions and need for an agreement between Member
States.

Another contributor
believes that in situations where a company is resident in a Member State under the principle of territoriality, the other Member State should not apply the
threshold for building sites. As regards, triangular situations where a company
has its effective management in a State of low taxation, the solution would be
to use the centre of economic interests as the tie-breaker for the tax
residence of companies and not the place of effective management.

A third contributor
believes that a shift toward a more source-based taxation would be preferred in
relation to active corporate income. This way taxes would be levied where real
economic activities are located. This is both legally and economically fairer
than a predominantly residence based model, which would nonetheless remain
applicable to passive income (personal and corporate). It would also help
developing countries to close the existing gap with more developed countries.
Double taxation can be prevented by the residence country by granting a credit
for taxes on income levied by the source state.

Another contributor
thinks that a possible solution would be a better communication between the tax
authorities, perhaps aided by a permanent forum for solving intra-EU double
(non-) taxation issues which could go a long way of solving many issues in a
quick and straightforward manner.  Ultimately, though, the solution could only
be either the harmonisation of tax rules (e.g., CCCTB) or the application of an
EU-wide, multilateral international treaty or a Council Directive on the
avoidance of double (non-) taxation.

Issue 4 – Transfer
Pricing and unilateral Advance Pricing Arrangements

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

Yes || 2

No || 2

Do not Know || 1

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

Yes || 2

No || 2

Do not Know || 1

Question C – Please give
relevant details about these unilateral advance pricing arrangements

According to one
contributor,[10]
Energias de Portugul SA has a subsidiary in the Netherlands (EDP Finance BV) that issues publicly traded bonds and lends the proceeds onwards to related
entities abroad. In 2007, the subsidiary obtained an APA in the Netherlands that specifies its minimum taxable income as an arms-length return on equity
plus a spread of 0.03% on on-lent funds, minus operational costs. At the start
of 2010, the subsidiary had total equity of EUR 23 million while it had on-lent
over EUR 10 billion. Due to the tax ruling, the subsidiary's tax charge for
2010 was less than EUR 1 million even though it earned net interest income,
after operational costs and expenses, of EUR 63 million. This illustrates
according to the contributor that unilateral APAs specifying an alternative tax
base may result in almost complete double non-taxation of intra-group payments,
because the payments may be tax deductible in one member state but largely
excluded from the tax base in another member state due to such an APA.

Another contributor
stresses that a unilateral APA is regulated in detail in Hungarian statutory
law. The local business community has welcomed its introduction. The
Arbitration Convention does not seem to be efficient. Formation of arbitration panels
has not yet been known in Hungary, although Hungarian experts have been listed
with the Joint Transfer Pricing Forum to work as arbiters.

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

According to one
contributor, the suggestion that unilateral advance pricing arrangements (APAs)
may result in 'double non-taxation' may be correct in theory but it is, in
their experience, generally not correct in practice and could lead to the
conclusion that APAs are a bad thing. By contrast, APAs can be an important
element in providing the certainty to business that is so essential in
encouraging the investment required for economic growth.

Another contributor adds
that in their day-to-day business experience there have been very few instances
where unilateral APAs have resulted in a tax advantage due to a different
transfer pricing method being applied in the country of the counterparty
company compared to the method adopted by the company which has negotiated the
unilateral APA. In any event, to the extent that this is an issue, it should
wherever possible be addressed via the relevant tax treaty mutual agreement
procedure, rather than being categorised as double non-taxation. Within the
framework of the Code of Conduct Group, a solution to combat unilateral APAs
has been found by relying upon the spontaneous exchange of information, which
is now compulsory under the new EU Directive on the exchange of information.

A third contributor
believes that APAs should preferably be bilateral to avoid that they result in
unintended double non-taxation in combination with, for example, double tax
conventions. In the contributors view more openness at the European level would
be desirable. APAs should be made public, so that public scrutiny of the
agreement is possible as a safeguard against secret deals that deviate from
normal tax rules. If public disclosure is not possible, the minimum that should
be aimed at is information exchange between Tax Authorities on APAs being
agreed with business. This could be achieved with a European database that is
accessible by all European Tax Authorities and other cooperating tax
authorities.

Another contributor
feels that this is one of those issues where existing and/or purely unilateral
measures should be enough to tackle the problem, and should be left out of the
scope of the present consultation. Better use of MAPs, better use of the
exchange of information clauses should be enough to eliminate most of these
issues, or simply a better unilateral regulation of the APA processes.
Ultimately, though, the elimination of transfer pricing problems could only
come through the elimination of transaction-based transfer pricing approaches
instead of more robust and fail-safe systems (e.g. formulary apportionment) or
CCCTB.

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

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

Yes || 3

No || 2

Do not Know || 0

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

Yes || 2

No || 2

Do not Know || 1

Question C – Please give
relevant details about these kinds of transactions

One contributor explains
that the Netherlands is one of the countries not levying withholding tax on
most interest and royalties, while striving for a low or 0% source taxation in
Double Tax Conventions with third countries. Switzerland is a jurisdiction with
low taxes in the heart of the European Union. As KPMG puts it[11],
one of the strategic advantages of Switzerland is its “low taxation with
various tax planning possibilities”. Low-tax jurisdictions can be used for
diminishing taxation in several ways. For example, shifting corporate income
from an EU subsidiary to a Swiss headquarter (or a Swiss subsidiary in charge
of "corporate financial services" or a Swiss letterbox) can be
achieved not only through "classic" transfer mispricing of traded
merchandise, but also through overpriced royalties (for which there is no
market based "arms-length" price) and interest payments (in the case
of "thin capitalization" of the foreign subsidiary). Notably, EU
member states cannot raise a source tax on these transfer payments, as the
bilateral Taxation of Savings Income Agreement between the EU and Switzerland stipulates a zero withholding tax on intra-firm dividends, royalties and interest
payments. (In the case of developing countries, withholding taxes on dividends,
royalties and interest are likewise often abolished, or at least significantly
lowered, by means of bilateral double tax agreements.)

Another contributor
stresses that the dividends received inside or outside Hungary are exempt from corporate tax.  It is not precluded that the taxpayer benefits from
this regime irrespective of the fact whether the subsidiary, out of which
dividends are paid, is subject to normal taxation. As an example for
mismatching that can occur in Hungary, it can be mentioned that interest of the
loan can be deducted, which is paid to a creditor subject to low tax or no tax,
although the burden of proof is laid on the debtor to prove genuine business purposes,
and interest must be consistent with pricing at an arm’s length.  Interest
deduction cannot yet be denied for the sole reason that the creditor is not
subject to taxation comparable to the Hungarian debtor’s tax liability, or is
not subject to taxation at all due to the qualification of the other
jurisdiction, different from the Hungarian one.

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

According to a
contributor, the participation exemption for holding companies across most EU
Member States seems to be under attack in this issue. This is the cornerstone
of the tax systems of most EU Member States so this does seem inappropriate.
Many countries place restrictions on certain (usually related-party)
acquisitions of subsidiary shares, but if groups could not borrow at all in a
tax efficient manner to fund an acquisition of exempt participations, then they
would have to look at alternatives e.g. asset purchases or at worst relocate to
non-EU jurisdictions.

Another contributor
stresses that the exemption method for relief from double taxation of foreign
profits and dividends in particular is by far the most common method adopted by
OECD countries. Moreover this issue has already been identified by the Code of
Conduct Group which has adopted specific guidance for EU Member States
regarding CFCs or switch-over provisions.

A third contributor
reiterates a preference for source taxation for active business profits. The
unilateral or treaty-based exemption of withholding taxes on passive income
(royalties, dividends and interests) creates strong incentives for profit
shifting to non- or low tax jurisdictions and induces tax competition in the
rest of the world which backfires on EU competitiveness. This could be achieved
by the implementation of the Common Consolidated Corporate Tax Base, and to
make it compulsory not voluntary. Second, the European Commission could promote
or mandate a differentiation in outgoing payments, following the Brazilian
example. When the third country, where interest or royalties are going to, is a
low- or non-tax jurisdiction a higher withholding tax rate would be applied.
What is needed for this is an independent list of low-tax jurisdictions, for which
these stricter requirements would apply. Such a list can be issued
independently by the European Union. The report on "Promoting an
appropriate policy on tax havens" by the PACE (Parliamentary Assembly of
the Council of Europe) could serve as a model. A common list for the entire EU,
instead of the different lists that are currently used by national tax
authorities, would facilitate cross-border business and enhance the functioning
of the single market.

Another contributor
points out that these issues should be solved on a unilateral basis
(anti-abuse, CFC legislation etc.) and should be left out of the scope of the
present consultation.

Another contributor
stresses that the fact that interests and royalties are deductible allow
companies to move interest and royalties between countries within the Group so
that the effective tax rate decreases and results in double non taxation.

Issue 6 – Debt financing
of tax exempt income

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

Yes || 2

No || 2

Do not Know || 1

Question B - Are you
aware of cases where debt financing of tax exempt income is deductible?

Yes || 1

No || 1

Do not Know || 3

Question C – Please give
relevant details about these cases

No specific information
provided.

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

According to one
contributor, it is not clear why the consultation document apparently labels
the deductibility for taxation purposes of costs made to obtain tax exempt
income or gains from assets (such as substantial shareholdings) as 'double
non-taxation', where a Member State deliberately has decided that the income or
gain should be tax exempt. Real economic costs which negatively impact the
commercial profits of a company should in the contributor's view be deductible
for taxation purposes.

Another contributor
believes that the participation exemption for holding companies across most EU
Member States seems to be under attack in this issue (see more details above
under issue 5).

Another contributor
stresses that this issue targets borrowing via a local acquisition company to
acquire and tax group/tax consolidate with a local target company, where a sale
of the shares of the resulting acquired sub-group by the investors would be tax
free. This is a consequence of tax policy choices made by the countries
concerned rather than double non taxation. Moreover, in the scenario used in
the Consultation document, the acquisition is financed through a third party
loan, that is to say through an economic operator which will itself be subject
to tax. In other words, this is not a double non-taxation situation: the
profits of a company are matched with the losses of its parent: at group level
no profit is realised, so why would it be taxed, and the lending bank is
taxable on the interest it receives.

Another contributor
reminds that interest deduction is not precluded in Hungary, even if the income
received is not taxed, e.g., due to dividends received deduction, although
double dip is prohibited by statutory law in general. The benefits of interest
deduction and exempted dividends do not derive from the same factual
circumstances. Interest deduction is not precluded either where the creditor is
a PE of the Hungarian company that operates in a low-tax jurisdiction. For
example, privileged Swiss PEs are used by Hungarian companies to generate
through it income from private loans. This does not seem to be restricted
either by the Hungarian, or the Swiss tax authorities. The interest expense
assumed by the holding company of an LBO (leveraged buy-out) scheme can be used
to reduce the taxable basis of the target company after merger.  This is not
prohibited under Hungarian statutory law, although such a scheme can be
challenged by the tax authorities, based on a GAAR (general anti abuse rule).
Foreign resident corporate taxpayers[12]
do not pay tax in Hungary, but in exceptional cases. Therefore, the income of
dividends, interest, royalties and capital gains derived from the disposal of
shares is widely exempt from Hungarian corporate taxation despite the fact that
the beneficiary may operate in a low-tax jurisdiction.

Another contributor
suggests possible solutions as to tax interests and royalties at source or to
subject the assets to a property tax.

Issue 7 – Different
treatment of passive and active income

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

Yes || 2

No || 2

Do not Know || 1

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

Yes || 2

No || 2

Do not Know || 1

Question C – Please give
relevant details about these cases

One contributor
reiterates that the Netherlands has an extensive network of DTC’s in which the Netherlands strive to lower (preferably to 0%) the withholding tax on dividends, royalties
and interest. The Netherlands themselves don’t levy a withholding tax on most
interest payments or royalties. The contributor also repeats the hypothetical
Dutch example already mentioned under Issue 3 above, where the hypothetical
company could end up untaxed.

According to another
contributor, interest and royalty deduction is independent in Hungary of the fact whether the beneficiary of payment operates in a low-tax jurisdiction.
This may cause double non-taxation with the beneficiary because the income the
latter derives is exempt from Hungarian taxation (at the moment there is no
withholding tax in Hungary that would be applicable to the Hungarian-earned
income of foreign enterprises).

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

One contributor stressed
that it is not clear why Issue 7 of the Consultation Document mentions tax
incentives for the promotion of research and development in the context of
double non-taxation. The level of taxation is exactly what the EU Member State
in question wanted to achieve.

According to another
contributor, this Issue amongst other things concerns special regimes for the
taxation of income from intellectual property. This contributor considers that
it is not a situation of double non-taxation but the result of legitimate
policy choices of the Member State concerned, i.e. the promotion of research
and development. Some of these tax regimes have been notified in advance to the
Commission which decided that they do not amount to State aid within the
meaning of Article 107(1) TFEU.

A third contributor
reiterates that a shift toward a more source-based taxation would be preferred
in relation to distributions of active corporate income (already mentioned
above under Issue 5).

Another contributor
believes that these issues should be solved on a unilateral basis (anti-abuse,
CFC legislation etc.) and should be left out of the scope of the present
consultation.

Issue 8 – Double Tax
Conventions with third countries

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

Yes || 3

No || 0

Do not Know || 2

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

Yes || 1

No || 2

Do not Know || 2

Question C – Please give
relevant details about these double tax conventions with third countries

According to one
contributor, the DTC-networks of some EU-countries could be used for low- or
double non-taxation, since withholding tax on royalties and interest are not
levied. In addition dividend-conduits are possible. This is when a route A-B-C
for dividends is more beneficial than a direct A-C route because of beneficial
tax treaties between A and B and between B and C. Also DTC’s may also lead to
double non-taxation with respect to capital gains (for example the India-NL and
India-Cyprus treaties, which in many cases give exclusive taxing rights to the
low-tax regimes on capital gains on the sale of shares in Indian companies). A
couple of clear examples concerning US-corporations have according to the
contributor appeared in press articles. In the outlined structures – which lead
to a lower overall tax rate – EU-countries like Ireland and the Netherlands play a prominent role.

Another contributor
stresses that Hungarian double tax conventions typically do not contain tax
sparing clauses. Double non-taxation can still occur in a few cases. For
instance, under the Hong Kong – Hungary treaty, Hungary does not require
effective taxation while granting exemption on the Hungarian side. At the same
time, Hong Kong may exempt from Hong Kong taxation under its national law the
passive income derived through a Hong Kong-based PE of a Hungarian enterprise
outside Hong Kong.

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

A contributor repeats
that the European Commission could promote or mandate a differentiation in
outgoing capital flows, following the Brazilian example (see above under Issue
5).

According to another
contributor, although these issues could be relevant for the future discussion
on double non taxation, the EU should at present primarily concentrate on
solving double (non-) taxation that occurs within the EU.  Given the “four
freedoms” regime in an EU context, full elimination of double (non-) taxation
within the EU should be a priority.  Indeed, we cannot really talk of a true
internal market as long as these issues are not solved by either harmonisation
measures as the CCCTB, or by adopting a multilateral instrument on the
avoidance of double (non-) taxation within the EU.

Another contributor
thinks that the tax convention benefits should be conditional to a minimum
corporate taxation rate of 25%.

Issue 9 – Disclosure

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

Yes || 3

No || 1

Do not Know || 1

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

Yes || 3

No || 2

Do not Know || 0

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

According to a
contributor, it is not relevant in France as the doctrine on abuse of rights (abus de droit) tackles these
situations.

Another contributor
strongly advocates for Automatic Information Exchange between jurisdictions on
a multilateral basis. One of the mayor problems with non-automatic information
exchange is that information is only exchanged on request. This means one needs
to know what one is looking for, before one makes a request for it.

Another contributor
thinks that the policy of replacing exchange of information by a withholding
tax is dangerous as the tax authorities do not know the identity of the tax
payer. As a result, there is a risk that capital gains are not properly taxed.

Question D – If your
answer is yes to B, please specify what the experiences in member states are

One contributor claims
that in the Netherlands the Ministry of Finance has reported repeatedly that
TIEA’s lead to a low amount of information exchange. In general terms, Nobel
Laureate Stiglitz (2001), with his research on market failure due to
information asymmetries in market exchanges, provided a convincing theoretical
framework to understand the role of public disclosure of relevant information. In
its recent report on OECD’s Global Forum on Transparency and Exchange of
Information for Tax Purposes, the contributor provides evidence based on IRS
findings about the crucial role of information reporting for tax compliance In
this framework, country by country reporting is widely believed to create a
massive voluntary and anticipatory adjustment in corporate profit shifting
because of reputational and audit risks associated with improved taxpayer
compliance. Furthermore, Argentina’s tax administration AFIP’s recent example
of clamping down on massive tax evasion by the world’s largest grain exporters
is an example showing the relevance of intra-firm trading and financial data
being included in corporate annual accounts on a country-by-country basis.

Another contributor
stresses that Hungary has not yet taken any step to introduce voluntary
disclosure rules or apply any method that would be applied with a view to
constituting any form of an enhanced relationship to be established under the
respective OECD documents.  Hungary applies advance rulings, but has not
launched so far any project on the horizontal enforcement of taxation rights
and liabilities. In general, no special disclosure rules, whether mandatory or
voluntary, are aimed at aggressive tax planning.

Issue 10 – Other issues?

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

Yes || 2

No || 0

Do not Know || 2

Question B - Please give
relevant details about these kinds of double non-taxation cases

One contributor explains
that the Hungarian CFC legislation does not seem to be efficient.  Notably,
there are no income or asset tests to filter out passive income or tainted
assets.  The definition on genuine business activity is dubious. As passive
income is not excluded from the scope of substantive business activity, it can
happen that a CFC operates in a jurisdiction with a ring fencing regime,
obtains income from third countries to meet the offshore criterion of the low
tax jurisdiction, and yet is still able to show genuine business activity there
for the purposes of Hungarian legislation.  Interestingly, the Hungarian CFC
law does not refer to the lack of the comprehensive exchange of tax information
across the border. Besides, there are no comprehensive reporting obligations in
Hungary on the offshore activity of business.

According to another
contributor, recent events in connection with VAT also fall under double
non-taxation.

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

No specific information
provided.

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

One contributor points
out that many of the problems of double taxation or absence of taxation in fact
relate to characterisation or anomalies of tax treaties.

One contributor suggests
consulting or financial firms could provide their legal opinion on
sophisticated schemes to lower taxation or that lead to double non-taxation and
disclose these schemes.

Annex 2

List of
Contributors

Name || Sector || Country || Interest Representative Register

OECD || International organisation || France || No

European Network on Debt and Development (EURODAD) || Non-Governmental organisations || Belgium || Yes

IFA Hungarian branch || Non-Governmental organisations || Hungary || Yes

Tax Justice Network || Non-Governmental organisations || Belgium || Yes

Weltwirtschaft, Ökologie  & Entwicklung || Non-Governmental organisations || Germany || No

Cerioni, Dr. Luca || Tax advisor or tax practitioner || Italy || No

Fibbe, Gijs || Tax advisor or tax practitioner || Netherlands || No

Grossman, Andrew || Tax advisor or tax practitioner || United Kingdom || No

Jarass, Dr. Lorenz || Tax advisor or tax practitioner || Germany || No

American Chamber of Commerce to the European Union (AmCham) || Trade, business & professionals associations || Belgium || Yes

BusinessEurope || Trade, business & professionals associations || Belgium || Yes

Confederation of British Industry (CBI) || Trade, business & professionals associations || United Kingdom || Yes

European Business Initiative on Taxation (EBIT) || Trade, business & professionals associations || Netherlands || Yes

Federation Bancaire Française || Trade, business & professionals associations || France || Yes

Federation of European Accountants || Trade, business & professionals associations || Belgium || Yes

Institute of Chartered Accountants in England and Wales (ICAEW) || Trade, business & professionals associations || United Kingdom || Yes

MEDEF || Trade, business & professionals associations || France || Yes

National Foreign Trade Council, Inc (NFTC) || Trade, business & professionals associations || USA || Yes

PricewaterhouseCoopers International Limited (PwC) || Trade, business & professionals associations || United Kingdom || Yes

Society of Trust and Estate Practitioners (STEP) || Trade, business & professionals associations || United Kingdom || Yes

Tax Executives Institute, Inc (TEI) || Trade, business & professionals associations || USA || Yes

The Chartered Institute of Taxation (CIOT) || Trade, business & professionals associations || United Kingdom || No

United States Council for International Business || Trade, business & professionals associations || USA || No

VNO-NCW || Trade, business & professionals associations || Netherlands || Yes

Anonymous || Unknown || n/a || No

[1] COM(2009)201

[2] COM(2011)712

[3] Annex 1 provides a more detailed presentation of the contributions
received.

[4] OECD report on "Hybrid Mismatch Arrangements: Tax Policy and
Compliance Issues".

[5] Report to the Council (ECOFIN) on 11 June 2012 (doc.10903/12 FISC
77, par 17-18)

[6] COM(2011)712 final

[7] The issues were briefly described in the consultation paper.

[8] This presentation does not include remarks or comments received in
the anonymous contribution.

[9] In fact, many of the contributors are international organised (e.g.
OECD and a number of business and professional associations and NGOs)

[10] The contributor (Tax Justice Network) has confirmed that the
information in the example is publicly available in the annual accounts.

[11] The contributor refers to a publication by KPMG.

[12] Non-resident companies are taxable in Hungary if it has a permanent
establishment.

Annex
10 - Extracts from PWC Study

The
issue of quantification

The Commission services
encountered significant difficulties in gathering information on how EU MS’
revenues were impacted by aggressive tax planning, tax havens and
non-cooperative jurisdictions, as well as by anti-abuse measures[1].

 Although the Commission
had requested to include the quantitative impact of the identified problems and
of the measures taken against non-cooperative jurisdictions (NCJ) and
aggressive tax planning (ATP) for the concerned MSs, in order to be able to
better quantify, on the basis of publicly available information,  the current
revenue losses in MS stemming from  the use of non-cooperative jurisdictions
and aggressive tax planning, and the potential impact of possible remedies, in
this respect the outcome of the Study was quite limited due to lack of publicly
available information.

The contractor explained
why limited quantitative information was available on tax measures in relation
to non-cooperative jurisdictions and aggressive tax planning:

‘It appears from the
Study that very few information was available with respect to (expected)
quantitative impact of the identified problems and of the measure (i.e. tax
revenues) and with respect to the evaluation made by the concerned MSs of the
effectiveness and sufficiency of such measures. This could most probably be
explained by the absence of quantitative assessment, by the fact that most of
the measures are relatively old [10-20 years ago], following which the quantitative
assessment which might have been performed initially (if any) is no longer
representative or useful today, or because such information is considered as
confidential. Another element which can entail that there is no relevant
quantification available in relation to a measure, is the fact that a measure
has been implemented in a Law containing various measures or together with
other measures. In such a case any impact assessment or evaluation will
generally be a global assessment not linked to a specific measure included in
the Law, therefore no relevant figures for the purposes of the current Study
will be available.’

Against this background,
the quantitative information available for some countries is the following:

For Denmark, in general the quantitative impact of a measure is estimated in the
Preparatory Works of a Bill. The Bills typically comprise more than one measure
and the estimated effect is often estimated for the entire Bill as a whole.

For the older
measures (measures introduced before 2000) information of the estimated
quantitative impact of the measures is not easily available. Subsequent
adjustments to the measures have primarily been corrections of un-intended
effects of the measures and to align with EU legislation, etc.

For the
recent measures the following estimations of tax revenue were provided:

• Section 2A to the
Danish Corporate Tax Act: the Act as a whole is estimated to be revenue
neutral.

• Section 2C to the
Danish Corporate Tax Act: the measure is estimated to secure un-intended loss
of tax revenue.

• Section § 11B+§ 11 C
to the Danish Corporate Tax Act: the estimated lasting tax revenue from the two
measures is estimated to be EUR 13 million.

• Section § 65 D to the
Danish Tax at Source Act:  the Act as a whole is estimated to result in a
limited loss of revenue.

In Estonia, there is no public information available about the quantitative impact of
the measures using reasonable efforts. Any estimates accompanying bills are too
general to be relevant. Although this was clearly out of scope of the
assignment, the contractor has also contacted the Minister of Finance, where
its contact person confirmed that as far as they are aware, no such assessments
are available;

For France, the contractor confirmed that Parliamentary debate and official information
does not give any further quantification information on the impact assessment
or evaluation of the reported measures. Also they refer to an official Paper,
"Evaluations préalables des articles du projet de loi de finances rectificative
pour 2009", in which it is expressly mentioned that the budgetary
consequences of the measures relating to ETNC cannot be estimated. However, it
is indeed possible that the financial impact of the measures on the budget of
the given year are estimated, but this information generally refers to the
global impact for the entire set of rules relating to the corporate income tax 
modifications, or other proposed modifications. Such information does thus not
give detailed information about the ATP/NCJ measures as such.  France also reports some quantitative information with respect to its thin capitalization
rule (Art. 212 du code général des impots), EUR 136 mio. (1999), EUR 125 mio.
(2000), EUR 106 (2001), EUR 115 (2002), EUR 98 mio. (2003)[2].

For Germany, the quantitative effect of the specific measure in relation to the use of
tax losses (anti-loss trafficking rule) is estimated at EUR 1.475 mio per year;

In the Netherlands, quantitative impact assessments were mentioned with respect to two
Non-Specific Measures, being the restriction on the deduction of interest on
acquisition debt EUR 31 mio (2012), EUR 62 mio. (2013), EUR 93 mio. (2014), EUR
124 mio. (2015), and EUR 155 mio. (after 2015) and the restriction on the
deduction of interest on participation debt (EUR 150 mio);

In Sweden, prior to the entry into force of the interest stripping rules, the
Swedish Tax Agency released a survey in which they estimated that the
deductions for the deemed artificial party debt reduced the Swedish tax income
with SEK 7 billion. Post enactment of the interest stripping rules, the Swedish
Tax Agency mentioned in its latest report that the total interest reductions
were back at the level of 2003-2006, meaning again an increase of the interest
deductions. As Sweden has adopted an amendment to this rule, extending the
scope to all intra-group loans (instead of loans granted for the purpose of
acquiring a related party), a new assessment is made providing for an estimated
increase of the Swedish tax income with SEK 6.29 billion (7.49 billion € on
3.09.2012);

In Spain, in theory, there is an obligation to prepare an economic explanation (with
the quantitative impact) of the amendments and submitted it within the Draft
Bills. However, in practical terms, it is difficult to obtain these economic
explanations. Based on the contractor’s review of the available documentation,
no information was found in the explanations on the reported measures. Also,
the economic explanation (the quantitative impact) is not included in the Law
that approves the measures. Moreover, the economic explanations of the
amendments are not easily accessible (if and when available).

In the United Kingdom, the
information which is publicly available regarding the quantitative impact of
new measures is included in the "red books", which are published
along with each Budget and set out the estimated expected financial impact of
material new measures. As time goes on, this information for previous budgets
becomes difficult to find. Also, in some cases, the only figures available on
the quantitative impact of a new measure are aggregated with several other
measures and therefore not relevant for the purposes of this study. The only
relevant information which was found in this respect, has is the following: the 2011
budget report sets out the expected cost of the full reform to the CFC rules
(£210m in 2012-13, £540m in 2013-14, £770m in 2014-15 and £840m in 2015-16).
With respect to the upcoming General Anti-Avoidance Rule, the Liberal Democrats
had initially estimated that it could raise £2.1bn per year in corporation tax.
However, this figure is likely to be smaller if the scope of the GAAR is
narrowed (as suggested in Graham Aaronson’s report). With respect to the
anti-arbitrage measures, the Budget 2005 report sets out the expected Exchequer
yield as a result of this policy to £130m in 2005-6, £200m in 2006-7, and £200m
in 2007-8 (indexed figures);

For Luxembourg,
the contractor confirmed on the basis of a high-level check to retrieve the
information requested, that together with their experience, it considered that
information regarding the quantitative assessment and evaluation which can be
of any significance was not available;

Range of Anti-abuse Measures

For instance, amongst
the 14 MS reviewed by the PWC study [n° 26 sq.], 165 anti-abuse measures were
adopted and 8 MS had adopted at least 10 anti-abuse measures each. Many MSs
have a significant number of anti-abuse provisions in their legislation,
covering many different forms of potentially abusive behaviour (according to
the local tax legislation or administrative practice/case law), such as
shifting profits to low tax jurisdictions, erosion of the tax base through
excessive debt financing, etc.

The anti-abuse measures
applied by the 14 Member States covered by the PWC study can be divided in
several categories:

·
CFC
regulations

·
Transfer
Pricing Measures

·
Deductibility
of expenses

·
Measures
on outbound income

·
Measures
on inbound income

·
Disclosure
Requirements

·
General
anti-abuse provisions

·
Various
measures

All Member States have
at least one general anti-abuse rule (“GAAR”), except the United Kingdom, where adoption of a general anti-abuse rule is nevertheless being
discussed. In particular, the foundations for these GAARs can take various
forms; ranging from the “abuse of law” principle, a “simulation” or
"sham" theory to the “substance over form” principle. None of these
measures applies to Third Countries only. On the contrary, they are often
equally applicable regardless of the territorial scope of a given transaction
(i.e. purely domestic situations, transactions within the European Union and
transactions outside the European Union).

With regard to the countries
targeted at by these measures, table 4 (‘Comparison of lists’) of the PWC
study shows that as a result of these various criteria used by MS, there is
little or no overall consistency amongst the EU MS in their respective ‘black
or grey’ lists (see tables in appendix 11).

During the consultation process it was broadly
recognised by MS that these individual or specific actions often had limited
effectiveness given the international scope of the problem, and that this was
also due to the absence of common definitions of NCJ or ATP between EU MS: any
joint action  pre-requires a common understanding of the situations considered
as problematic. During the Fiscalis seminar on 17/7/2012, several MS and
stakeholders suggested, as a prerequisite for efficient joint action, to agree
on common definitions of NCJ and ATP.

[1]           See also under point 2.2.3.2 how MS responded to the
Commission services

[2]           La concurrence fiscale et l´entreprise, vingt- deuxième
rapport du Président de la République, Conseil des impots, 2004.

ANNEX 6 – Tax havens: literature review and quantitative estimates

Definition
of tax havens used in economic data

The
economic literature often uses a broad definition of tax havens. A tax
haven in this respect can be defined simply as a country, which imposes low or
no tax on corporate income with a goal of attracting capital (Gravelle, 2009).
Estimates on profit or investment flow, and revenue losses related to tax haven
operations are generally based on this broad definition.

When
the broad definition is used, the list of tax haven jurisdiction is quite long.
The famous list of Hines and Rice (1994) contains 41 countries, many of which
are small island states in the Caribbean or elsewhere, or other small
countries, and also includes a few European countries, such as Ireland, Cyprus, Malta, Luxembourg and Switzerland. These countries also appear in a list of 50
countries of Gravelle (2009), which is a combination of various lists[1].

The analyses
of tax planning and profits shifting operations of multinational companies
in economic literature are based and the broad definition. These operations,
which aim at the reduction of taxes, but within the limits of existing law, are
often labelled tax avoidance. Tax havens in a broad sense play an
essential role in tax avoidance behaviour of multinational companies.
Operations, which are criminal or illegal, often labelled tax evasion or
fraud, require secrecy and non-transparency, and therefore a narrower
definition of tax havens would be more relevant in the analyses of these
operations. According to Gravelle (2009) a large part of tax haven operations
of multinational companies can be characterized as tax avoidance, while some of
them are in the limit of tax evasion. Tax haven operations of private
individuals have more a character of tax evasion and are hence associated with
a narrower definition.

The
estimates of profit and investment flows and tax revenue losses associated with
tax havens depend also on the definitions used. Most existing estimates of
these flows are based on the broad definition, and thus include both tax
avoidance and tax evasion.

Evidence
on international tax planning

There
are no precise estimates of the extent of income shifting to tax havens, but
indirect evidence suggests that it is fairly massive. Revealing evidence is
presented in Gravelle (2009). According to this paper the amount of US foreign
company profits relative to GDP in G-7 countries is between 2.6% and 0.3 %
(weighted average 0.6%). In larger countries often included in tax havens lists
(including Luxembourg, Ireland, the Netherlands, Switzerland, Cyprus, and a few Asian and Caribbean countries) the amounts are higher, reaching 18.2% in Luxembourg, 7.6% in Ireland and 4.6% in the Netherlands. In small island states and other small
countries often figuring in tax haven lists these amounts are still many
multiples: for instance Bermuda 645.7%, British Virgin Islands 354.7% and
Cayman Islands 546.7%, Jersey 35.6% and Guernsey 11.2%. These numbers suggest
that some multinational companies indeed locate their profits in so-called tax
havens (although these numbers do not indicate how much taxes are avoided
through these operations).

The EU
is a very important source of FDI in tax havens worldwide. In 2010, the total
FDI stock in tax havens originating from the EU (768 bn USD) was almost as high
as the stock originating from the US (824 bn USD)[2]. This suggests
that the EU is approximately as relevant as an economic partner to tax havens
worldwide as the US is. In relative terms, 21% of all FDI US outwards FDI stocks are directed to tax havens whereas this figure is 14% in the EU.

It is
worth to take into account that FDI from the EU is highly important for tax
havens: For the entire set of the 45 economies, the EU-originated FDI stock is
equal to 55% of their combined GDP. The maximum value (for Bermuda) is 2130%
meaning that the EU-originated FDI-stock for this country is more than 21 times
higher than its GDP.

The
share of tax havens in receiving FDI from the EU is particularly high on the
European and the Northern American continent. Within non-EU Europe 65% of FDI
stock originating from the EU countries is in tax havens (Switzerland, Liechtenstein, Andorra, Gibraltar, the two Channel Islands, Isle of Man and San Marino). Disregarding Switzerland, the figure is still 26% for non-EU and
non-Switzerland Europe. For North America and the Caribbean (including US which
is the single largest recipient of EU outward FDI) this amounts to 10% of all
EU-originated FDI.

Gumpert
– Hines Jr. –Schnitzer (2012) provide some evidence on tax haven behaviour of
German companies. They find that German manufacturing firms, which, unlike US
companies, do not have the tax deferral motivation for using tax havens, are
more likely to invest in tax havens when they also have investments in high-tax
locations, and vice versa, investment in a tax haven makes an investment in a
high-tax location more likely. The interpretation is that tax havens are used
to reallocate profits between foreign affiliates away from high-tax
jurisdictions.

The
role of wealthy individuals and bank secrecy

Also
wealthy individuals all over the world make extensive use of tax havens.
The purpose of these operations is to hide income from tax authorities in order
to avoid domestic income taxation. These operations are often illegal and thus
characterized as tax evasion rather than avoidance. The simplest form of such
operations is to open a bank account in a tax haven under a false name (in the
name of the company located in the tax haven) and deposit money in that account
using electronic transfers.  The extent of these operations is less known than
the tax avoidance operations of multinational companies, but anecdotal evidence
suggests that the money flows related to these operations are at least as
important than those of MNCs.

Bank
secrecy is essential for the success of these operations.  In recent years
international efforts have been taken to end the bank secrecy by compelling tax
haven to conclude the exchange of tax information agreements (e.g. G20
initiative, OECD initiative, EU Savings Directive). A recent paper by
Johannesen and Zuckman (2012) examines the effect of these agreements on banks
deposits in tax havens. They show that the number of bilateral treaties
allowing for information exchange between tax haven and non-tax haven countries
has increased very significantly since 2009, but cross-border deposits in tax
havens have remained stable in the same period as a whole. There was, however,
some reallocation between tax havens is a way that the havens that signed many
treaties have lost deposits at the expense of havens that have signed few
treaties.  The authors conclude that information exchange treaties are a
relatively inefficient way of fighting tax evasion.  The main reasons for this
are that there are too few bilateral treaties leaving many countries outside
the exchange of information, and secondly that the exchange of information is
often not automatic, but only upon request, which is a relatively tedious way
of detecting tax evasion.

Estimates
on tax revenue losses

Some
estimates on tax revenues losses caused by tax haven operations exist for the US (but not for the EU countries). Gravelle (2009) presents some of these estimates, which
have a relatively wide range of variation. Corporate tax avoidance could
cost to the federal government up to $60 billion (in 2004), if it is assumed
that 35% tax rate is applied on $180 billion corporate profits shifted out of
the US.  There are also estimated of the revenues gain that could be obtained
by eliminating the deferral in the US tax system. These estimated, that vary
between $11 billion and $26 billion, give also an indication of the revenue
cost from profit shifting by US companies.

Concerning
the revenue cost of individual tax evasion Gravelle (2009) presents some
estimates found in literature. In the case of the USA estimates are based on
the value of individual net worth invested outside the US being $1.5 trillion. Depending which rate of return and tax rate is applied on the net
worth, the estimates of tax revenue losses vary from $50 billion to $15
billion. The Tax Justice Network has estimated that the worldwide revenue loss
from individual tax evasion for all countries would be $255 billion, using the
tax rate of 30% and the rate of return of 7.5%. It the same rate are applied on
the US case, the revenue loss would be $33 billion.

As
already mentioned, there are no direct estimates of the revenue loss effect of
tax planning in the EU. However, for purely indicative purposes, it is worth
taking into consideration the fact that the EU has a similar amount of foreign
direct investment (FDI) stocks in tax havens as the US does[3]. FDI stocks in
tax havens are closely related to corporate income arising in these
jurisdictions, which are in turn often affected by tax planning. The extremely
high profits generated by foreign owned corporations in tax havens compared to
the GDP of these territories (indicated above) also suggest that investment
into tax havens is motivated by tax planning opportunities. For these reasons,
while taking into account the differences in tax planning incentives of US and
EU actors due to the different tax regimes in the two territories, the
similarities in the volume of US and EU FDI in tax havens can be taken as an
indication that the magnitude of the revenue loss estimates available for the
US is representative for the EU, too.

The
impact of tax havens on non-haven countries

Are the
tax haven operations of multinational companies harmful for non-haven countries?
In this respect two different views are presented in economic literature.

According
to the first view tax haven operations are wasteful, they erode the tax bases
in non-haven countries and distort competition.  The paper by Slemrod – Wilson (2006) is the best known representative of this view. They show with a help of a
theoretical model that tax havens induce a welfare loss,  since they intensify
tax competition and force the non-haven countries to set lower tax rates, and
hence the lower supply of public goods, than would be the case without tax
havens.  Tax havens are wasteful, since tax avoidance operations require a lot
of resources form the companies, and also impose an administrative burden on
the governments, who try to prevent these operations. Hence, much more
resources are needed to collect the same tax revenue than would be the case
without tax havens. All the countries would be better-off, if they could agree
to increase their tax rates and lower enforcement, in other words, cooperate
more in preventing tax haven operations.

A
positive view on tax haven, presented, for instance in Dharmapala (2008) and
Desai – Foley –Hines Jr. (2005) is the following.

All
capital is not equally mobile across borders. Tax havens allow lower effective
tax rates on mobile capital, and thus setting higher tax rates on immobile
capital. In this way tax haven in fact mitigate tax competition, which is
welfare enhancing.  The evidence supporting this view id that 40% of US MNCs do
not have affiliates in tax havens (in 1999), indicating that not all companies
are equally able to make use of tax havens. Dharmapala (2008) also demonstrates
that corporate income tax revenues in the US have not declined in 1994-2006 in
spite of massive FDI flows to tax havens in the same period. Hence, tax havens
seem not to have eroded the CIT base in the US. This argument should be,
however, more qualified since the development of CIT revenues may depend also
on many other factors. For instance, in the EU CIT revenues have remained
relatively stable in spite of substantial reductions in statutory corporate
income tax rates, but this is explained by base broadening and the increase of
incorporation of domestic firms (see, de Mooij and Nicodème, 2008). Hence,
without tax havens the increase of CIT revenues could have been faster.

This
issue thus remains controversial and would require further investigation.

Tax
havens and the shadow economy

Tax
havens have several links with the shadow economy, although such links are
difficult to demonstrate because of their very nature. It seems at least that
without ‘tax havens’ it would be more difficult for undeclared activities and
profits to be concealed to the tax authorities of EU MS through opaque legal
and corporate structures.

The
shadow economy includes those economic activities and the income derived
thereof that circumvent or avoid government regulation or taxation. The major
component (about two thirds) is undeclared work, which refers to the wages that
workers and business don't declare to avoid taxes or documentation. The rest is
represented by business underreporting profits to avoid tax regulation[4].

Figure 1: Size of the shadow economy of 31 European Countries in
2012, % of GDP

Source:
Schneider, F. (2011), "Size and development of the Shadow Economy from
2003 to 2012: some new facts ".

Table 1: Size
of the shadow economy of 31 European countries over 2003 – 2012, % of off. GDP

List
of references:

Bilicka,
Katarzyna Anna and Clemens Fuest: With which countries do tax havens share
information? (unpublished), March 22,2012.

de
Mooij, R.A. - G. Nicodème:  Corporate tax policy and incorporation in the EU.
International Tax and Public Finance, 4 (2008), 478-498.

Desai,
M.A - C.F. Foley – J.R. Hines Jr.:  Do Tax Havens Divert Economic Activity?
University of Michigan and NBER, April 2005

Desai,
M.A- C.F. Foley – J.R. Hines Jr.:  the Demand for Tax Haven Operations.
University of Michigan and NBER, March 2005

Dharmapala,
D.: What problems and opportunities are created by tax havens?
Oxford Review of Economic Policy (2008) 24 (4):661-679

Gravelle,
J.E.: Tax Havens: International Tax Avoidance and Evasion.
CRS Report for Congress, July 9, 2009.

Johannesen,
N. – Zuckman, G.: The end of back secrecy?  An evolution of the G20 tax haven
crackdown (unpublished).  January 16, 2012.

Maffini,
G.:  Tax Haven activities and the tax liabilities of multinational groups.
Oxford Univeristy Centre for Business Taxation, WP 09/25, September 2009.

Rice Jr,
J.R. –E.M. Rice: Fiscal Paradise: Foreign Tax Havens and American Business.
NBER Working Papers 3477, October 1990.

Slemrod,
J. –J.D. Wilson: Tax Competition with Parasitic Tax Havens.
NBER Working Papers 12225, May 2006.

[1]       Organization for Economic Development and Cooperation (OECD),
Towards Global Tax Competition, 2000; Dhammika and James R. Hines,
“Which Countries Become Tax Havens?” December 2006; Tax Justice Network,
“Identifying Tax Havens and Offshore Finance Centers: http://www.taxjustice.net/cms/upload/pdf/Identifying\_Tax\_Havens\_Jul\_07.pdf;
 The OECD’s “gray” list as of April 2, 2009, http://www.oecd.org/dataoecd/38/14/42497950.pdf.;
GAO Report, International Taxation: Large U.S. Corporations and Federal
Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or
Financial Privacy Jurisdictions, GAO-09-157, December 2008.

[2]       FDI stock data published by the OECD and the Eurostat are
used. The tax havens taken into account are the ones listed by Gravelle (2009),
apart from the four EU Member States which are included there (CY, IE, LU, MT)
and Monaco for which no data is available. This leaves 45 countries. 2010 data
are used apart from some unavailable entries where 2009 or 2008 figures are
taken. Note that the FDI data published for most EU MSs disregards the
investments made by through special purpose entities (SPE), leading to a marked
underestimate of total EU-originated FDI.

[3] See also Bilicka and Fuest (2012) who use FDI
to proxy economic links between economies.

[4]       Schneider (2011), The Shadow Economy in Europe 2011

ANNEX 7
Jean-Pierre DE LAET

Head of Unit "Economic analysis,
evaluation & impact assessment support"

Directorate General Taxation and Customs
Union

European Commission

Rue De Spa 3 6/14 B 1000 Brussels

13 July 2012

Our Reference: 0120454/1/025810SKI.LSE

Your Reference: Specific Contract N° 12 implementing Framework
Contract N° TAXUD/2010/CC/101

Dear Sir,

Subject: Draft final
report on “Study including a data collection and comparative analysis of
information available in the public domain on existing and proposed tax
measures of the 14 EU Member States in relation to non-cooperative
jurisdictions and aggressive tax planning”

We refer to the Specific Contract N° 12
implementing Framework Contract N° TAXUD/2010/CC/101 titled “Study including
a data collection and comparative analysis of information available in the
public domain on existing and proposed tax measures of the 14 EU Member States
in relation to non-cooperative jurisdictions and aggressive tax planning” (below
“the Study”).

In accordance to this contract, we are
pleased to provide you with the results of our Study.

We would like to thank you for the
opportunity to work with the Commission on this interesting project.

Should you have any questions, do not
hesitate to contact us.

Yours faithfully,

Ine Lejeune                                                                                                             Patrice
Delacroix

Partner                                                                                                                      Partner

Tax Services                                                                                                           Tax
Services

Study including a data collection and
comparative analysis of information available in the public domain on existing
and proposed tax measures of the 14 EU Member States in relation to
non-cooperative jurisdictions and aggressive tax planning

Content

Tables. 5

Preface. 6

Executive Summary. 8

1.    Objective and Scope of the Study. 11

2.    Methodology. 12

2.1.    Phase 1 – Kick-off 12

2.2.    Phase 2 – Intermediary Report. 12

2.3.    Phase 3 – Final Report. 13

2.4.    Project Team.. 14

2.5.    Timetable. 15

3.    Data Collection. 16

4.    Comparative Analysis. 20

4.1.    Introduction. 20

4.2.    Definition of NCJ. 21

4.3.    Definition of ATP. 34

4.4.    General Overview of Available Measures. 36

4.5.    New Specific Measures. 41

4.6.    Other Measures. 43

4.6.1.     CFC Regulations. 43

4.6.2.    Transfer Pricing Measures. 51

4.6.3.    Deductibility of Expenses. 56

4.6.4.    Measures on Outbound Income. 65

4.6.5.    Measures on Inbound Income. 70

4.6.6.    Disclosure Requirements. 74

4.6.7.    General Anti-Abuse Rules. 78

4.6.8.    Various Measures. 84

4.7.    Pending Proposals or Future Measures. 85

4.8.    Impact Assessments and Evaluation. 86

5.    Conclusion. 88

Tables

Table 1: Timetable. 15

Table 2: Introduction
to the Questionnaire. 17

Table 3: Definition
of NCJ. 25

Table 4: Comparison
of Existing Lists. 29

Table 5: Definition
of ATP. 35

Table 6: General
Overview of Available Measures. 40

Table 7: CFC
Regulations. 47

Table 8: Transfer
Pricing Measures. 53

Table 9:
Deductibility of Expenses. 59

Table 10: Treatment
of Outbound Income. 67

Table 11: Treatment
of Inbound Income. 71

Table 12: Disclosure
Requirements. 76

Table 13: General
Anti-Abuse Rules. 79

\*           \*

\*

Preface

This document constitutes the Report on
the Study on existing and proposed tax measures in the European Union in
relation to Non-Cooperative Jurisdictions and Aggressive Tax Planning including
country data and a comparative analysis. The Study was conducted in three
phases.

Phase 1.
The first preliminary phase was mainly intended to define our approach. To
ensure the relevance of this Study, but also its practicability, we decided,
together with the European Commission, to limit the scope to a representative
sample of 14 European Union Member States, namely Belgium, Cyprus, Denmark,
Estonia, France, Germany, Hungary, Ireland, Luxembourg, Malta, the Netherlands,
Spain, Sweden and the United Kingdom.

Phase 2.
The second phase focused on country data-collection. For this purpose, we set
up a model questionnaire aimed at collecting information in every participating
country on current income tax legislation, as well as related legislative work
or publicly available documents, on existing and proposed tax measures in
relation to Third Countries. So as to gain a clear view on the questionnaire’s
propensity to provide the required level of detail and data, we completed the
questionnaire for Belgium before providing it to the participating countries as
a pilot, together with the blank questionnaire (to be completed). This pilot
was meant to constitute a valid benchmark for all the other participating
countries.

On 4 June 2012, the model questionnaire and
the pilot for Belgium were circulated to the PwC member firms in each of the 14
participating countries.[1] The completed
questionnaires were received during the days that followed.

Phase 3.
During the third phase, i.e. the final report phase including the comparative analysis,
we selected several criteria on the basis of the completed questionnaires in
order to categorise the reported measures and, more broadly, compare the
collected information with a view to drafting this Report. In doing so, we have
identified the key features of the definitions and measures provided, reported
them in additional summary tables, and written intermediate recapitulative
statements that serve as a basis for our general conclusion.

Moreover, as this Study is based on
several key documents (a model questionnaire, the pilot for Belgium, the first
draft of the Report, etc.), these were reviewed by a Dedicated
Multidisciplinary Quality Team composed of Ine Lejeune, Axel Smits, John
Preston and Peter Merill, which assisted our Project Team throughout the Study
to ensure the robustness of the methodology, data collection, assumptions and
conclusions. Where needed, adjustments have been made on the basis of their
comments so as, in each document, to reflect the high standards of quality we
share and to attain as far as feasible the level of information sought by the
European Commission.

The data collected is based on the
provisions in force as of 31 May 2012. The Report was submitted to the European
Commission in draft form on 27 June 2012. This final version is dated 30 June
2012.

This Study provides general guidance only.
It does not constitute professional advice. The reader should not therefore act
upon the information contained in this Report without obtaining specific
professional advice. No representation or warranty (express or implied) is
given as to the accuracy or completeness of the information contained in this
review, and, to the extent permitted by law, PwC, its employees and agents
accept no liability, and disclaim all responsibility, for the consequence of any
party acting, or refraining from acting, in reliance on the information
contained in this review or for any decision based on it.

Finally, we should like to thank all the
PwC member firms involved, which have contributed to the success of this Study
by the quality of their work.

Ine Lejeune                                                                                                             Patrice
Delacroix

Global Relationship Partner                                                                            Partner,
Project Leader

Executive
Summary

The European Commission is currently
drafting a Communication on good governance in the tax area in relation to the so-called
concepts of Non-Cooperative Jurisdictions and Aggressive Tax Planning. In order
to contribute to the assessment it is currently carrying out, the European Commission
is looking for additional input and information on existing anti-abuse measures
that apply, exclusively or otherwise, to Third Countries (i.e. non-EU/EEA
countries).

In this context, we were engaged by the
European Commission to perform the present Study, which has been conducted in
three phases and included a data-collection service and a comparative analysis
on existing and proposed tax measures in the European Union in relation to the
concepts of Non-Cooperative Jurisdictions and Aggressive Tax Planning.

The first, preliminary phase was mainly
intended to define our approach for the Study and its scope. To ensure the Study’s
relevance, and also its practicability, we decided, together with the European
Commission, to limit the scope to a representative sample of 14 European Union
Member States, namely Belgium, Cyprus, Denmark, Estonia, France, Germany,
Hungary, Ireland, Luxembourg, Malta, the Netherlands, Spain, Sweden and the
United Kingdom.

The second phase focused on country-data
collection. For this purpose, we set up a model questionnaire aimed at collecting
information in each participating country on the current income tax
legislation, as well as related legislative work or publicly available
documents, on existing and proposed tax measures in relation to Third
Countries. To gain a clear view on the questionnaire’s ability to provide the
required level of detail and data, we completed it for Belgium before providing
it to the participating countries as a pilot, together with the blank
questionnaire (to be completed). This pilot was meant to constitute a valid
benchmark for all the other participating countries.

On 4 June 2012, the model questionnaire
and the pilot for Belgium were circulated to the PwC member firms[2] in each of the 14 participating countries. The completed
questionnaires were received during the days that followed. If needed, further
clarifications were requested so that the completed questionnaires were finalised
on 26 June 2012.

During the third phase, i.e. the final
report phase including the comparative analysis, we selected several criteria
on the basis of the completed questionnaires to categorise the reported
anti-abuse measures and, more broadly, compare the collected information with a
view to drafting this Report. In doing so, we identified the key features of
the definitions and measures provided, reported them in additional summary
tables, and wrote intermediate recapitulative statements that served as a basis
for our general conclusion.

In particular, given the specific scope of
the Study, the reported anti-abuse measures have been divided into two main
categories: those specifically applicable to transactions with Third Countries
(“Specific Measures”) and other measures (“Non-Specific Measures”). Moreover,
the Study also provides additional insight into the most recently reported
Specific Measures (“New Specific Measures”, i.e. measures enacted or
substantially amended on or after 1 January 2007, plus possible future
measures).

The Study also offers valuable insight
into the essential concepts of NCJ and ATP. In fact, the data collected showed
that few Member States have a clear definition of the terms
"Non-Cooperative Jurisdictions" and "Aggressive Tax
Planning", although many of them did report having various concepts that are
akin to these key concepts. In this respect, it is interesting to note that
anti-abuse measures in some participating countries apply to countries where
the level of taxation is inappropriate (e.g. no taxation at all or a very low
nominal/effective tax rate), whereas, in other Member States, the decisive criterion
is the level to which countries cooperate in terms of exchange of information
(which is more like the OECD approach). However, these countries, sometimes featuring
on black, grey or white ‘lists’, are not always Third Countries.

The Study also finds that there are not
many Specific Measures, i.e. measures specifically
dedicated to tackle abuse or aggressive tax planning in relation to Third
Countries. However, that does not mean that MSs do not have measures to
fight what they consider to be abusive transactions in relation to Third
Countries. Indeed, many anti-abuse provisions apply to Third Countries, even if
these measures also usually apply in purely domestic situations or within the
European Union. Moreover, we cannot rule out the possibility that some of these
measures are, in practice, more often applied to transactions/arrangements with
Third Countries than in purely domestic situations or within the European
Union.

For instance, some Member States lay down
more stringent rules for entities/taxpayers established/resident in countries
with which they have no double tax treaty (or no double tax treaty including an
exchange of information clause). Given the available network of double tax
treaties within the European Union (and also Council Directive 2011/16/EU of 15
February 2011 on administrative cooperation in the field of taxation and
repealing Directive 77/799/EEC), there is much less a chance that these rules
apply within the European Union than to Third Countries, so that, de facto,
these rules might essentially be applicable to Third Countries. The case law of
the Court of Justice of the European Union also restricts the scope of
application of existing anti-abuse measures within the EU.

Notwithstanding the absence of a precise
definition of “abuse”, we can conclude that many MSs have a significant number
of anti-abuse provisions in their legislation, covering many different forms of
potentially abusive behaviour (according to the local tax legislation or
administrative practice/case law), such as shifting profits to low tax
jurisdictions, erosion of the tax base through excessive debt financing, etc.

This is particularly true if we consider
that all Member States report having at least one general anti-abuse rule (“GAAR”),
except the United Kingdom, where adoption of a general anti-abuse rule is nevertheless
being discussed. In particular, the foundations for these GAARs can take
various forms; ranging from the “abuse of law” principle, a “simulation” or
"sham" theory to the “substance over form” principle. None of these
measures applies to Third Countries only (let alone to Non-Cooperative
Jurisdictions). On the contrary, they are often equally applicable regardless of
the territorial scope of a given transaction (i.e. purely domestic situations,
transactions within the European Union and transactions outside the European
Union).

That said, based on the information
collected, it is difficult to assess whether the anti-abuse provisions listed
in the Study can be considered as effective in combating what the Member States
consider as abusive: most countries did not report any (actual or predicted)
quantitative impact of the identified abuses or the anti-abuse measures (i.e.
tax revenues) or make any evaluation of the effectiveness and sufficiency of
the measures. A limited number of them did, i.e. France, Germany, The Netherlands, Sweden and The United Kingdom have cited figures reflecting the expected
budgetary impact of some measures.

The data collection is based on the law as
at 31 May 2012. The Report was submitted to the European Commission in draft
form on 27 June 2012. This final version is dated 30 June 2012.

\*           \*

\*

1.
Objective and Scope of the Study

1.
Communication on Good Governance. We understand that the European Commission (below “the Commission”)
is currently drafting a Communication on good governance in the tax area in
relation to so-called Non-Cooperative Jurisdictions (below “NCJs”)
and so-called Aggressive Tax Planning (below “ATP”). In order to
contribute to the assessment it is currently carrying out, the Commission is
looking for additional input and information on existing anti-abuse measures
applying, exclusively or otherwise, to Third Countries (i.e. non-EU/EEA
countries).

2.
Activities in scope. The Study takes the form of a data collection service
(combined with a comparative analysis) based on a review of the current
income tax legislation applicable in the different Member States (below “MSs”)
and related legislative work. The report does not comprise any quantitative
assessment (no financial estimates, cost-benefit analysis or impact assessment).

The scope of the Study is further defined
as follows:

·
In the framework of this Study, only Third
Countries could be considered as NCJs, to the exclusion of any MS;

·
ATP is only considered in relation to structures
put in place with Third Countries, to the exclusion of structures put in place
between MSs only;

·
Only income/direct taxation is considered in the
scope of the Study;

·
The 14 MSs identified by the Commission for the
Study are: Belgium, Cyprus, Denmark, Estonia, France, Germany, Hungary,
Ireland, Luxemburg, Malta, the Netherlands, Spain, Sweden and the United
Kingdom;

·
The data collection service focuses on
describing measures which have been enacted as from 1 January 2007 (up to 31
May 2012). Apart from that, we also list existing measures (with a brief
explanation), which have been enacted prior to 1 January 2007 but which also
fall in scope of the Study;

·
As regards the measures included in the data
collection service, the main purpose of the Study is to refer to measures
specifically relating to NCJ and ATP. Nevertheless, we also refer in a
high-level manner to Non-Specific Measures, which are not specifically relating
to NCJ and ATP but which could also be applied in these cases;

·
The data collection service is only based on the
review of the MSs’ existing income tax legislation (including double tax
treaties and other international agreements), related public legislative work
and public administrative doctrine (parliamentary works, parliamentary
questions, practice notes, rulings, etc., provided it is available in the
public domain). The data collection does not include a review of the available
literature on the subject;

·
Such review is to be carried out by the PwC network.

3.
Twofold Description. The description of the current situation in the MSs comprises two
main parts:

·
NCJ/Third Countries. The various measures the MSs under review have taken against NCJs/Third
Countries at the national level (and international bilateral level, if any). The
description of an existing measure covers inter alia the problem
supposed to be tackled by the provision in question (its stated objective). Besides,
provided that the documentation under review does so, the report also includes
the (expected) quantitative impact of the identified problems and of the
measures taken against NCJs for the concerned MSs, e.g. their tax revenues. In case no quantitative information is
available, this is mentioned in the report.

·
ATP. The various
measures the MSs under review have taken against ATPs (carried out by, inter
alia, multinational companies) at the national level (and international
bilateral level, if any). The description of an existing measure covers inter
alia the problem supposed to be tackled by the provision in question (its
stated objective). Besides, provided that the documentation under review does
so, the report also includes an evaluation (post-enactment) made by the
concerned MSs of the effectiveness and sufficiency of the measures taken by
such MSs against ATP (including impact on MSs' revenues). In case no quantitative information is
available, this is mentioned in the report.

2.
Methodology

4.
Based on the reporting obligations and timetable
as set forth in the revised RfO of 2 May 2012, we prepared a timetable and
identified the different project phases as set out below.

2.1.
Phase 1 – Kick-off

5.
As a first step, the project was presented and
discussed with the key project team members (including the Project Leader and Project
Team) to define their roles and expectations and to present the way forward.

The kick-off meeting took place on 16 May
2012 in the presence of the Commission, the Project Leader and the Project Team.

During the meeting, we have, amongst other
things, discussed the approach for the drafting of the Questionnaire to be sent
out to the PwC member firms, bearing in mind the objective of “data collection”
as set forth in the RfO. In addition, the different project steps and timeline
were validated during the said meeting.

2.2. Phase 2 – Intermediary Report

6.
We drafted a Questionnaire to be sent out to the
PwC member firms located in the different MSs.

7.
The purpose of the Questionnaire was to obtain
the required data in view of the data collection service as described above.

8.
So as to have a clear view on the interpretation
of the questions included in the Questionnaire, we suggested working with a
“pilot” and thus having the Questionnaire already completed for one country.
Such pilot allowed the Commission to assess whether the Questionnaire was
suitable to provide the required level of details and data. It also gave the
Commission the opportunity to provide for the necessary amendments where
needed.

In order to be as time efficient as
possible and given the timing constraint, we suggested having the Questionnaire
filled in for Belgium as a pilot, also considering the very recent changes in
tax legislation with respect to tax havens, etc. The Belgian pilot was thus
considered as an interesting and valid benchmark for all other MSs and served
as a guide to our experts of the PwC member firms for the completion of the Questionnaire
with the data from their respective MSs.

Once finalised by the Project Team, the
pilot was sent for comments and approval to the members of the Dedicated
Multidisciplinary Quality Team.

9.
A final step within this phase consisted in
providing the intermediary report to the Commission, including a draft table of
contents, the Questionnaire, the Belgian pilot and a status of the work carried
out to date.

10. This intermediary report was sent to the Commission on 30 May 2012.
It was followed by a conference call on 1 June 2012, in which the Commission
made some suggestions and recommendations. On that basis, the intermediary
report was finalised by PwC and approved by the Commission on 4 June 2012. The Questionnaire
was then sent out to the PwC member firms.

2.3. Phase 3 – Final Report

11. Once the Commission has validated the draft intermediary report
including the Questionnaire and the Belgian pilot, we liaised with the various PwC
member firms located in the different MSs to obtain their input on the provided
Questionnaire.

12. For the purposes of the final report, the input of 13 additional MSs
as identified by the Commission was required. The MSs which  provided their
input during this phase were: Cyprus, Denmark, Estonia, France, Germany, Hungary, Ireland, Luxemburg, Malta, the Netherlands, Spain, Sweden and the United Kingdom.

13. To conclude this phase, a report was to be submitted to the
Commission by 29 June 2012 at the very latest. This report includes an
updated table of contents, a description of the methodology applied for the
purpose of the Study, the completed Questionnaires of the 14 MSs as listed
above and a comparative analysis based on the input obtained from the PwC
member firms.

2.4. Project Team

14. Our organisation model was based on a Project Team acting as a
Central Contact, a Project Leader and a Dedicated Multidisciplinary Quality
Team.

·
Project Leader: For
this project, the Project Leader was Patrice Delacroix (Tax Partner PwC Belgium, Member of the EU Direct Tax Group of the Global Financial Services Network and the
EUDTG Working Group). Patrice has previously acted as a Project Leader for
several other studies of the Commission including amongst others the Study on
labour and corporate taxation of the financial sector, the Study on the
taxation of financial instruments and the Feasibility Study on a Simplified
“Relief at Source” System implementing the principles of the FISCO
Recommendation[3]);

·
Project Team: For
this project, the Project Team was composed of the following persons:

- Mathieu Protin (Manager, PwC Belgium). Mathieu also participated in
the Commission’s Study on labour and corporate taxation of the financial
sector, the Study on the taxation of financial instruments and the Feasibility
Study on a Simplified “Relief at Source” System implementing the principles of
the FISCO Recommendation3);

- Annemie Wynants (Manager, PwC Belgium). Annemie
also participated in the Study on labour and corporate taxation of the
financial sector;

- Team of Corporate Tax Consultants of PwC Belgium;

·
Dedicated Multidisciplinary Quality Team: For this project, the Dedicated Multidisciplinary Quality Team was
composed of the following persons:

- Axel Smits (Tax Partner PwC Belgium, Central Cluster International
Taxation Leader, Intellectual Property expert);

- John Preston (Tax Partner PwC UK, Global leader for tax policy,
external relations and regulation, Member of PwC's Global Tax Leadership Team,
Member of the Council of the UK’s Chartered Institute of Taxation and a member
of the Tax Faculty Committee of the Institute of Chartered Accountants in
England and Wales);

- Peter Merrill (Tax Partner PwC US, Partner-in-charge of the National
Economics & Statistics Group, a centre of excellence for advanced
statistical and economic analysis supporting the Tax, Advisory and Audit
practices);

- Ine Lejeune (Global Relationship Partner for EU Services to the EU
Institutions and DG TAXUD, Tax Partner, Global Relationship Partner EU Institutions,
Global Indirect Taxes Policy Leader.

2.5.
Timetable

15. Given the very short timescale for this Study, the following
timetable was agreed upon with the Commission.

Table 1: Timetable

Phase 0: Start-up – Proposal to the Commission

Phase 1: Kick-off

Step 1.1 Preparation of kick-off meeting ||

Step 1.2 Kick-off meeting || 16 May 2012 (at the latest)

Phase 2: Intermediary report

Step 2.1 Drafting of intermediary report including the Questionnaire and completion of Belgian pilot case || 17/05 – 25/05

Step 2.2 Review of intermediary report by the Quality Team || 28/05 – 29/05

Step 2.3 Providing of intermediary report to the Commission || 30/05

Step 2.4 Feedback on intermediary report by the Commission (including conference call with PwC) || 30/05 – 1/06

Step 2.5 Amendment of the Intermediary report – more precisely the Questionnaire – following the comments of the Commission || 4/06

Step 2.6 Validation of the Intermediary report by the Commission || 4/06

Phase 3: Final report

Step 3.1 Completion of validated Questionnaire by PwC representatives of 13 MSs || 5/06 – 12/06

Step 3.2 Gathering of information and drafting of final report || 13/06 – 22/06

Step 3.3 Review of draft final report by the Quality Team || 25/06 – 26/06

Step 3.4 Providing of draft final report to the Commission || 26/06 COB

Step 3.5 Feedback of the Commission on draft final report || 28/06

Step 3.6 Providing of final report to the Commission || 30/06

3.
Data Collection

16. In order to proceed to the data collection, a Questionnaire was sent
out to the PwC member firms. The Questionnaire sent to the various territories
involved in this Study was introduced as stated in the following table. The
blank questionnaire is enclosed in Appendix 1.

17. The input from the various PwC member firms is enclosed in Appendix
2.

Table 2: Introduction to the Questionnaire

Introduction to the Questionnaire

Goal of the Study || The Study consists in a data collection service combined with a comparative analysis based on a review of the current income tax legislation (and the related legislative work) and information available in the public domain on existing and proposed tax measures of 14 EU Member States in relation to the so-called concepts of “Aggressive Tax Planning” (hereafter “ATP”) and “Non-Cooperative Jurisdiction” (hereafter “NCJ”). The Study is focussed on direct taxation – income and corporate tax – (primarily business taxation plus any necessary bridge to personal taxation such as the use of NCJs to avoid taxation of savings in particular). Note that ATP and NCJ are concepts which have no EU-wide definitions. Therefore, in order to circumvent this issue in the framework of this assignment, it has been decided that: · Only Third Countries could be considered as NCJs (to the exclusion of any EU Member State); and · Only operations/arrangements with Third Countries could be considered as ATPs (solely intra-EU operations/arrangements are out of scope).

Goal of the Questionnaire || This Questionnaire aims at collecting information on the current income tax legislation (and related legislative work or publicly available documents) on existing and proposed tax measures in your country in relation to Third Countries.

Assumptions || Please take into account the following assumptions when completing the Questionnaire: · Only income/direct taxation (including capital gains and WHT, where relevant) is considered in the scope of this Questionnaire. As mentioned above (if relevant) also comments on personal taxation might need to be included in the below Questionnaire plus quantitative information if available; · The input provided should only be based on the review of the income tax legislation (including double tax treaties and other international agreements), related official legislative work and official administrative doctrine (parliamentary works, parliamentary questions, practice notes, rulings, etc. – provided these documents are available in the public domain) and case law where required. It does not need to include any review of the available literature (doctrine) or of any other document which is not to be seen as official in your local territory.

In Scope Measures || · New Specific Measures: The main purpose of the Questionnaire is to collect information on so called "New Specific Measures" comprising anti-abuse measures specifically relating to Third Countries when such measures: - Have been enacted after 1 January 2007 (new measures); - Have been substantially amended after 1 January 2007 (amended measures); or - Are currently discussed in bill of laws (possible future measures). · Other Measures: Nevertheless, it should also comprise a high-level description of other measures comprising: - Other Specific Measures: Measures specifically relating to Third Countries that have been enacted before 1 January 2007 (and not substantially amended since 1 January 2007); as well as - Non-Specific Measures: Anti-abuse measures which are not only applicable in relation to Third Countries (regardless whether enacted before or after 1 January 2007). Such high-level description should include a summary of the measure (including also the purpose of the measure), the legal grounds, an impact assessment (when available), evaluation of the measure (when available) and also a high-level listing of the most relevant and recent case law (final or pending) in relation to the measure. As regards the case law, the main purpose is to provide a non-exhaustive overview of the main tendencies in relation to this measure. The overview is limited to listing the fixed case law since 1 January 2007 in relation to the measure, which can be considered as useful for a full understanding of the measure and its application in a certain Member State . Also, in case of so-called “landmark” decisions prior to 1 January 2007, these should also be mentioned in a summarised manner. · NCJ v. ATP Measures: Besides, the Questionnaire intends to differentiate between Specific Measures targeting in particular NCJs or ATPs (regardless such measures are New or not). In broad terms, those measures could be defined as follows: - NCJ Measures: the focus is more on the country (almost irrespective of the transaction); whereas - ATP Measures: the focus is more on the operations/arrangements potentially concerned. Of course, the difference between these two types of measures can sometimes appear difficult (e.g. a measure only applicable to selected Third Countries and only relating to a specific type of transactions). In such a case the measure can be considered as both an NCJ Measure and an ATP Measure.

Structure of the Questionnaire || Based on these criteria, the Questionnaire is divided in three parts which should be completed depending on the level of information required for the in scope measures: · Part 1: Introduction: It includes some general introductory questions which summarize the overall situation in your country as regards the existing legislation on NCJs and ATPs. This part of the Questionnaire should only be completed once. Part 2: General Information: It includes a general description of each anti-abuse measure reported in the Questionnaire (regardless of whether the measures in question have to be considered as New Specific Measures, Other Specific Measures or Non-Specific Measures). Part 2 should comprise a comprehensive overview of the anti-abuse measures existing (or currently discussed) in your local territory. · Part 3: Detailed Information: It concerns detailed information on New Specific Measures only. This part should be completed for each and every New Specific Measure reported in Part 2. Examples (Part 2 v. Part 3): · An anti-abuse measure concerning any national or international transactions would be considered as a Non-Specific Measure. Only Part 2 should be completed; · A reporting obligation of payments made to selected Third Countries enacted in 2009 should be considered as a New Specific Measure. Part 2 and Part 3 of the Questionnaire should be completed; · A reporting obligation of payments made to selected Third Countries enacted in 2005 should be considered as an Other Specific Measure. Only Part 2 should be completed.

4.
Comparative Analysis
4.1.
Introduction

18. Introduction. This comparative analysis
is based on the information collected from our PwC network as a result of the
model Questionnaire as validated by the Commission in the framework of the
preliminary report. As already indicated, this Questionnaire is composed of
three parts:

·
Part 1: Introduction: It includes some general introductory questions which summarise
the overall situation in the respective MSs as regards the existing legislation
on NCJs and ATPs.

- Definition of NCJ & ATP. In this
part, we have first addressed whether there is any formal definition of NCJ and
ATP in the various MSs concerned by the Study.

- New Specific Measures v. Other Measures.
We have then addressed whether there exist so-called "New Specific Measures"
which were defined, for the purpose of this Study, as anti-abuse measures specifically
relating to Third Countries when such measures:

◦
Have been enacted after 1 January 2007 (new
measures);

◦
Have been substantially amended after 1 January
2007 (amended measures); or

◦
Are currently discussed in bill of laws
(possible future measures).

All
other measures not falling within this category were qualified as being Other
Measures for the purpose of this Study.

- Other Specific Measures v. Non-Specific Measures. We have then asked whether the respective MSs have such Other
Measures, yet differentiating between Other Specific Measures and Non-Specific
Measures being defined, for the purpose of this Study, as follows:

◦
Other Specific Measures: Measures specifically relating to Third Countries that have been
enacted before 1 January 2007 (and not substantially amended since 1 January
2007); as well as

◦
Non-Specific Measures: Anti-abuse measures which are not only applicable in relation to
Third Countries (regardless of whether or not enacted before or after 1 January
2007).

- Legislative or Administrative Proposals.
Finally, in this first part, we requested the respective MSs whether there are
currently proposals aimed at introducing new measures which could fall into the
scope of the Study.

·
Part 2: General Information: It includes a general description of each anti-abuse measure
reported in the Questionnaire regardless of whether the measures in question
have to be considered as New Specific Measures, Other Specific Measures or Non-Specific
Measures. It comprises a comprehensive overview of the relevant anti-abuse
measures existing (or currently discussed) in the respective MSs.

·
Part 3: Detailed Information: It concerns detailed information on New Specific Measures only.

In the following sections, we propose short
summaries of the various measures reported with respect to the various MSs
complemented with tables comprising additional details.

4.2. Definition of NCJ

19. NCJ v. ATP Measures. As mentioned above,
the Questionnaire intends to differentiate between Specific Measures (i.e.
anti-abuse measures specifically relating to Third Countries) targeting in
particular “NCJs” or “ATPs” although these concepts are not clearly defined.

For the purpose of this Study, and only with
a view to being able to categorise to some extent the various measures existing
in the different MSs, we have suggested in broad terms that the focus of “NCJ
Measures” is more on the Third Country as such (almost irrespective of the transaction)
whereas the focus of “ATP Measures” is more on the operations/arrangements
potentially concerned with entities/companies/taxpayers/etc. established in
such Third Country.

Of course, the difference between these
two types of measures can sometimes appear difficult (e.g. a measure only
applicable to selected Third Countries and only relating to a specific type of
transactions). In such a case, the measure can be considered as both an NCJ
Measure and an ATP Measure.

20. Only France and Estonia have reported having a formal definition of
an “NCJ”.

Although in Estonia
an “NCJ” is not as such defined in tax law, the concept of a “low tax
territory”, which is defined in tax law, is clearly a concept which can be
linked with an NCJ. According to Estonian tax law, a low tax territory is a
foreign state or a territory with an independent tax jurisdiction in a foreign
state, which does not impose a tax on the profits earned or distributed by a
legal person or where such tax is less than one third of the income tax which
would apply to the taxpayer if it were resident in Estonia.
Considering the tax rate for personal income tax is flat 21%, a low tax rate
territory is the territory where the applicable tax rate is below 6,93%[4]. Given all the MSs
(and countries that have concluded a tax treaty with Estonia)
are, as a general rule, considered as cooperative and automatically included by
the Government in the “white list” of countries that are not considered as low
tax rate territories, the definition of low tax territory is, in effect, limited
to Third Countries.

In France,
the definition of an “NCJ” does not take into account the effective taxation
regime applicable in a certain country. Indeed, a state
or territory is defined as non-cooperative (Non-Cooperative State or Territory,
below “NCST”) if it meets the following criteria: (i) it is not a
member of the European Union; (ii) its situation as regards  transparency and
exchange of information has been scrutinised by the OECD; (iii) it has
concluded less than 12 Tax Information Exchange Agreements (below “TIEAs”)
before 1 January 2010; and (iv) it has not signed a TIEA with France.

21. All other participating MSs do not report having a formal definition
of an “NCJ”. However, it does not mean that these
MSs do not have any anti-abuse provisions aimed at fighting against the use of
schemes involving specific countries.

Indeed, many countries do report various
measures which apply to e.g. “non-treaty countries” (Hungary),
“countries with a low tax burden” (Belgium),
“low-taxed jurisdictions” (Sweden), “countries
with a tax regime that is substantially more advantageous than the local tax
regime (Belgium)”. However these rules
generally do not provide for a formal definition of an “NCJ” and/or are
generally equally applicable to MSs (including purely domestic situations) and
Third Countries (cf. Table 3
below).

In addition, based on the provided input,
for at least three Member States it has been reported that the reference to a
“tax haven” can vary depending on the type of measure. For instance, in Belgium, the participation exemption regime does not apply in the
case of dividends received from a company established in a Third Country of
which the tax regime is considered as substantially more advantageous than
in Belgium. For the purposes of this measure, the tax regime is considered
as substantially more advantageous if the applicable nominal or effective tax
rate is lower than 15%[5]. On the other hand, for the disclosure requirement of payments made
to tax havens countries, Belgian tax law considers a low tax burden as a
nominal corporate income tax rate lower than 10%[6]. Also in France, notwithstanding the fact that there is a formal
definition of an NCJ, not all provisions which can be considered as relating to
a “tax haven”, refer to the formal definition of the “NCJ”. Indeed, for
purposes of the application of the anti-avoidance rule providing for the non
deductibility of certain expenses paid out to a non-resident located in a
low-tax-jurisdiction, a non-resident is located in a “low-tax-jurisdiction” in
case it is subject to an effective taxation which is at least 50% lower than
that of similar French residents[7].  Finally, also in Sweden
similar discrepancies seem to be at hand. Indeed, for the purposes of the
definition of a foreign corporation, i.e. a foreign legal entity subject to a
taxation similar to the Swedish corporation income tax, the term similar
taxation implies an effective rate of 14,5% (which corresponds to 55% of the
Swedish Income Tax)[8]. However, for the application of the specific interest stripping
rule in Sweden, which applies in case
interest income is allocated to a low tax jurisdiction, only an effective tax
rate of 10% is required[9].

It is also interesting to note that
anti-abuse measures in some MSs (such as Belgium, Cyprus, Estonia,
Hungary, Ireland, Luxembourg, The
Netherlands, Spain, Sweden and the United
Kingdom)  are applicable to countries where the level of taxation is
considered as being not appropriate (e.g. no taxation at all, very low nominal/effective
tax rate, not subject to a similar ore reasonable level of taxation) whereas in
other MSs (such as Belgium, France, Germany,
Malta and the United
Kingdom) the decisive criteria is the level of cooperation of the
countries in terms of exchange of information (which is more the OECD
approach).

By way of example of this approach
(besides the French example mentioned above), Germany
considers a country as a Non-Cooperative Jurisdiction if (i) the respective
country has not concluded an information exchange agreement with Germany that corresponds with Art. 26 of the OECD model
agreement (2005) or (ii) the respective country does not provide information to
an extent comparable to Art. 26 of the OECD model agreement (2005), and (iii)
is unwilling to provide such information. However, Germany
was not considered as having a definition of NCJ for the purpose of this Study
since this rule does not only relate to Third Countries (but addresses all
foreign countries). Belgium also defines a
tax haven as a country which is considered by the OECD Global Forum on
Transparency and Exchange of Information as a State that has not substantially
and effectively applied the OECD exchange of information standard[10]. With respect to Spain, the specific concept of NCJ does not exist in tax legislation. However,
similar concepts such as “tax haven” or “jurisdiction with nil taxation” are
defined in Spanish tax law.

·
“Tax haven” refers to a black list. In practice, the black list focuses essentially on Third Countries. Each jurisdiction will be excluded from the list if a double tax
treaty with an exchange of information clause or a tax information exchange
agreement is applicable between Spain and this country.

·
“Jurisdiction with nil
taxation” is defined in a law providing for measures to prevent tax fraud. It is more particularly defined as a jurisdiction that does not
apply a similar or analogous tax to the Spanish personal income tax, corporate income
tax or non-resident income tax. A similar or analogous tax is a tax whose main
purpose is the taxation of income, even partially, regardless of whether the
taxable event is the income, the profits or a similar element. This requirement
is deemed to be met if the jurisdiction has signed a DTT with Spain.

In the United Kingdom, the legislation relates to lower levels of tax:

·
The current Controlled Foreign Company (below “CFC”)
rules only apply where a company is subject to a lower level of tax (s747(1)(c)
ICTA 1988). Whether or not a company is subject to a lower level of tax is determined
by reference to section 750 ICTA 1988;

·
In the new CFC rules, sections 371MA - 371ME
describe the "tax exemption", whereby a company is exempted from the
CFC charge if the local tax is at least 75% of the corresponding tax.

The main consequences of the different
approaches will be outlined below when commenting on the various measures
referring to these notions.

Table 3: Definition of NCJ

MS || YES/NO || REMARKS

BELGIUM || No || However, in Belgian tax law several notions or terms occur that could be linked to the notion of NCJ (e.g. “tax regime that is substantially more advantageous”, “tax regime which is different than the common tax regime, country which “is considered by the OECD Global Forum on Transparency and Exchange of Information as a State that has not substantially and effectively applied the OECD exchange of information standard”).

CYPRUS || No || Although in the Cyprus tax legislation there are references which may be linked to the concept of NCJ (“substantially lower tax burden that Cyprus tax burden”)

DENMARK || No || Several of the anti-abuse measures are only targeted to jurisdictions outside the EU/EEA with which Denmark has not concluded a tax treaty.

ESTONIA || Yes || The Estonian tax legislation defines the concept of “Low Tax Territory” (i.e. territory with no taxation or a substantially lower taxation than in Estonia Considering the tax rate for personal income tax is flat 21%, a low tax rate territory is the territory where the applicable tax rate is below 6,93%[11]). Note that: · a country can be partially considered as “Low Tax Territory” if taxation regimes differ from one entity to another; · a company can be deemed not to be located in a “Low Tax Territory” if 50% of its annual income is derived from an actual economic activity (the latter concept is not defined in Estonian tax law); · a white list exists.

FRANCE || Yes || A state or territory is defined as non-cooperative if it meets several criteria (i.e. (i) if it is not a member of the European Union, (ii) if its situation as regards transparency and exchange of information has been scrutinised by the OECD, (iii) if it has concluded less than 12 Tax Information Exchange Agreements before 1 January 2010 and (iv) if it has not signed such agreement with France)[12] . A list of non-cooperative states/territories (“NCST”) exists and is subject to strict rules (e.g. adding to or withdrawal from the list).

GERMANY || No || Some measures with regard to entities resident in a list of uncooperative countries/non-cooperative jurisdictions that do not adhere to the OECD standards on tax information exchange were introduced in 2009 by way of a tax act aimed at combating "tax evasion and harmful tax practices". Measures can only be applied if the country has been black-listed by the federal Ministry of Finance (i.e. no single country for the moment).

HUNGARY || No || A similar concept is however approached through the CFC regime (i.e. the requirement of the Hungarian private person ownership or income from Hungary was recently – in 2010 – incorporated in the CFC definition, resulting in the fact that it practically refers to Hungarian capital located in offshore territories).

IRELAND || No || There are however particular provisions in Irish tax law that provide for the tax benefits in relation to payments to and from Ireland on the basis that the income is subject to tax in the recipient foreign territory.

LUXEMBOURG || No || However, the concept of NCJ could be indirectly derived from several provisions of Luxembourg income tax law (“LITL”). Indeed, various provisions of the LITL are applicable to joint stock companies resident in Third Countries (i.e. non-MSs) to the extent that “[these companies] are fully liable in ([their] state of residence) to a tax corresponding to Luxembourg corporate income tax”.

MALTA || No || The only approach of this concept can be found in the “other jurisdictions exchanging information” regime (e.g. Malta does not exchange information with countries which do not enter in an agreement).

NETHERLANDS || No || Several notions could however be linked to the concept of NCJ, in particular the notion of “profit or income tax that is reasonable according to Dutch standards” provided in several dispositions.

SPAIN || No || However, similar concepts such as “tax havens” or “jurisdictions with nil taxation” are defined in Spanish tax law.

SWEDEN || No || Indirect effect of the definition of the term “foreign corporation” (i.e. “entity subject to taxation similar to Swedish corporation income tax”)

UK || No || None

22. White, Grey & Black Lists. Half of
the MSs (Belgium,
Estonia, France, Germany, Spain, Sweden and
the United Kingdom) refer to a limited “territorial” scope of
application of certain measures, mentioning that they are only applicable when
dealing with very specific countries. These MSs use lists to differentiate
between “white”, “black” and even “grey” countries.

·
Black lists: In Belgium,
the reporting obligation currently only applies in the case of payments to tax
haven countries which are specifically listed in a Royal Decree[13]; Another list
applies in the framework of the participation exemption regime to qualify
countries “where the common tax regime is deemed to be substantially more
advantageous than in Belgium”. For Spain, the qualification as a tax haven pursuant to a
list entails the application of various Specific Measures, such as the measure
in relation to the tax residence of entities located in a tax haven[14], the measure
providing for the non-deductibility of expenses paid to tax havens[15], the measure
providing for the limitation on transfer of rights to use intangible assets in
case of tax havens[16], the measure providing for the limitation of the specific ETVE
regime in case of tax havens[17], the measure in relation to the valuation of transactions with tax
havens[18], the measure in relation to the information of transactions with
tax havens[19] and the measure providing for the non-application of withholding
tax exemptions of income obtained through tax havens[20]. In Germany, the measures on
Non-Cooperative Jurisdictions can only be applied, if the respective country
has been listed by the Federal Ministry of Finance, however until today no
single country has actually been listed.

·
Grey lists: In Sweden,
the list used in the framework of the CFC legislation is divided into black,
white and grey-listed countries, whereby certain countries are entirely
black-listed (i.e. CFC taxation will take place), others are entirely
white-listed (i.e. no CFC taxation will take place) and finally some are
grey-listed (certain operations in a country may be black or white-listed).

·
A country mentioned on the OECD’s “white list”
will automatically be removed from the French
list of NCSTs. Estonia also makes reference
to a white list of territories which are not regarded as low tax rate
territories and thus with respect of which many Specific Measures are not
applicable. The United Kingdom (white list) also uses a list in the framework of
its CFC legislation to define countries to which the CFC legislation does not
apply.

23. Generally, in case a Member State is using a black list,
transactions with counterparties located in a country which occurs on a black
list will generally fall in scope of a particular measure. Whereas when dealing
with countries included on a white list, this will generally imply that certain
measures are not applicable. Only Sweden has referred to a so-called “grey
list” which includes countries which are as such not black listed, but for
which certain operations or certain taxpayers (e.g. which can benefit within
their country of residence from a specific tax regime) are black or white
listed[21].Comparison of Lists. On specific request of the Commission, we
provide in Table 4 below a high
level comparison of the different territories listed on the lists provided.

It should be pointed out that, as a rule,
the black and grey lists used by the MSs in scope of the Study do not comprise
other MSs[22]. As regards Countries of the European Economic Area (below “EEA”)
only Liechtenstein appears on black lists. The table below therefore only
comprises Third Countries (including Liechtenstein).

The starting point of the comparison is
the negative cases (i.e. territories fully or partially considered as
blacklisted). Territories mentioned on white lists are thus only mentioned
insofar as they are also mentioned on other lists.

Legend:

·
To ease the reading, territories listed on black
lists (left part of the table) by,

- two MSs are highlighted as follows:

- three MSs are highlighted as follows:

- more than three are highlighted as follows:

·
Territories listed on the right part of the table
are territories mentioned on existing white lists and mentioned on other MSs’ black
or grey lists.

We would like to draw the attention to the
fact that this comparison only takes into account the lists as they are
currently available as per 31 May 2012. This comparison could of course evolve
in the future and is therefore to be understood as indicative, especially  the
work done for the moment by the OECD Global Forum on
Transparency and Exchange of Information, which could influence the future
composition of the said lists.

Table 4: Comparison
of Existing Lists

Third Countries || Black (and Grey) Lists || White Lists

Belgium || Estonia || France || Spain || Sweden || United Kingdom || Estonia || United Kingdom

Common tax regime substantially more advantageous[23] || No or low tax burden[24] || Low Tax Rate Territories (white list exclusions)[25] || NCSTs || Tax Havens || Low-taxed persons[26] || CFC apportionment (qualified countries)[27] || Low Tax Rate Territories (white list) || CFC apportionment exemptions27

Abu Dhabi || || X || || || || || || ||

Afghanistan || X || || || || || || || ||

Ajman || || X || || || || || || ||

Alderney || X || || || || || || || ||

Andorra || || X || || || || X || || ||

Anguilla || || X || X || || X || || || ||

Antigua and Barbuda || || || || || X || || || ||

Argentina || || || || || || || X[28] || ||

Aruba || || || X || || || || || ||

Australia || || || || || || X[29] || || || X

Bahamas || || X || || || || || || ||

Bahrain || || X || || || X || X || || ||

Belize || X || || || || || X[30] || || ||

Bermuda || || X || X || || X || || || ||

Bosnia - Herzegovina || X || || || || || || || ||

Botswana || || || || X || || || || || X

British Virgin Islands || X || X || X || || X || || || ||

Brunei || || || || X || X || X[31] || X[32] || ||

Burundi || X || || || || || || || ||

Canada || || || || || || X[33] || || || X

Cap Green || X || || || || || || || ||

Cayman Islands || || X || X || || X || || || ||

Central African Republic || X || || || || || || || ||

Chile || || || || || || || X[34] || ||

Comoros || X || || || || || || || ||

Cook Islands || X || || || || X || || || ||

Costa Rica || || || || || || X[35] || || ||

Cuba || X || || || || || || || ||

Djibouti || || || || || || X || || ||

Dominican Republic || X || || || || X || || || || X

Dubai || || X || || || || || || ||

Dutch Antilles || || || X || || || || || ||

Egypt || || || || || || || X[36] || ||

Equatorial Guinea || X || || || || || || || ||

Falkland Islands || || || || || X || || || || X

Faroe Islands || || || || || || || X[37] || ||

Federation of Micronesia || X || X || || || || || || ||

Fiji || || || || || X || || || || X

Fujairah || || X || || || || || || ||

Gibraltar || X || || X || || X || X || || ||

Grenada || X || || || || X || || || ||

Guatemala || || || || X || || || || ||

Guernsey || X || X || X || || X || X || || ||

Guinea - Bissau || X || || || || || || || ||

Haiti || X || || || || || || || ||

Herm Island || X || || || || || || || ||

Hong Kong || || || X || || || X[38] || X[39] || ||

Iran || X || || || || || || || ||

Iraq || X || || || || || || || ||

Isle of Man || X || X || || || X || X || || X ||

Jersey || X || X || X || || X || X || || X ||

Jethou || || X || || || || || || ||

Jordan || || || || || X || || || ||

Kenya || || || || || || || X[40] || ||

Kiribati || X || || || || || || || ||

Laos || X || || || || || || || ||

Lebanon || || || || || X || X[41] || || ||

Liberia || X || || || || X || X || || ||

Liechtenstein (EEA) || X || || || || X || X || || ||

Macau || X || || X || || X || X || X[42] || ||

Malaysia || || || || || || || X[43] || ||

Maldives || X || X || || || || X || || ||

Mariana Islands || || || || || X || || || ||

Marshall Islands || X || || X || X || || || || ||

Mauritius || || || || || X || || || ||

Mayotte || X || || || || || || || ||

Moldavia || || X || || || || || || X ||

Monaco || X || X || || || X || X || || ||

Montenegro || || X || || || || X[44] || || ||

Montserrat || X || || X || X || X || || || ||

Morocco || || || || || || X[45] || X[46] || ||

Namibia || X || || || || || || || ||

Nauru || || X || || X || X || || || ||

Niue || X || || || X || || || || ||

North Korea || X || || || || || || || ||

Oman || X || || || || X || || || ||

Pakistan || || || || || || || X[47] || ||

Palau || || X || || || || || || ||

Panama || X || || || || || X[48] || || ||

Philippines || || || || X || || || X[49] || ||

Puerto Rico || || || || || || || X[50] || ||

Ras al Khaimah || || X || || || || || || ||

Saint - Vincent and the Grenadines || X || || || || X || || || ||

Saint Christopher and Nevis || X || || || || || || || ||

Saint Lucia || X || || || || X || || || ||

Saint-Barthélemy || || X || || || || || || ||

Saint-Pierre-et-Miquelon || X || || || || || || || ||

Samoa || X || || || || || || || ||

San Marino || || || || || || X[51] || || ||

Sao Tome and Principe || X || || || || || || || ||

Sark || || X || || || || || || ||

Seychelles || X || || || || X || X || || ||

Sharjah || || X || || || || || || ||

Singapore || || || || || || X[52] || X[53] || X ||

Solomon Islands || || || || || X || || || || X

Somalia || X || || || || || || || ||

Sri Lanka || || || || || || || X[54] || ||

Switzerland || || || || || || X[55] || || X ||

Tanzania || || || || || || || X[56] || ||

Thailand || || || || || || X[57] || X[58] || ||

Tunisia || || || || || || || X[59] || ||

Turkey || || || || || || X[60] || || X || X

Turks and Caicos Islands || || X || X || || X || || || ||

Tuvalu || X || || || || || || || ||

Umm al Qaiwain || || X || || || || || || ||

United Arab Emirates || || || || || || X || || ||

USA || || || || || || || X[61] || ||

US Samoa || X || || || || || || || ||

US Virgin Islands || || || X || || X || || || ||

Uzbekistan || X || || || || || || || ||

Vanuatu || || X || || || X || || || ||

Virgin Islands || X || || || || || || || ||

Wallis and Futuna || || X || || || || || || ||

4.3. Definition
of ATP

24. No ATP Definition. As mentioned above,
the focus of “ATP Measures” is more on the operations/arrangements potentially
concerned with entities/companies/taxpayers/etc. established in Third Countries
(and in Third Countries only).

It appears from the information received
that none of the concerned MSs reported having ATP Measures.

The reason for this is essentially to be
found in the fact that only a few MSs reported Specific Measures (i.e.
anti-abuse measures specifically relating to Third Countries)[62]. Considering ATP
Measures are only a subdivision of the Specific Measures, the number of ATP
Measures is logically even more limited.

25. Non-Specific Measures. Nevertheless,
most of the MSs concerned have anti-abuse measures aimed at fighting against potentially
harmful transactions/arrangements (see also section 4.6.7 below). These
measures generally apply equally to MSs (including purely domestic situations)
and Third Countries.

Table 5: Definition of ATP

MS || YES/NO || REMARKS

BELGIUM || No || There is a general anti-abuse rule in Belgium which refers to the notion of “tax abuse” and which is equally applicable to all taxpayers irrespective of the country of residence of the counterparty (thus not specifically targeted to transactions with NCJs).

CYPRUS || No || There is a general anti-abuse provision in Cyprus which gives the right to the tax authorities to disregard transactions which are suspected to be fictitious or not genuine and are carried out with an aim to reduce the taxable base. This provision applies to all taxpayers irrespective of the country of residence of the counterparty.

DENMARK || No || A number of cases suggest a “substance-over-form” principle, where a transaction can be reclassified or set aside in certain circumstances. However, it is not backed by legislation and is not a clear doctrine.

ESTONIA || No || Instead, some provisions of Estonian tax law are based on the principles of “abuse of law” and “substance over form”.

FRANCE || No || There is a general anti-abuse rule which refers to the notion of “abuse of right” and which is equally applicable to all taxpayers irrespective of the country of residence of the counterparty (thus not specifically targeted to transactions with NCJs).

GERMANY || No || The concept of “abuse of legal arrangements” exists in German law and is embodied in a general anti-abuse provision. Based on the jurisprudence, a legal arrangement is considered to be abusive, if it is inappropriate or inadequate compared to the economic intention, that is aimed at achieving a tax reduction and that cannot be justified by economic or other relevant non-tax reasons. However, this concept covers all countries (even 100% German situations).

HUNGARY || No || The concept is however approached by different anti-avoidance provisions: substance-over-form principle; exercise of rights within their meaning and intent, which cannot be the intent to obviate the provisions of tax law; non-tax deductibility of costs and expenses of a transaction entered into for the sole purpose of reducing tax.

IRELAND || No || The concept is however approached by different tax provisions (e.g. general anti-avoidance rule and mandatory disclosure reporting obligation).

LUXEMBOURG || No || The concept is however approached by the anti-avoidance provisions of “simulation” and “abuse of law”.

MALTA || No || However, any scheme which reduces the amount of tax payable by any person is disregarded when it is artificial or fictitious or it is not, in fact, given effect to.

NETHERLANDS || No || However, various concepts in anti-abuse provisions may be invoked by the Dutch tax authorities to prevent undesirable types of ATP (e.g. “abuse of law” concept, thin capitalisation provision and anti-dividend stripping measure).

SPAIN || No || But Spanish tax law uses similar concepts as “conflict in the application of tax law” (formerly “tax law abuse”) and “simulation”.

SWEDEN || No || However, general anti-abuses rules can also be used against tax planning’s put in place with third countries (e.g. a legal action that significantly lowers the taxable base in Sweden, and the effect contradicts the general purpose of the legislation, can be overlooked in specific circumstances (Swedish Tax Avoidance Act))

UK || No || However, there are several pieces of anti-avoidance legislation which are not applicable unless the main purpose of the scheme – or one of the main purposes of the scheme – is to achieve a UK tax advantage (e.g. the current Controlled Foreign Companies rules and the Anti-Arbitrage rules).

4.4. General Overview of Available Measures

26. Number of Anti-Abuse Measures. 165
measures were reported across the various MSs. More than half of the MSs have
reported 10 or more anti-abuse measures, being Belgium, Denmark, France, Germany, Ireland, the Netherlands, Spain and the United Kingdom.

However, as already mentioned above, since
there is no definition of ATP and NCJ, and even no definition of what
anti-abuse provisions consist of, it is likely that some legal provisions have
not been reported as anti-abuse measures in scope of this Study.

27.
Transfer Pricing. For instance, it appears that in the Netherlands and Hungary, Transfer Pricing
provisions are not regarded as “anti-abuse provisions” but merely as part of
the general principles of the tax systems and apply both domestically and
cross-border.

28.
Exit Taxation. Another good example is the exit taxation provisions, the perception
of which can vary across countries. Indeed, the German
tax law, for instance, also comprises measures providing an exit taxation when
either taxpayers or assets are relocated abroad. More in particular,

·
If an individual ceases to be resident in Germany, according to
Section 6 Foreign Tax Act, all qualifying shareholdings (at least 1 percent)
are deemed to have been sold at fair market value;

·
For assets belonging to a German business, any
loss or restriction of the right to tax built-in gains upon the transfer of the
asset will trigger an exit tax, either because the asset is deemed to have been
withdrawn from the business (which has to be recorded at fair market value and
is thus realizing built-in gains) in the case of businesses run by individuals
and partnerships (Art. 4 Sec. 1 sent. 3 Income Tax Act) or because the asset is
deemed to have been sold at fair market value in case of corporations (Art. 12
sec. 1 Corporate Income Tax Act). This loss or restriction of the German right
to tax might be (i) a result of the relocation of the asset itself or (ii) of
the transfer of the seat of a corporation (and (iii) – but much debated – in
case a double tax treaty with Germany enters into force that limits or excludes the German right to tax
such capital gains).

However, these provisions should not be
considered as anti avoidance provision in the meaning of the Study that aims at
ATP or NCJs. These provisions merely aim at securing German tax claims as it
otherwise could not be monitored by the German tax authorities, whether the built-in
gains are realized sometime in the future, when the underlying assets are sold.

In intra EU/EEA cases, the resulting exit
tax will be deferred without any interest accruing and without the need to
provide a collateral for the deferred tax liability until actual realization or
a similar triggering event occurs (however it has been recently discussed in
literature, whether the latest decision in the CJEU’s case "National Grid
Indus" could be interpreted in a way allowing such interest and collateral).

Similar to transfer pricing, the exit tax
provisions in the Netherlands ensure that the Netherlands is able to effectuate its taxing
right regarding profits accrued on its territory (principle of territoriality).
Characterising the Dutch exit tax rules as anti-abuse rules thus seems to go
further than what these rules actually are: rules protecting/determining the
Dutch taxable base. It even seems that neither the Dutch legislator nor Dutch
Courts regards the exit tax provisions as anti-abuse provisions.

Other countries share the same vision, Belgium, Spain and Sweden for instance.

29.
Withholding Tax. We
have noticed that the same kind of concerns can also arise with respect to
withholding tax (below “WHT”) on outbound payments since some Member
States, such as Denmark, Ireland, Luxembourg, Spain and Sweden, consider the WHT
(or a higher rate of WHT towards some countries) as an anti-abuse measure.
Other countries which have not reported such measures might consider the fact
that a reduced WHT rate or a WHT exemption is not available as   the mere result
of the application of the normal tax legislation (considering in particular the
interactions between double tax treaties and local tax legislation: the higher WHT
rate apply, by default, in the absence of an applicable double tax treaty, and
not the opposite).

As an example, it should be mentioned that
Sweden levies 30 % WHT on dividends
abroad, although there are several exemptions available. Sweden also deems a foreign recipient of a royalty to have a permanent
establishment in Sweden (which makes the
recipient liable to tax here), but  this is waived due to the provisions of a
double tax treaty with Sweden allowing only
the recipient company to tax the royalty income.

30. Contrary to the above, France has
reported a distinct WHT rate of 50% that will be applied in case of outbound
payments (dividends, interest and payments in consideration of the supply of
any kind of services) to beneficiaries located in an NCJ[63]. Advance Tax Rulings/Advance Opinions. Upon request from the
Commission, we have checked whether advance tax rulings mechanisms exist in the
concerned MSs. This is indeed the case in many MSs, e.g. in Belgium, Estonia, France, Germany, Hungary, Ireland, Luxembourg, the Netherlands, Spain, the United Kingdom. However, for none of these countries  these tax ruling mechanisms have
been reported spontaneously in the answers to the questionnaire. This is due to
the fact that the advance tax rulings mechanisms are not regarded as being
anti-abuse provisions or being used to get clearance on particular tax
plannings. Indeed, the purpose of advance rulings mechanisms is generally to
offer taxpayers / investors in a given country the legal certainty so as to get
a sufficient level of comfort in understanding the tax consequences of a
contemplated transaction / operation.

As an example, with respect to the United Kingdom, previously, companies could
write to HMRC (the UK tax authorities) to apply for advance clearance on
transactions under HMRC's "Code of Practice 10". Code Of Practice 10
now only applies to non-business customers (i.e. mainly individuals) and
companies are covered by the non statutory business clearance procedure.
However it should be noted that HMRC will not consider a clearance application
which overtly involves tax planning/avoidance. Providing that is not the case,
a company can get clearance. Similarly, in Estonia, the Taxation Act establishes that tax
authorities have the right to refuse issuing an advance ruling the aim of the
transaction is tax avoidance.

In the Netherlands, article 4 of the Administrative Circular "Besluit Fiscaal
Bestuursrecht" of 5 July 2011 establishes that no advance clearance will
be given if a taxpayer presents a fact pattern that qualifies under the
criteria of abuse of law. If, in that case, the taxpayer tries by slightly
modifying the facts to arrive at a situation that can just not be qualified as
abuse of law, this is characterised as finding the fiscally acceptable border
("fiscale grensverkenning") and no advance clearance will be given
for such cases.

In Belgium,
an advance decision may not be granted in the area of income taxes where at the
time the application is filed, essential elements of the operation or
transaction described are linked to a tax haven that does not cooperate with
the OECD.

31. Number of Measure not Relevant as Such. As
a result, we cannot draw conclusions on the sole basis of the number of anti-abuse
measures reported in each MS.

32. Specific Measures v. Non-Specific Measures. Although we have tried to categorise various types of measures
according to the scope of application, i.e. only applicable to Third Countries
(Specific) or not (Non-Specific), it appears from the information collected
that it is not always easy to make that distinction for various reasons.
Indeed, in some cases, the text of the law is not always clear, or the text of
the law is applicable to all types of countries but in practice only applies to
selected countries (including or not Third Countries only). In addition, the
case law of the Court of Justice of the European Union (below “CJEU”)
may also impact the applicability of some measures within the EU (and by
extension the EEA).

Moreover, nothing precludes Non-Specific
Measures from efficiently tackling particular situations involving foreign
countries (Third Countries or not) so that the distinction between Specific
Measures and Non-Specific Measures may not be an appropriate criterion to
measure the efficiency of a given measure. In other words, even if only few
Specific Measures were reported for a given MS, it does not per se mean
that such MS is less efficient in fighting against ATP involving Third
Countries.

33. Specific Measures. From the data
collection, it appears that 49 Specific Measures exist across the various MSs
concerned, out of which 18 are New Specific Measures and 31 are Other Specific
Measures.

Amongst these Specific Measures, 1 is
reported as an ATP Measure (being an Other Specific Measure), 43 are NCJ
Measures (17 New and 26 Other) and 5 are considered as both ATP and NCJ
Measures (1 New and 4 Other).

We mention these measures according to
their type in section 4.5 below (which are then further detailed in Appendix 2).

34. Non-Specific Measures. 116 Non-Specific
Measures were reported to exist in the various MSs (including purely domestic
situations) of which most are generally equally applicable to MSs and Third
Countries.

We describe in more details some of these
measures according to their type in section 4.6 below.

35. Table. The table below gives an overview
of the available measures per category (New Specific Measures, Other Specific
Measures, and Non-Specific Measures) and per MS (being the 14 MSs selected by
the Commission).

Table 6: General
Overview of Available Measures

Questions || New Specific Measures || Other Specific Measures || Non-Specific Measures || Grand Total || Pending proposals

# ATP || # NCJ || #BOTH ATP/NCJ || # TOTAL || #ATP || #NCJ || #BOTH ATP/NCJ || #TOTAL || # || Equally applicable\*

BELGIUM || 0 || 1 || 0 || 1 || 0 || 2 || 0 || 0 || 13 || not exclusively || 16 || Yes

CYPRUS || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 5 || Yes || 5 || No

DENMARK || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 10 || not exclusively || 10 || No

ESTONIA || 0 || 0 || 0 || 0 || 0 || 5 || 0 || 5 || 2 || Yes || 7 || No

FRANCE || 0 || 8 || 0 || 8 || 0 || 0 || 0 || 0 || 7 || Yes || 15 || No

GERMANY || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 11 || not exclusively || 11 || No

HUNGARY || 0 || 3 || 0 || 3 || 0 || 0 || 0 || 0 || 5 || Yes || 8 || No

IRELAND || 0 || 2 || 0 || 2 || 0 || 7 || 2 || 9 || 6 || Yes || 17 || No

LUXEMBOURG || 0 || 1 || 0 || 1 || 0 || 0 || 2 || 2 || 5 || Yes || 8 || Yes

MALTA || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 9 || Yes || 9 || No

NETHERLANDS || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 0 || 14 || Yes || 14 || Yes

SPAIN || 0 || 1 || 0 || 1 || 0 || 10 || 0 || 10 || 9 || not exclusively || 20 || Yes

SWEDEN || 0 || 0 || 1 || 1 || 1 || 1 || 0 || 2 || 3 || not exclusively || 6 || Yes

UK || 0 || 1 || 0 || 1 || 0 || 1 || 0 || 1 || 17 || Yes || 19 || Yes

# TOTAL || 0 || 17 || 1 || 18 || 1 || 26 || 4 || 31 || 116 || || 165 ||

\* Are those
measures generally equally applicable to MSs (including purely domestic
situations) and Third Countries?

4.5.
New Specific Measures

36. Definition of NCJ v. Specific Measures. As
explained above, there are 18 New Specific Measures (none of them relating to
ATP) out of which 8 concern France, which
has recently defined the concept of NCJ in its tax legislation.

Section 238 O-A of the French Tax Code
provides for a definition of an NCJ which is based on the exchange of
information of a specific state or territory (with France
in particular). Based on this new definition introduced in the French Tax Code,
a number of recent measures have been adopted specifically aimed at NCJs.

Apart from France,
the number of New Specific Measures per country is rather limited. Only Belgium, France, Hungary, Ireland, Luxembourg, Spain, Sweden and the United Kingdom have reported New Specific Measures.

In addition, all New Specific Measures
are very specific and well-defined measures. It thus mostly concerns
well-scoped measures aimed at preventing certain specific forms of tax avoidance.
Based on the input received, we have for instance not found any reference to a
general measure prohibiting or preventing any type of transaction or connection
with Third Countries.

37. New Specific Measures. The New Specific
Measures reported are listed below and further detailed in Appendix 2:

·
Belgium

-
Reporting obligation for payments to tax havens

·
France

-
Anti-avoidance rule regarding the payments made
to non-residents located in a NCST

-
CFC regime strengthened for income from entities
located in a NCST

-
Exclusion from participation exemption regime
for dividends paid by a NCST

-
Transfer pricing documentation requirements for
operations or transactions realised by French companies with foreign entities
located in a NCST

-
Exclusion from exemption regime for capital
gains on the sale of participations held in companies located in a NCST

-
50% WHT on outbound payments to entities located
in a NCST

-
50% taxation on real estate capital gains realised
in France by entities located in a NCST

-
50% taxation on the capital gains resulting from
the sales of shares in French companies realised by entities located in a NCST

·
Hungary

-
Non-tax deductibility of payments made to a CFC
and documentation requirements

-
Restrictions relating to the reported
shareholdings

-
Restrictions related to participation in a CFC

·
Ireland

-
Specific cash-pooling interest relief

-
Exemption from Irish WHT for payments of
royalties to non-resident companies

·
Luxembourg

-
Exchange of information provisions in DTTs with
dozens of Third Countries

·
Spain

-
Limitation on Transfers of Right of Use
Intangible Assets to Tax Havens (Patent Box)

·
Sweden

-
Interest stripping rules

·
The United Kingdom

-
TIEAs with offshore financing centres

38. Increased Burden for Third Countries.
Some measures, whether general or with a focus on specific schemes, are more
severe in the case of dealings with an NCJ. For instance, additional
documentation requirements, additional conditions to be complied with when
dealing with an NCJ or increased tax liability when dealing with an NCJ could
apply.

In France,
for instance,

·
In the case of deduction of expenses resulting
from transactions with NCJs the general proof requirements are strengthened.
Complementary proof is thus needed to be able to deduct said expenses, as
opposed to when dealing with non-NCJs[64].

·
In the case of operations or transactions
realised by French companies with foreign entities located in an NCJ, the
French taxpayer is obliged to provide additional Transfer Pricing documentation
(as opposed to the general information on the affiliated companies or specific
information on the audited company which needs to be provided in any event). In
such a situation, the French taxpayer will be obliged to provide all tax
documentation in relation to the company located in an NCJ, which is required by
the French tax authorities for French companies (e.g. annual balance sheet,
profit-and-loss account, form DADS 1)[65];

·
The general applicable tax rate for real estate
capital gains realised in France by a
non-resident amounts to 33.33%. However, this rate is increased to 50% if the
capital gains are realised by an entity located in an NCJ.

4.6.
Other Measures

39. Introduction. In this section, we
describe both the Other Specific Measures and Non-Specific Measures reported by
the various MSs. We present these measures according to their purpose and
characteristics instead of on the basis of their territorial scope (Third
Countries only or not). This eases the comparison of the various existing
measures in each MS.

On that basis, we have divided the
existing measures according to the following categories:

·
CFC regulations

·
Transfer Pricing measures

·
Deductibility of expenses

·
Measures on outbound income

·
Measures on inbound income

·
Disclosure Requirements

·
General anti-abuse provisions

·
Various Measures

4.6.1. CFC Regulations

40. Introduction. A general overview of all
measures reported with respect to the selected MSs which can be qualified as
measures in relation to the taxation of income of foreign entities that qualify
as Controlled Foreign Companies is provided at the end of this section. This
section thus relates to measures that generally organise the taxation at the
level of the parent company of all or part of the income from its CFCs. The
purpose of the CFC-legislation, as described by most Member States (i.e. Denmark [66], Sweden [67]and the United Kingdom [68]), is clearly to
avoid or prevent tax planning via low tax jurisdictions whilst eroding the
national tax base.

41. Eight MSs with CFC Rules. These Member
States are Denmark,
Estonia, France, Germany, Hungary, Spain, Sweden and the United Kingdom. The level of complexity of
these regimes varies from country to country but all of them provide that the
controlling entity would be taxed on all or part of the income from its CFCs.
The elements which determine the complexity of these rules include (i) the
various conditions in order for a foreign entity to be considered as a “CFC”
(i.e. notion of the CFC, see below for more comments), (ii) the determination
of the income which will be subject to the CFC rules, (iii) the possibility to
deduct cost from the “CFC-income” and (iv) the possibility to provide for the
counterproof in certain circumstances. The main elements of these regimes are
detailed below.

42. Notion of CFC. In essence, the term “Controlled
Foreign Company” makes an explicit reference to the link between two entities;
one entity controlling, directly or indirectly, another entity. However,
some CFC regimes use other criteria, not specifically concerning the notion of
“control”, to define their scope of application. Therefore, in addition to the
link between two entities (shareholding, voting rights, assets, etc.), the
other main elements that will be taken into account to identify CFCs will be,
in the hands of the “controlled” entity, the nature of its activities (taxable
basis composition, assets composition, “effective trading or manufacturing
activity”, “real economic activity”, etc.), its location (country with
“privileged tax regime”, location in a “low tax rate territory”, etc.) or the
taxation regime of all or part of its income (“low-taxed” income, etc.). Apart
from Denmark, all other Member States which
have reported the CFC-regulation refer to a specific level of taxation which is
required in order to assess whether or not the foreign entity is located in a
tax haven:

·
In Estonia, the
CFC-regulation refers to entities located in low tax territories. As mentioned
above, this concept is defined in the Estonian tax legislation as a foreign
state or a territory with an independent tax jurisdiction in a foreign state,
which does not impose a tax on the profits earned or distributed by a legal
person or where such tax is less than one third of the income tax which would
apply to the taxpayer if it were resident in Estonia.
Considering the tax rate for personal income tax is flat 21%, a low tax rate
territory is the territory where the applicable tax rate is below 6,93%[69];

·
The CFC-regulation of France
details that it is only applicable in case a foreign legal entity is located in
a country with a privileged tax regime. A privileged tax regime is a tax regime
providing for a taxation of a foreign entity of less than 50% of the income tax
liability which the foreign entity would incur in France,
should the activity have been performed in France[70];

·
In Germany,
the CFC-regulation refers to “low taxed income” in the hands of the foreign
entity. Low taxed income is income which is taxed below 25%[71];

·
For Hungary,
it is required that the effective tax rate is below 10% or that the
non-resident company did not pay any tax equivalent to corporate tax in order
for the CFC-regulation to apply[72];In Spain and the United Kingdom, the taxpayers are subject to a
CFC-regulation in case the tax paid by the foreign company is less than 75% of
the amount that would have been paid in Spain or
the United Kingdom on such income[73],[74];

·
Sweden refers to a an
effective tax rate applicable in the hands of the foreign legal entity of below
14,5% (which corresponds to 55% of the Swedish corporate income tax)[75].

In Denmark,
the Danish CFC regulation also applies in case of a foreign subsidiary which is
located in a low tax jurisdiction. However, in Denmark
no reference is made to a specific tax rate in this respect. It is also
mentioned that no black or white lists are applicable in this respect[76].

Finally, Sweden
and the United Kingdom have also reported to
dispose of a “white list” or “excluded territories exemption” following which,
even if the foreign entity is located in a tax haven according to the
respective principles as mentioned above, the CFC-regulation will nonetheless
not be applicable in case the foreign entity is located in a jurisdiction
included on the white list in Sweden [77], or considered as an excluded jurisdiction for UK purposes[78].

Based on this, the eight CFC regimes
cumulate, in a more or less pronounced way, several criteria to define their
scope of application. For instance, the French CFC
rules combine the “link” criterion (“more than 50% directly or
indirectly owned foreign subsidiaries and branches”) with the location (country
with a “privileged tax regime”) and the activities criteria (“effective trading
or manufacturing activity”). To the contrary, Estonian
CFC rules are limited to a location criterion (entities located in a
“low tax rate territory”) and based on a concept of “control” that is defined
by law.

Interestingly, in Estonia,
profits of the entities located in low tax rate territories are included in the
taxable income of the Estonian resident individuals controlling such entity,
notwithstanding whether the entity has distributed any dividends or not. CFC
income is not included in the taxable income of Estonian resident companies (as
Estonian resident companies are not subject to corporate tax on retained
earnings, it would be useless to attribute income to resident companies).

43. Income concerned. We have seen two
different approaches. On the one hand, some CFC regimes lead to the taxation of
all of the CFCs’ income in the hands of the controlling entity (France, Hungary, Sweden,Denmark
and the UK) while, on the other hand, other regimes lead to a taxation
of certain income depending on their nature (e.g. “passive income” in Spain or Germany)
or their tax regime (e.g. “low-taxed” passive income in Germany).

44. Impact of the EU freedoms. The EU
freedoms potentially have an important role to play in defining the limits of
the CFC rules. This became concrete in Germany,
where, following the Cadbury-Schweppes decision of the CJEU, the CFC rules were
adapted and no longer apply to subsidiaries located in the European Union (or
the European Economic Area) when it is proved that a real economic activity is
performed in their state of residence. In addition, several jurisprudence decisions
(including the Cadbury-Schweppes decision but also national jurisprudence) have
clearly focused the debate on the compatibility of the
United Kingdom’s CFC rules with the EU freedoms, namely on the fact that
an arrangement must be considered as artificial or not, leading to a reform of the
United Kingdom’s CFC rules that will apply for accounting periods beginning on
or after 1 January 2013.

45. Impact of the Double Tax Treaties. Two
countries have pointed out compatibility issues existing between their CFC
rules and the Double Tax Treaties they concluded, the solutions retained in the
domestic law and jurisprudence being radically different. Indeed, Sweden has reported two decisions of the Supreme Administrative Court where the Swedish CFC rules were applied over the applicable
Double Tax Treaty (treaty override). But after severe criticism, the Supreme Administrative Court took a step back and affirmed that the relevant Double Tax
Treaty should generally be applied over the CFC rules. To the contrary, without
mentioning landmark decisions on this specific topic, Germany reported a treaty override measure according to
which any Double Tax Treaty has to be disregarded for the application of the
German CFC rules.

Table 7: CFC Regulations

Type of measure || CFC Regulations

Ground of measure || Description of the measure || Remarks || Landmark case law

Law || Other

DENMARK || Sec. 32, CTA || || The income of a foreign subsidiary may be taxed in the hands of its Danish parent company if the subsidiary constitutes a CFC. A foreign subsidiary is considered as a CFC provided that certain conditions relating to its shareholding/voting rights (>50% held by a Danish parent company), its taxable basis (>50% CFC income) and the nature of its assets (>10% CFC assets) are met. || CFC definition focused on subsidiary’s characteristics No black or white list exists ||

ESTONIA || Sec. 21, EITA || || Profits of the entities located in “low tax rate territories” (i.e. absence of taxation or taxation lower than 1/3 of the taxation of Estonian resident individuals – cf. Sec. 10, EITA) are included in the taxable income of the Estonian resident individuals controlling such entity, notwithstanding whether the entity has distributed any dividends or not. || CFC definition focused on subsidiary’s location (low tax rate territory or not) A white list exists ||

FRANCE || Sec. 209 B, FTC (Sec. 104, L. 2004-1484, 30 Dec. 2004) Decree 2006-1309, 25 Oct. 2006 (Sec. 102 SA-102 ZB Appendix II, FTC) || Tax guidelines 4 H-1-07, 16 Jan. 2007 || French corporations are required to include in their taxable income profits made by their more than 50% (or, under certain circumstances, 5%) directly or indirectly owned foreign subsidiaries and branches located in a country with a privileged tax regime (taxation <50% than taxation that would been incurred in France) unless it proves that the foreign entity carries an effective trading or manufacturing activity. || CFC definition focused on subsidiary’s characteristics and location In principle, not applicable to subsidiaries (or branches) located in another EU country unless artificial arrangement set up to circumvent French tax law (burden of proof = French tax authorities) || Two decisions (“SIFA” and “Compagnie des Glénans” cases) providing useful information on the methods for evaluating the “preferential tax regime” were reported.

Sec. 209 B III bis, FTC Sec. 22, I-0 of L. 2009-1674, 30 Dec. 2009 || Tax guidelines 14 A-5-12, 10 May 2012 (§25 et seq.) || Specific measures regarding NCST: · Regarding the general “real activity” safeguard clause for taxation of benefits in France, if the foreign company is located in a NCST, the burden of proof is shifted from the tax authorities to the French company. Accordingly, the taxpayer must demonstrate that (i) the foreign entity or permanent establishment is principally engaged in commercial or industrial activities and that (ii) the passive income and remuneration ratios derives from the foreign entity or permanent establishment do not exceed the thresholds provided by section 209 B III of the FTC (less than 50% of the revenues are not with affiliates and if less than 20% of its income is “passive”). · Regarding the foreign tax paid on passive income received by the CFC entity, such tax is in principle credited against the corresponding French tax, provided that the foreign tax is comparable to French corporate tax. The tax credit is however excluded for WHTes on passive income received by the foreign entity and levied by NCSTs. || CFC definition focused on the subsidiary’s taxation regime (comparable or not) and/or location (NCST or not) A white list of NCSTs exists (regularly updated) ||

GERMANY || Art. 7-14, Foreign Tax Act (Außensteuergesetz (AStG)) || || Any corporate entity not subject to taxation in Germany is classified as a CFC (i) if more than 50% of the voting rights or shares are held by one or more German taxpayers unlimitedly subject to tax (individual and/or corporate) and (ii) if the foreign entity earns low-taxed passive income (taxation <25%). Only the low-taxed passive income is considered as a deemed dividend (“transactional approach”). CFC rules do no longer apply to EU/EEA subsidiaries proving that they are engaged in real economic activity in their state of residence. || CFC definition focused on the subsidiary’s characteristics Taxation limited to “low-taxed” passive income || No domestic landmark decisions reported but the Cadbury-Schweppes CJEU decision had an impact on the CFC regime (real economic activity test for EU/EEA subsidiaries)

Art. 20, sec. 1, Foreign Tax Act (Außensteuergesetz (AStG)) || || Bearing in mind that German CFC rules are in many cases in conflict with tax treaties, the German legislator has ensured the applicability of these rules by including an explicit unilateral treaty override with respect to the CFC rules according to which any tax treaties on the avoidance of double taxation have to be disregarded for the application of the German CFC rules. || ||

Art. 20, sec. 2, Foreign Tax Act (Außensteuergesetz (AStG)) || || If a German resident has a permanent establishment abroad which earns profits that are subject to the exemption method (under the applicable treaty) but would have been subject to the German CFC rules had they been derived through a CFC, Germany will not grant the exemption method but, instead, will grant the credit method for foreign taxes paid. || Transactional approach and treaty override apply (see above) ||

HUNGARY || Sec. 7 (1) g) and gy), CITA Sec. 8 (1) m), CITA || || In the case of a dividend income received from a CFC or a gain received from retirement in the shareholding in a CFC, this income may be deducted from the taxpayer’s corporate income tax base only if the taxpayer applied a “tax base adjustment” (corporate income tax base of the taxpayer increased by non-distributed year-end profits of the CFC) either in the previous years or in the current year. || Burden of proof in the hands of the taxpayer Highly connected with deductibility measures ||

SPAIN || Art. 107, CITA || || A taxpayer must include in its taxable basis certain “passive income” (i.e. income subject to a taxation that is less than 75% of the taxation that would have been due in Spain) obtained from a foreign “linked” company (i.e. holding >50% in the share capital, equity, results or voting rights). || Measure focused on the link with the subsidiary and its taxation on its “passive income” Taxation condition presumed for subsidiaries residing in a tax haven ||

SWEDEN || Chap. 39 a, Swedish Income Tax act (Sw: Inkomstskattelagen (1999:1229)) || || A person taxable in Sweden with a certain participation (>25% of share capital or voting rights) in a foreign legal person may become subject to tax on the income of that person if it is considered as “low-taxed” (deemed “low-taxed” if the effective tax rate is below 14.5%). However, based on three lists (a white one, a black one and a grey one), certain jurisdictions (or certain operations in these jurisdictions) could not be concerned by the CFC rules. || Measure focused on the subsidiary’s nature (CFC or not) and taxation (“low-taxed” or not) A white, a black and a grey list exist || Three decisions of the Supreme Administrative Court on the compatibility between the CFC rules and the Double Tax Treaties were reported. Finally, the SAC affirmed that the DTT should prevail over CFC rules.

UK || Sec. 747-756, ICTA 1988 Schedules 24-26 || || If a foreign company is controlled in the UK and subject to a “lower level of taxation” (i.e. less than 75% of the comparable UK rate) then the company is a CFC and, if none of the exemptions apply (e.g. “low profit exemption”, “exempt activities” and “excluded territories”) its profits will be apportioned to and taxed in the UK. || || Several decisions (both at national and European level) have questioned the EU compatibility of the CFC rules so that a new CFC regime will soon be applicable (cf. below).

Schedule 20, Finance Bill, 2012 (future measure) – will be inserted as Part 9A, TIOPA, 2010 || || Under the new (draft) legislation, a non-UK resident company will constitute a CFC if it is controlled by a UK resident person (or persons). If none of the entity level exemptions apply (e.g. “low profit exemption”, “low profit margin exemption”, “tax exemption” and “excluded territories exemption”), only the profits of the CFC that are attributable to the UK will be apportioned to and taxed in the UK (legislation sets out several factors to attribute the profits). || This measure is expected to be applicable for accounting period beginning on/after 1 Jan. 2013 The list of the “excluded territories” is included in the draft law (thus subject to amendments). It should include most EU territories and many Third Countries ||

4.6.2.
Transfer Pricing Measures

46. Introduction. A general overview of all
measures reported with respect to the selected MSs which can be qualified as
anti-abuse measures in relation to Transfer Pricing is provided at the end of
this section.

As a preliminary remark, as already
mentioned (see paragraph 27 above), we would like to recall that it appears
that in the Netherlands and Hungary , Transfer
Pricing provisions are not regarded as “anti-abuse provisions” but merely as
part of the general principles of the tax systems and apply both domestically
and cross-border. Therefore, it does not mean that MSs with respect to which no
Transfer Pricing anti-abuse measures have been reported do not have Transfer
Pricing provisions in their direct tax legislation.

47. All participating MSs have Measures in relation to Transfer Pricing. Belgium, Cyprus, Denmark, Estonia, France, Germany, Ireland, Luxembourg, Malta, Spain, Sweden and the United-Kingdom, have reported specific
measures in relation to the arm’s-length requirement of transactions.

48. Almost all reported measures provide for an adjustment of the
taxable income. The measures reported provide for
an adjustment of the taxable basis if the arm’s-length condition is not
fulfilled.

In France, a documentation requirement included in tax law obliges large
companies to provide their Transfer Pricing documentation to the tax authorities
upon the request of the latter. The documents need to be provided within 30
days following the request and should include general information on the
affiliated transaction and specific information on the audited company. Besides,
additional information requirements apply in the case of transactions with an
“NCJ” as defined under French tax law.

49. Certain measures are only applicable in the case of transactions
with an “NCJ” or tax haven. In Belgium, France, Spain and the United Kingdom the reported Transfer Pricing
measures specifically relate to transactions with entities located in an “NCJ”
or tax haven.

In Belgium,
abnormal or benevolent advantages granted are always added back to the taxable
basis of the Belgian grantor when the beneficiary is located in a country where
it is not subject to tax or subject to a tax regime which is notably more
advantageous than the tax of the company established in Belgium. In such a case, the rule applies irrespective
of whether it concerns related entities or not.

As mentioned above, in France, additional documentation requirements
apply in the case of transactions with an “NCJ” as defined under French tax
law.

Spain provides that transactions with entities located in tax havens are
valued at fair market value, provided that this value does not result in a
taxation in Spain which is lesser than the one that would have been applicable
based on the agreed value or deferral of taxation. Additionally, it is
compulsory to prepare Transfer Pricing documentation if the Spanish taxpayer
has transactions with tax havens (even if the amount thresholds, which exempt
from the preparation of Transfer Pricing documentation, are not exceeded). This
rule would not apply to EU tax havens if the taxpayer proves that the
incorporation and operations have a sound business purpose and the entity
executes business transactions. As mentioned above, in Spain there is no definition
of a tax haven but a list of jurisdiction which are considered as tax havens.
This list also includes states or territories within Europe and/or the European
Union (such as Cyprus)[79].Finally, in the United Kingdom, under the Transfer Pricing
basic rule, where a transaction occurs with non-arm’s length terms then the
profits and losses of a potentially advantaged person are to be calculated for
tax purposes as if the arm’s length provision had been made or imposed instead
of the actual provision. However, there is an exemption to this rule for small
and medium companies (Section 166), unless an exception in Section 167 applies[80]. One such
exception is that the other affected person or a party to a relevant
transaction is a resident of a non-qualifying territory, where a qualifying
territory is defined as one with double taxation agreements in place including
a non-discrimination provision (or a territory defined as a qualifying
territory in the regulations). Therefore, a small/medium sized company may be
subject to the Transfer Pricing requirement explained above (where it may
otherwise have been excluded from these requirements) if it is resident in a
territory which does not have a double taxation agreement in place with the
United Kingdom which contains a non-discrimination provision. The United Kingdom has Double Tax Treaties in
place with all the EU Member States which contain a non-discrimination
provision. Therefore it is expected that only Third Countries will be affected
by this rule.

Table 8: Transfer
Pricing Measures

Type of measure || Transfer pricing measures

Taxable income adjustment || Specific Transfer Pricing documentation || Ground of measure || Description of the measure || Remarks

Law

BELGIUM || X || || Art. 26 of the BITC || Any “abnormal or benevolent” advantage granted by an enterprise established in Belgium should be added back to its taxable basis, unless such advantage is taken into account in the hands of the beneficiary. Such advantage should be added to the taxable basis in any event if it is granted to a foreign related entity or if it is granted to a foreign entity which is not subject to tax or subject to a tax regime notably more advantageous than the tax regime of the company established in Belgium. Abnormal or benevolent advantages comprise all the non-arm’s-length transactions. || This article is in principle not applicable in the case of Belgian beneficiaries. In addition, the burden of proof lies with the tax authorities

X || || Art. 79 and 207 of the BITC || If a Belgian resident receives an abnormal or benevolent advantage from a related entity, it cannot offset its taxable basis resulting from these abnormal or benevolent advantages received using current year losses, etc. Abnormal or benevolent advantages comprise all the non-arm’s-length transactions. || The burden of proof lies with the tax authorities

CYPRUS || X || || Section 33 of the Income Tax Law N118(I)/2002 || If transactions between related parties are carried under terms and conditions that are different to those that would have applied on similar transactions between unrelated parties, the tax authorities have the power to adjust the taxable income so as to compensate for lost tax revenue. ||

DENMARK || X || X || The Danish Tax at Source Act, Section 2, and the Danish Tax Control Act, Section 3 B || Danish transfer pricing rules apply to transactions between related parties (e.g. intergroup transactions) whether the transactions are made between residents or non-residents. The rules apply when a company or person directly or indirectly owns at least 50% of the share capital or 50% of the voting rights in another company. || Companies are obliged to disclose in the annual tax return certain information regarding type and volume of intra-group transactions. Companies also are obliged to maintain detailed and extensive transfer pricing documentation to substantiate that intra-group transactions are conducted in accordance with arm’s-length principles. A company is subject to fines for failure to comply with the documentation rules.

ESTONIA || X || X || Article 18 of Regulation No. 53 || As a general rule, all Estonian group companies and permanent establishments are obliged to prepare transfer pricing documentation to prove arm’s length nature of the intercompany transactions. || An exemption applies to small and medium-size enterprises (SME) unless they have conducted transactions with entities located in low-tax territories.

FRANCE || X || X || Sec. L 13 AB LPF || Upon request of the tax authorities, large companies must provide further documentation on their Transfer Pricing policy. This information includes general information on the affiliated companies and specific information on the audited company. As from 1 January 2011, complementary disclosure requirements apply to transactions undertaken with companies located in an NCJ jurisdiction as defined under French tax law. || If the taxpayer cannot provide the required information, fines of EUR 10,000.00 or 5% of the adjusted profits, whichever is higher, can be imposed.

GERMANY || X || || Art. 1 FTA || Any transaction between a German company and related parties which is not in line with the arm’s-length principle can be considered as a hidden distribution or contribution. This entails the adjustment of the income of the company as well as a dividend WHT becoming due. ||

IRELAND || X || || sections 835A-835H Taxes Consolidation Act 1997 || The Transfer Pricing rules apply to all trading transactions between related party group companies and the requirement is for the pricing to be at arm's length and be supported by sufficient documentation. If the pricing is found not to be at arm's length, the rules provide for one way adjustments to increase the taxable profit in Ireland either through imputation of taxable income (where income is understated) or restricting a tax deduction (where expense is overstated). ||

LUXEMBOURG || X || || Art. 56 and 164 LTL || In the case of a transfer of profits to a related company – resident, MS or third country – (directly or indirectly related) which cannot be justified, the profits of the resident company may be reassessed by the tax authorities. This entails that the hidden profits should be reintegrated in the taxable income of the resident company. ||

MALTA || X || || Art 5 (6) & (7) of the ITMA || In the case of transactions between a resident and a related non-resident person which have as an effect that the resident person has no profit or less than the ordinary profits that might be expected to rise from the business, the non-resident person shall be assessable and chargeable to tax in the name of the resident person. ||

SPAIN || X || || Art. 16 of the CITA || The tax authorities can review whether transactions between related parties have been executed at fair market value and, if not, make the relevant valuations and tax adjustments ||

X || || Art. 17.2 of the CITA || Transactions with entities located in tax havens are valued at fair market value, provided that this value does not result in a taxation in Spain which is lesser to the one that would have corresponded to the agreed value or deferral of the taxation. || The transactions should be documented according to Spanish Transfer Pricing rules

SWEDEN || X || || Par. 10-20, Chapter 14 of the SITA || Agreements between related parties can be overlooked for the part they depart from what would have been agreed upon between unrelated parties. ||

UK || X || || Sec. 166 and 167 of TIOPA 2010 || Small and medium-sized companies can benefit from an exemption of the basic Transfer Pricing rule that all transactions should occur at arm’s length. However, this exemption is not available in the case of transactions with residents located in a non-qualifying territory (i.e. countries with which the UK has not concluded any Double Tax Treaty or a Double Tax Treaty without a non-discrimination article). ||

4.6.3. Deductibility of Expenses

50. Introduction. A general overview of all
measures reported with respect to the selected MSs which can be qualified as
linked to the deductibility of expenses is provided at the end of this section.

This section only relates to measures
which in first instance limit or deny the deductibility of certain expenses. We
have thus not commented on general Transfer Pricing measures, which were
already commented above.

51. Measures in relation to the deduction of interest expenses were
reported with respect to all MSs. All participating
MSs have reported measures in relation to the deductibility of interest
expenses. Apart from Hungary and Malta, all participating MSs also have specific rules in
relation to interest deductibility.

Indeed, in Hungary
and Malta the deductibility of interest is
included in a broader provision also relating to other types of expenses, which
are classified as “costs and expenses” for Hungary
and also include discounts and premiums paid for Malta.

In Hungary,
costs and expenses are not deductible in case:

·
They relate to transactions entered into for the
sole purpose of reducing tax[81]; or

·
In case they are paid out to an NCJ as defined
under Hungarian tax law. In this case the taxpayer can however still deduct the
given costs and expenses provided he can prove that the costs and expenses were
incurred for the benefit of its economic operations[82].

Both measures in Hungary are aimed at protecting the corporate income tax
base.

In Malta,
the scope of application of the reported measure is more restrictive as it only
applies to interest, discount or premiums paid which relate to immovable income
located in Malta and which are paid out by a
Maltese resident to a related person. The purpose of this measure is to avoid
that such income which is tax exempt in Malta,
as it is paid out to non-resident Maltese and related person, is also
deductible in the hands of the paying entity[83]. Again the purpose of such measure can be described as protecting
the tax base in Malta.

52. Six thin capitalisation rules reported. Within
the framework of the current Study Belgium, Denmark, Hungary, Luxembourg, the Netherlands and the United Kingdom have reported a thin
capitalisation rule.

There is no uniform debt-to-equity ratio
in these different MSs. Belgium has reported
a ratio of 7/1. This ratio however is amended to a 5/1 ratio (applicable as
from 1 July 2012). In Denmark the overall
ratio is set at 4/1, whereas Luxembourg has
reported a 85/15 ratio. In the United Kingdom, there is no debt-equity ratio but the thin capitalisation rules
apply the Transfer Pricing rules to loan relationships between connected
parties. Therefore the aim of the thin capitalisation legislation is to prevent
groups granting excessive loans to UK companies (who would not be able to
borrow this amount/borrow on these terms on an arm’s-length basis) in order to
obtain a deduction for UK tax purposes. In the Netherlands according to the thin capitalisation provision the taxpayer is
under-capitalised if one of the following two ratios is exceeded: (i)
debt-equity ratio of 3:1 or (i) the average concern ratio (the taxpayer may
choose the more beneficial ratio).

Both Belgium
and Denmark have reported a general thin
capitalisation rule in the case of interest paid to related entities. In Luxembourg the thin capitalisation rule only applies on
the intra-group financing of participations.

Apart from the thin capitalisation rule
for intra-group financing, the thin capitalisation rule in Belgium is also applicable in the case of interest
payments made to beneficiaries which are not subject to an ordinary income tax
or which, as far as the interest income is concerned, can benefit from a regime
which is significantly more advantageous than the Belgian tax regime.

53. Three countries have measures which provide for a limitation of
deductibility based on an “Earnings Before Income Tax (Depreciation and Amortisation)”
approach. Denmark, Germany and Spain have specific rules limiting the deductibility of
interest expenses based on the EBIT (Denmark)
or the EBITDA (Germany and Spain). In Denmark,
the deduction of interest is limited to 80% of the EBIT income of the company. In
both Germany and
Spain interest expenses are not deductible
if they exceed 30% of the EBITDA. All three countries have a minimum threshold
in order for this rule to apply. The threshold is different for each country:
DKK 21.3 million (Denmark), EUR 3 million (Germany) and EUR 1 million (Spain).

54. Measures specifically aimed at payments to “NCJ” or tax haven
countries. Belgium,
Estonia, France, Hungary, Ireland and Spain have
measures which are specifically aimed at costs or expenses incurred in relation
to beneficiaries (i) which are not subject to an ordinary income tax or which,
as far as the interest income is concerned, can benefit from a regime which is
significantly more advantageous than the Belgian tax regime (Belgium); (ii) which are located in low tax rate
territory (Estonia); (iii) which are subject
to an effective taxation of less than 50% than that of similar French tax
residents; (iv) which are located in an NCJ jurisdiction as defined under
domestic tax law (France, Hungary and Spain) or (v) which are resident in a non-tax
territory (Ireland).

Between the different Member States as
referred to above, disposing of measures specifically aimed at payments to
“NCJ” or tax haven countries, only Spain disposes of a list of tax haven
countries which is also applicable for the purposes of this measure. The given
list of tax haven companies is included above (cfr Table 4, Comparison of
existing lists).

Apart from Ireland,
the given measures (in Belgium, Estonia, France, Hungary and Spain) apply irrespective of whether the payment is
performed between related companies.

In addition, these rules apply in all
countries, with the exclusion of Ireland, to
any type of expense or cost paid out. Only Ireland
has limited the scope of this deductibility rule as it only applies to payments
of short interest to a related group company.

55. Three countries have reported measures in relation to hybrid
mismatch arrangements. Denmark, Ireland and the United Kingdom have reported certain measures in relation to hybrid mismatch
arrangements. Apart from certain specific measures for Denmark, both Denmark and Ireland have a measure which restricts the deductibility
of interest if the interest income is not taxed in the hands of the beneficiary
due to the fact that it is considered as equity income in the hands of the
beneficiary. Ireland refers in this respect
specifically to the figure of the “Profit Participating Loan”, nevertheless, it
also limits the scope of application mainly to interest payments to
beneficiaries located in Third Countries with which Ireland
has not concluded a Tax Treaty. The United Kingdom
also a measure against hybrid mismatch arrangements, the purpose of which is to
“tackle arbitrage, where companies seek to gain a tax advantage by exploiting
differences within and between tax codes and excessive claims for double
taxation relief”[84].

56.
Nearly all measures are included in local tax
law. Apart from Luxembourg,
all measures which have been reported in relation to the deductibility of
expenses are included in local tax law.

Only Luxembourg
has commented on a measure which results from the administrative practice and
which provides for a thin capitalisation rule in the case of intra-group
financing of participations.

Table 9: Deductibility
of Expenses

Type of measure || Deductibility of expenses

Type of expense || Ground of measure || Description of the measure || Remarks

Interest || Other || Law

BELGIUM || Business expenses (including interest expenses) || Business expenses (including interest expenses) || Art.54 of the BITC || Certain types of business expenses (interest expenses, license retributions, etc.) are not deductible when paid out to beneficiary who is not subject to tax on such income or if the applicable tax regime for such income is substantially more favourable than the one applicable to such income in Belgium. || Possibility for counterproof (payment corresponds to real and sincere transactions and does not exceed normal limits)

Interest expenses || || Art. 55 of the BITC || Interest expenses are not deductible if the amount is not corresponding to the applicable market rate bearing in mind the specific facts and circumstances. || Non-applicability of the rule for interest paid out to financial entities (National Bank, etc.)

Interest expenses || || Art. 198, 11° of the BITC || In the case of interest paid to a beneficiary who is part of a group to which the Belgian debtor also belongs, a 5/1 thin capitalisation rule is applied. || This rule has been adopted, but has not yet entered into force. If no Royal Decree is published the rule will be applicable as from 1 July 2012

Interest expenses || || Art. 198, 11° of the BITC || In the case of interest paid to a beneficiary who is not subject to an ordinary income tax regime or who, as far as the interest income is concerned, is subject to a taxation system which is significantly more advantageous than the Belgian tax regime, a 7/1 thin capitalisation rule is applied. A new rule has been adopted to amend said thin capitalisation ratio to 5/1. This rule has however not yet entered into force. || This rule has been adopted, but has not yet entered into force. If no Royal Decree is published the rule will be applicable as from 1 July 2012

CYPRUS || Interest expenses || || Art. 11 of the ITL || Interest expense which relates or is deemed to relate to the acquisition of assets not used in the business is not deductible for tax purposes. || The rule also applies if a loan exists but cannot specifically match with the acquisition of assets used for business purposes

|| All types of expenses || Art. 9 of the ITL || Business expenses which are not supported by underlying documentation are not deductible. ||

DENMARK || || All types of expenses || Sec. 5G of the TAA and Sec. 31.2 of the CTA || The measure aims at avoiding multiple deduction of expenses. || Measure in relation to hybrid mismatch arrangements

|| Payments done by Danish transparent companies || || Under certain circumstances both Danish companies (as well as a PEs of foreign companies) can be considered as transparent companies. In such a case payments done by these companies to their foreign parent company (or head office) are not deductible as they are deemed to occur within the same legal entity. || Measure in relation to hybrid mismatch arrangements

Payments qualified as interest under Danish tax law || || Sec. 2B of the DCTA || In the case of a hybrid financial instrument which is considered as debt under Danish tax law, but as equity under the tax legislation of the country of residence of the counterparty, the instrument will nonetheless be treated as equity for Danish income tax purposes. This entails no deduction of interest expenses or capital loss and application of a WHT on the “deemed dividend payment”. || Measure in relation to hybrid mismatch arrangements

|| Distributions by a Danish fiscally transparent entity || Sec. 2C of the DCTA || In the case of en entity which is considered as fiscally transparent for Danish tax purposes, but as a separate taxable entity for foreign tax purposes, the entity will be subject to the same tax treatment as Danish resident companies (i.e. distributions will be considered as dividend distributions also subject to WHT). || Measure in relation to hybrid mismatch arrangements

Interest payments || || Sec. 11 of the CTA || The deduction of gross interest and related party debt is disallowed to the extent that the overall debt to equity ratio exceeds 4/1. || Thin capitalisation rule

Financing costs (interest, losses on debts, receivables, losses on shares, etc.) || Financing costs (interest, losses on debts, receivables, losses on shares, etc.) || Sec. 11B of the CTA || According to the asset-based rule if financing costs paid by a Danish company exceed an amount of DKK 21.3 million (on a stand-alone basis or if part of a joint tax group), the deduction of these costs is limited to 4.5% of the tax basis of certain assets. ||

Interest payments || || Sec. 11C of the CTA || The interest deduction is limited to 80% of the EBIT (earnings before interest and tax) income of a Danish company, with a minimum deduction of DKK 21.3 million. ||

ESTONIA || Different types of payments, including interest payments || Different types of payments (interest payments, payments of fines, advances, etc.) || Art. 52 of the EITA || Certain payments performed to entities located in a low tax rate territory are not considered as business expenses and are therefore not deductible and subject to a 21/79 corporate income tax (similar as hidden profit distributions). ||

Interest payments || || Art. 29(7) of the EITA || If interest payments done by an Estonian taxpayer exceed the arm’s-length rate, the interest exceeding the arm’s-length amount is subject to 21% WHT on gross amount. ||

FRANCE || || Different types of expenses (remuneration, fees and similar payments) || Sec. 238 A of the FTC || Expenses resulting from transactions undertaken by French companies with non-residents which are subject to an effective taxation which is less than 50% than that of similar French residents, are non-deductible. || Possibility of counterproof (payment related to an effective operation and not related to an “abnormal” act of management)

|| Financing costs for the acquisition of shares || Sec. 40 of the FFA || The deduction of financing costs for the acquisition of shares (of which the acquisition value exceeds EUR 1 million) is limited based on a specific ratio if the French acquiring company is not able to demonstrate that it takes the decisions relating to these shares and that it actually exercises the control and influence over the acquired company. || The limited deductibility only applies as from the year of acquisition until the eighth anniversary of the acquisition. The counterproof can only be provided in the year of acquisition

Interest payments || || Sec. 223 B al. 7 of the FTC || The deduction of interest is limited within a tax group when a company is purchased from a related party and joins the tax group afterwards. This rule applies even if there is no intra-group debt. || The limited deductibility of interest only applies during 8 years following the purchase of the company from a related party

|| Different types of payments (remuneration, fees and similar payments) || Sec. 238A paragraph 3 of the FTC || There is a general interdiction of the deduction of expenses resulting from transactions with non-resident entities located in a non-cooperative jurisdiction as defined in the FTC. || Possibility for counterproof (the main purpose and effect of the transaction is not to shift income outside France and also a reporting requirement on a detailed tax return)

GERMANY || Interest payments || || Art. 4h ITA and Art. 8a CITA || If the net interest payments exceed a threshold of EUR 3 million, interest expenses are non-deductible to the extent that net interest payments exceed 30% of the EBITDA (earnings before interest, taxes, depreciations and amortisations). Exceptions are available and related to the “stand-alone exception”(is the German business part of an affiliated group?) and “equity-test” (comparison of the equity ratio of the company as opposed to the equity ratio of the group). || Interest which cannot be deducted as a result of this measure can be carried forward in time subject to certain conditions

HUNGARY || || Different types of payments || Sec. 1(2) of the CITA || If the sole purpose of a transaction is the reduction of Hungarian tax, any tax reduction, benefit or tax relieving provision may not be applied. ||

|| Different types of payments || Sec. 8 (1) d) and Point A) 9 of Annex 3 of CITA || Costs and expenses incurred in relation to a CFC (as determined under Hungarian tax law, notion of “NCJ”) do not qualify as business expenses and cannot be deducted from a tax perspective. || Possibility of counterproof (prepare specific documentation for each transaction)

Interest payments || || Paragraphs (1) j) and (5) of Section 8 of CITA. || According to the Act LXXXI of 1996 on corporate tax and dividend tax, the total of the interest expense and the tax base decreasing transfer pricing adjustment, relating to certain amount of liabilities exceeding three times the equity is not deductible from the company’s corporate income tax base. ||

IRELAND || Interest payments || || Sec. 110 TCA 1997 || Interest deduction on profit participating loans is restricted if it is not paid to a qualifying company (including mainly companies located in third countries with which Ireland has not concluded a DTT). Generally, the purpose of the measure is to avoid a reduction of the Irish tax base, where the interest income is not being taxed in the hands of the beneficiary. || Measure in relation to hybrid mismatch arrangements

Interest payments || || Sec. 452A TCA 1997 || Payments of short interest (interest on loans of less than 1 year) to a 75% related party group company resident in a non-tax territory are reclassified as non-deductible distributions. In the case of interest payments performed by a qualifying company the interest will nonetheless be partially or entirely deductible depending on the effective tax rate applied in the non-treaty jurisdiction. ||

Interest payments || || Sec. 130(2B) TCA 1997 || In the case of interest paid as a result of funds borrowed for non-trade purposes (i.e. interest on funds borrowed to buy shares in a company) from a non-treaty resident 75% group company, the interest is reclassified as a non-deductible distribution. ||

Interest payments || || Sec. 817C TCA 1997 || The amount of interest deductible as trading expense is limited. This measure attempts to match the timing of the interest deduction in the Irish trading company with the timing of the taxation in the hands of the beneficiary. ||

LUXEMBOURG || Interest payments || || (Administrative practice) || Thin capitalisation rules are applied based on an administrative practice. In the case of intra-group financing of participations, a 85/15 debt-to-equity ratio applies. If the investment is financed with less than 15% equity, the surplus will be recharacterised as a hidden distribution of profits. This entails that the surplus will not be deductible and will be subject to a WHT of 15%. ||

MALTA || Different types of payments including interest || Different types of payments (interest, discount or premium paid) || Art. 26 (h) of the ITA || Certain payments of interest are not tax deductible in the hands of the debtor if it relates to immovable property situated in Malta and the interest is exempted as it is paid to a non-resident Maltese person which is also a related person. ||

NETHERLANDS || Interest payments || || Art. 15ad CITA 1969 || The deduction of interest on acquisition debt will be restricted if a Dutch company is acquired by a Dutch holding company with which it subsequently joins in a fiscal unity. The restriction applies to interest (including costs) related to third and related party debt with which the acquisition is financed. Based on this measure it is no longer possible to offset interest costs incurred by the parent company on acquisition debt against profits generated by the acquired company. ||

Interest payments || || Art. 13l CITA 1969 (proposed) || The interest deduction limitation will apply to excessive interest expenses on debt relating to participations (“participation debt”). A mechanical formulaic rule determines the participation debt amount. The non-deductible interest expenses will equal the fraction (average participation debt/average total debt) multiplied by the total interest expenses of the Dutch taxpayer. ||

Interest payments || || Article 10d CITA 1969 || According to the thin capitalisation provision the taxpayer is under-capitalised if one of the following two ratios is exceeded: (i) debt-equity ratio of 3:1 or (i) the average concern ratio. In this case, interest deduction on inter-company loans is restricted. ||

Interest payments || || Art. 10a CITA 1969 || Interest deduction is restricted if certain transactions take place (tainted transactions, e.g. a dividend distribution or a capital contribution). || Interest deduction is nevertheless secured if both (i) the loan and (ii) the “tainted” transaction were carried out for predominantly sound business purposes Interest deductible if subject at the level of the creditor to a profit or income tax that is reasonable according to Dutch standards

SPAIN || || Different types of expenses || Art 14.1.g) of the CITA || Expenses derived from transactions executed, directly or indirectly, with entities resident in tax havens or paid through entities resident in tax havens are not tax deductible. || Possibility of counterproof (transactions have been effectively carried out)

Interest expenses || || Art. 14.1.h CITA || Interest expenses paid to related parties and relating to the acquisition of shareholdings or contributions to the capital of group companies are not tax deductible. || Possibility of counterproof (transactions have sound business purposes)

Interest expenses || || Art. 20 of the CITA || Interest deduction is only available for net interest expenses up to 30% of the EBITDA (including some adjustments) provided the net interest expense exceeds EUR 1 million (the first EUR 1 million being deductible, even though it exceeds the 30% of the EBITDA). This rule does not apply to credit institutions or a taxpayer which is part of a group of companies. || Interest deduction which cannot be applied can be carried forward up to maximum 18 years. If the net interest expense is less than the 30% EBITDA, the difference would be used to increase the limit -30% EBITDA- in the 5 following years

SWEDEN || Interest expenses || || Paragraph 10a-e, Chapter 24 of the SITA || Interest expenses due to a related party, used to finance the acquisition of shares from a related party, are non-deductible. || Possibility of counterproof (the interest income is subject to an effective tax rate of at least 10% and there are sound business reasons for both the debt and the acquisition)

UK || Interest expenses || || Part 4 of TIOPA 2010 || Interest payments to related entities are not deductible if they can be considered as not being at arm’s length. Only the portion of the interest expense which meets the arm’s-length condition is deductible. ||

|| Different types of expenses || Part 6 TIOPA 2010 || The purpose of this measure is to “tackle arbitrage, where companies seek to gain a tax advantage by exploiting differences within and between tax codes and excessive claims for double taxation relief” ||

4.6.4. Measures on Outbound Income

57. Introduction. A general overview of all
measures reported with respect to the selected MSs which can be qualified as
linked to outbound income is provided at the end of this section.

As a preliminary remark, as already
mentioned (see paragraph 29 above), some countries consider the WHT (or a
higher rate of WHT towards some countries) as an anti-abuse measure, as it
concerns measures which generally foresee in a (higher) WHT rate which will be
applied  in case of payments to beneficiaries located in countries with which
the Source State has for instance not concluded a double tax treaty.  Whereas
for other countries, they consider that it is just the result of the
application of their normal tax legislation (based on the interactions between
double tax treaties and local tax legislation: the higher WHT rate will be
applied by default, in the absence of an applicable double tax treaty, and not
the opposite).

58. Nine MSs have reported measures in relation to outbound income. Belgium, Denmark, Estonia, France, Ireland, Luxembourg, the Netherlands, Spain and the
United Kingdom have specific measures in the case of income paid by a
resident entity to a non-resident entity. The types of outbound income included
in these measures are dividends (Belgium, Denmark,
France, Ireland, Luxembourg and Spain),
interest (Belgium, Denmark, France, Ireland and
the United Kingdom), royalties (Denmark and Ireland),
capital gains on shares (France and Spain), capital gains on real estate (France) and payments in consideration of the
supply of services (Estonia and France). The implications of these measures will
be outlined in the below paragraphs.

59. Most measures imply the outbound income to have been paid to an
“NCJ” or tax haven country. All measures on
outbound income which have been listed by the MSs are only applicable if the
outbound income is paid out to beneficiaries located (i) in countries with
which no “Tax Information Exchange Agreement” has been concluded (Denmark), (ii) in non-tax treaty jurisdictions (Belgium, Denmark,
Ireland, Luxembourg and the United Kingdom)
(iii) in low tax territories (Estonia), (iv)
in “NCJs” as defined under domestic tax law (France)
and in (v) tax havens (Spain).

60. Almost all measures refer to a reduction or exemption of
(withholding) tax which is not available for these outbound payments. Apart from 2 measures in Estonia
and Ireland, all other measures (reported by
Belgium, Denmark,
France, Ireland,
Luxembourg, the
Netherlands, Spain and the United Kingdom) refer to the non-applicability of an internal reduced tax rate or
exemption if these outbound payments are performed to entities as define above.

In Estonia,
services provided by non-resident entities located in a tax haven are
considered to be provided on Estonian territory and therefore a WHT of 21% is
imposed. In addition, Ireland provides for the
possibility of a residual charge to Irish income tax in the case of interest
paid to non-residents located in a non-treaty territory.

Table 10: Treatment of Outbound Income

Type of measure || Treatment of outbound income

Type of Income || Ground of measure || Description of the measure || Remarks

Dividends || Interest || Royalties || Other || Law

BELGIUM || X || X || || || Art. 107, §2, 10°,  and 106, §5, RD/BITC || Belgian tax law provides, under certain conditions, for some WHT exemption in case of payment of Belgian source movable income (interest and dividends) paid to non-resident taxpayers. Some anti-abuse measures apply in specific circumstances. ||

DENMARK || X || || || || Section 65 DTSA || For dividends paid out on portfolio shares to a foreign shareholder, a reduced WHT rate of 15% is only applicable (instead of the general rate of 28%) if the beneficiary is located in a country with which Denmark has concluded a “Tax Information Exchange Agreement”. ||

|| X || || || Section 65 D DTSA || Provided no specific exemptions apply (for instance in relation to the CFC legislation), the general WHT exemption on interest is not available for interest paid to a foreign group member company that is tax resident outside the European Union and outside any of the states with which Denmark has concluded a tax treaty. A WHT of 25% is levied. ||

|| || X || || Section 65 C DTSA || Royalties are subject to a 25% WHT in Denmark. Based on the Double Tax Treaties concluded by Denmark and the EU Interest & Royalty Directive, an exemption is generally available. However, such exemption does thus generally not apply for beneficiaries located outside the European Union with which Denmark has not concluded a Double Tax Treaty. ||

ESTONIA || || || || X || Art. 29 (3), Ar. 41 p 11 and Art. 43 (1) (1) of the EITA || Services provided to an Estonian resident by an entity located in a low tax rate territory are considered to be provided on the Estonian territory. As a result hereof the payments in relation to the services are subject to a 21% WHT on the gross amount. ||

FRANCE || X || X || || X || Sec. 125 A, 125-0 A, 119 bis, 182 A bis, 182B 39 duodecies and 219 of the FTC || For outbound payments (i.e. dividends, interest and payments in consideration of the supply of any kind or services), a 50% WHT is applicable to these payments if the beneficiary is located in a “NCJ” jurisdiction as defined under French tax law. || There is a possibility of counterproof (in the case of bona fide commercial reasons)

|| || || X || Sec. 244bis, Sec. 244bis A of the FTC || Real estate capital gains realised in France by a non-tax resident are taxed at a 33, 1/3% tax rate. If the beneficiary is located in a “NCJ” jurisdiction as defined under French tax law, the WHT rate is increased to 50%. ||

|| || || X || Sec. 244bis B of the FTC || Capital gains realised in France upon the sale of shares of a French company by a non-tax resident are taxed at 19%. If the beneficiary is located in an “NCJ” jurisdiction as defined under French tax law, the WHT rate is increased to 50%. ||

IRELAND || || || X || || Sec. 242A of the TCA 1997 || Payments of patent royalties by a company resident in Ireland to a non-resident company may be liable to an Irish WHT of 20%. An exemption is generally available upon certain conditions and provided that the beneficiary of the payments is located in an MS or a country with which Ireland has concluded a Double Tax Treaty which imposes a tax that generally applies to interest receivable in that territory. In the case of payments to non-treaty territories a WHT exemption is generally not available. ||

|| X || || || Sec. 246 (3) (h) TCA 1997 || Payments of interest made by a company resident in Ireland to a non-resident company may be liable to an Irish WHT of 20%. An exemption is generally available upon certain conditions and provided that the beneficiary of the payments is located in an MS or a country with which Ireland has concluded a Double Tax Treaty which imposes a tax that generally applies to royalties receivable in that territory. In the case of payments to non-treaty territories, a WHT exemption is generally not available. ||

|| X || || || Sec. 198 TCA 1997 || Payments of interest by a company resident in Ireland to a non-resident company may be liable to a residual charge to Irish income tax chargeable on the non-resident company. An exemption from this residual charge is generally available upon certain conditions and provided that the beneficiary of the payments is located in an MS or a country with which Ireland has concluded a Double Tax Treaty which imposes a tax that generally applies to interest receivable in that territory. In the case of payments to non-treaty territories, a WHT exemption is generally not available. ||

X || || || || Sec. 172D TCA 1997 || Dividends paid by a company resident in Ireland to a non-resident company may be liable to an Irish WHT of 20%. Different exemptions are available based on the EU Parent Subsidiary Directive, or in the case of dividends paid to a beneficiary which is located in an MS or a country with which Ireland has concluded a Double Tax Treaty, etc. Apart from some specific exemptions that may apply, there is no general exemption in the case of dividend payments to non-treaty resident companies. ||

LUXEMBOURG || X || || || || Art. 147 LITL || Dividends paid by a company resident in Luxemburg to a non-resident company may be liable to a WHT of 15%. Different exemptions are available based on the EU Parent Subsidiary Directive, or in the case of dividends paid to a beneficiary which is located in an MS or a country with which Luxembourg has concluded a Double Tax Treaty, etc. Apart from some specific exemptions that may apply, there is no general exemption in the case of dividend payments to non-treaty resident companies. ||

NETHERLANDS || X || || || || Art. 4 of the DDWTA || If the receiver of the dividend is not the beneficial owner, there is no WHT exemption on dividends available. || The purpose of this measure is to avoid dividend stripping

X || || || || Art. 1(7) of the DDWTA || This measure introduces a dividend WHT liability for a Dutch Coop (cooperative society) if a Coop is inserted in a corporate structure with the aim of avoiding (foreign) WHT. ||

SPAIN || X || || || X || Art. 118 of the CITA || Generally dividends paid by a ETVE to a non-resident entity or capital gains realised upon the disposal of an ETVE are considered as non-Spanish sourced income and thus fall outside the scope of Spanish (withholding) taxation. This non-subjection is however not applicable if the beneficiary is located in a tax haven jurisdiction. ||

X || || || || Art. 14.1.h. of the NRITA || Dividends paid by a company resident in Spain to a non-resident company may be liable to a Spanish WHT. Specific exemptions are available based on the EU Parent Subsidiary Directive. These exemptions are not available for beneficiaries located in a tax haven. ||

X || X || || || Art. 14.2 of the NRITA || Certain exemptions from WHT applicable to non-resident entities without a permanent establishment in Spain are not applicable if the income has been obtained through a tax haven. ||

UK || || X || || || (Pending proposal) || Currently WHT is only levied on yearly interest but not on interest relating to loans of less than one year. In addition, many WHT exemptions are available in the case of interest payments to a beneficiary located in a tax treaty jurisdiction. A possible change has been suggested to also levy a WHT on interest relating to loans of less than a year. This would severely impact interest payments to non-treaty jurisdictions. ||

4.6.5. Measures on Inbound Income

61. Introduction. A general overview of all
measures reported with respect to the selected MSs which can be qualified as
linked to inbound income is provided at the end of this section.

62. Three MSs have reported specific anti-channelling measures in the
case of a Foreign Tax Credit (below “FTC”). In
the case of foreign movable income for which an FTC is available, in Belgium, tax law provides that the FTC is not creditable
in the case of channelling. Channelling entails that the lender in reality has
acted on behalf of a third party who has provided the necessary funds for the
transaction and who assumes the credit risk of the operation. Also in Cyprus and Malta a similar rule exists to avoid companies to
be used as vehicles set up for the benefit of the FTC.

63. In the case of a participation exemption regime, the regime
generally provides for subject-to-tax conditions. When
a participation exemption regime is provided so as to exempt dividends or
capital gains in the hands of a local taxpayer, the regime generally requires
certain conditions to be complied with. All countries who have referred to this
regime mention that one of the conditions for the participation exemption
regime to apply is that the distributing company complies with a
“subject-to-tax condition”.

Again the interpretation of the
“subject-to-tax” condition between the various countries is different. In Belgium, Luxembourg and Spain, reference
is made to the local tax regime to assess whether the “subject-to-tax”
condition is met in the hands of the distributing company. In order for the
condition to be complied with in these countries, the company distributing the
dividend (or which is underlying the capital gain on shares) should be subject
to a foreign tax which is similar to the local tax regime or not substantially
more advantages than the local tax regime. In Belgium,
tax law specifies that this requires a nominal or effective tax rate of at
least 15%. In Luxembourg, it is specified
that the distributing company should be subject to an effective tax rate of at
least 50% of the official rate of Luxembourg corporate income tax. In Spain, the non-resident entity must be subject to a tax
which is similar as the Spanish corporate income tax.

In order for the subject-to-tax condition
to be complied with in France, the
distributing company may not be located in an “NCJ” as defined under French tax
law whereas in Estonia, dividends received
from subsidiaries located in “low tax rate territories” do not qualify for the
participation exemption regime.

In Denmark,
there is a rule specifically addressing hybrid mismatch arrangements according
to which dividends received are no longer tax exempt if the subsidiary is able
to claim a tax deduction for the dividends. The rule does not apply if the
dividends are covered by the EC Parent-Subsidiary Directive.

Finally, Ireland does not exempt capital gains on shares relating
to a company which is not located in an EU Member State or in a state with
which Ireland has concluded a Double Tax Treaty.

Table 11:
Treatment of Inbound Income

Type of measure || Type of Income || Participation exemption, FTC, other || Ground of measure || Description of the measure || Remarks

Dividends || Capital gains || Other || Law

BELGIUM || || || X || FTC || Art. 37 and Art. 285-289 of the BITC || In the case of foreign movable income (such as interest or royalties) an FTC is available upon certain conditions. An FTC is not creditable in the case of channelling. Channelling entails that the lender in reality has acted on behalf of a third party who has provided him with the necessary funds and who assumes the credit risk of the operation. ||

X || || || Participation exemption regime || Art. 202 and 203 of the BITC || A Belgian company can benefit from a participation exemption regime for dividends it receives provided certain quantitative and qualitative or “subject to tax” conditions are met. One of these conditions requires that the company distributing the dividend is subject to a foreign tax similar to the Belgian corporate income tax or is not located in a country where the common tax regime is substantially more advantageous than in Belgium. || A tax regime is considered substantially more advantageous if the nominal or effective tax rate is below 15%. MSs are considered not to have a tax regime which is substantially more advantageous.

|| X || || Other (capital gain exemption) || Art. 192 of the BITC || In the case of a capital gain realised on shares by a Belgian company, the capital gain can be exempted from Belgian corporate income tax provided certain conditions are met. These conditions also include the qualitative or “subject to tax” conditions as applicable for dividends received. ||

CYPRUS || || || X || FTC || Art. 35 and 36 of the ITL || In order to avoid Cypriot companies to be used as vehicles set up for the benefit of the FTC, the FTC is computed on a source-by-source basis. ||

X || || || Participation exemption regime || Article 3 of the SDC Law || No exemption is granted for dividends derived from substantially passive and low-taxed source. || Low-taxed is interpreted to mean below 5%.

DENMARK || X || || || Participation exemption regime || Section 13 CTA || This is a rule specifically addressing hybrid mismatch arrangements. Dividends received by a Danish parent company are no longer tax exempt if the subsidiary is able to claim a tax deduction for the dividends. The rule does not apply if the dividends are covered by the EC Parent-Subsidiary Directive. || As from 2011, the rule also applies if the deduction has been made in a lower tier subsidiary and the dividend has not been taxed in a subsidiary inserted between the subsidiary claiming the deduction and the Danish parent company.

ESTONIA || X || || || Participation exemption regime || Art. 50 (1) of the EITA || Dividends received from subsidiaries located in low tax rate territories do not qualify for the participation exemption regime. ||

FRANCE || X || || || Participation exemption regime || Sec. 145, paragraph 6-j of the FTC || As from 1 July 2011, dividends received from subsidiaries located in “NCJ” as defined under French tax law cannot benefit from the participation exemption regime. ||

|| X || || Other (capital gain exemption) || Sec. 39 duodecies and 219 of the FTC || As from 1 July 2011, the exemption regime for capital gains on shares is not applicable for capital gains realised on shares from subsidiaries located in “NCJ” as defined under French tax law . ||

HUNGARY || X || X || || Participation exemption regime and Other (capital gain exemption) || Sec. 7 (1) g) and gy), CITA Sec. 8 (1) m), CITA || 100% of the dividend income and gain (as defined in Hungarian legislation) may be deducted from the corporate income tax base, except for dividend received from CFCs and gain related to shareholdings in CFCs. ||

IRELAND || X || || || Other || Sec. 129 A of the TCA 1997 || In the case of dividends paid from one Irish tax resident company to another Irish tax resident company, no exemption from Irish tax is available if the dividend results from profits which have been earned by an Irish resident paying company before it become an Irish tax resident. This measure aims at avoiding repatriation of profits from a foreign subsidiary through migration of residence into Ireland followed by a dividends distribution. ||

|| X || || Other (capital gain exemption) || Sec. 626 B and Sec. 626 C of the TCA 1997 || Capital gains on shares made by an Irish resident company upon the disposal of qualifying shareholdings cannot benefit from a tax exemption if the company being disposed of is not located in an EU Member State or in a country with which Ireland has not concluded a Double Tax Treaty. ||

|| X || || Other (capital gain exemption) || Sec. 616 of the TCA 1997 || Transfer of chargeable assets between companies in the same Irish capital gains tax group are deemed to take place at no gain/no loss. As non-EU resident companies cannot participate in such a capital gains tax group, they cannot benefit from the said exemption. ||

LUXEMBOURG || X || || || Participation exemption regime || Art. 166 of the LTL || A company can benefit from a participation exemption regime for dividends it receives provided certain conditions are met. One of these conditions requires that the company distributing the dividend is subject to a foreign tax similar to the Luxembourg corporate income tax. || This equivalent taxation rule requires that the distributing company in the country of residence is subject to an effective tax rate of 50% of the official rate of Luxembourg corporate income tax

MALTA || || || X || FTC || Art. 95 of the ITA || In the case of a series of transactions which are affected with the sole or main purpose of reducing the amount of tax payable by any person in Malta by use of the FTC, the taxpayer can be assessed as if the provisions of the tax credit did not apply. ||

NETHERLANDS || X || || || Participation exemption regime || Art. 13 and 13a CITA 1969 || The participation exemption does not apply to participations held as a portfolio investment (intention test). The provision contains an “escape” to ensure that the Dutch participation exemption does apply to a subsidiary, although it is “held as a portfolio investment”. This “escape” applies if the subsidiary is subject to a profit tax resulting in a degree of taxation that is reasonable according to Dutch standards (subject to tax test) or if it has sufficient “active” assets (asset test). ||

|| || X || FTC (income PE) || 15g CITA 1969 || Generally, income from a foreign permanent establishment (“PE”) is exempt at the level of the Dutch head office (the exemption, a so-called “object exemption”, applies to both profits and losses of the foreign PE. Under certain conditions, a (less favourable) tax credit instead of a tax exemption applies (art. 15g CITA 1969). This is the case, generally speaking, where: (i) the activities of the PE consist of “passive” financing activities and (ii) the PE’s profits are not subject to a tax that is reasonable according to Dutch standards. ||

SPAIN || X || X || || Participation exemption regime || Art. 21 of the CITA || A participation exemption regime is available for dividends and capital gains from non-resident entities provided that certain conditions are met. One of these conditions requires that the non-resident entity must be subject to a tax which is similar to Spanish corporate income tax. This rule is not met (the subject to tax condition) in the case of income obtained from subsidiaries resident in a tax haven jurisdiction. || In the case of an EU tax haven jurisdiction the taxpayer can provide the counterproof (sound business purpose)

|| || X || Other (income PE) || Art 22 of the CITA || Income resulting from foreign branches is only tax exempt provided certain conditions are met. One of the conditions is that the branch has been subject to a tax which is similar to Spanish corporate income tax and the branch is thus not located in a tax haven. ||

4.6.6. Disclosure Requirements

64. Introduction. A general overview of all
measures reported with respect to the selected MSs which can be qualified as
linked to disclosure requirements is provided at the end of this section.

This section only relates to measures
which impose a mandatory reporting requirement of certain transaction or
payments. We have thus not commented in this section any general obligation
which may apply for instance as regards documentation requirements from a Transfer
Pricing perspective (cf. section 4.6.2 above).

65. Six MSs reported specific disclosure requirements. Belgium, France, Hungary, Ireland, Spain and the United Kingdom reported specific
disclosure requirements which need to be complied with.

66. Four of the eight measures only apply in the case of transactions
with an “NCJ” or tax haven country. Most
measures which apply in the hands of taxpayer claiming a tax relief, deduction,
etc. are only applicable if the transaction underlying the tax relief,
deduction, etc. occurs with and “NCJ” or tax haven.

Belgium, France,
Hungary and Spain all provide that in the case of
expenses or costs as a result of transactions with entities located in a tax
haven (Belgium and Spain)
or an “NCJ” as defined under local tax law (France
and Hungary), the taxpayer should comply
with a specific disclosure requirement.

67. The disclosure requirement generally applies to the taxpayer
involved in a transaction. Generally the disclosure
requirement applies in the case of effective payments as a result of
transactions with entities located in an “NCJ” as referred to above. Only Spain, Ireland and the United Kingdom provide a disclosure
requirement which does not refer to a deduction of costs or effective benefit
of a tax relief. In Spain a general disclosure requirement is currently
suggested to disclose foreign bank accounts or securities held abroad[85]. Also Ireland and the United Kingdom require promoters which have assisted in a scheme which exceeds a
certain value or has certain hallmarks to report this to a central body[86],[87].

68. Most recent measures (as opposed to other measures reported in the
Study). Based on the information collected, it
appears that the disclosure requirements included in the Study can all be
considered as fairly recent measures. Indeed from the six countries which have
reported to have specific disclosure requirements, these measures have only
been enacted as from 2004 in five of the six countries (Belgium, France, Hungary, Ireland and the United Kingdom).

69. Penalties if reporting obligation is not complied with. Generally, all countries provide that if the taxpayer has not
complied with the provided disclosure requirement, the tax relief or deduction
will be denied (Belgium, France and Hungary). In Hungary also additional penalties might become due if
the disclosure requirement is not complied with.

70. Protective and proactive purpose. Most
countries have adopted such measures in order to protect the national tax base
(France and Hungary).
Nevertheless other countries have also specifically mentioned a more proactive
purpose for the disclosure requirements.

Belgium has stated that according to the Parliamentary Works, the disclosure
requirement should enhance the efficiency of the tax audits performed by the tax
authorities. In Ireland and the United Kingdom, the disclosure requirement which
applies to the promoters of certain tax-related transactions are intended to
gather details of particular transactions with a view of legislating against
schemes that can be viewed as aggressive.

In Ireland and the United Kingdom the specified transactions which should be reported are described as
transactions which:

·
Involve the confidentiality of the promoter or
person implementing the transaction;

·
Result in a premium fee for the promoter;

·
Is intended to have standardised or
substantially standardised documentation;

·
Involves loss schemes (both in case of
individuals or companies), employment or pension schemes, income into capital
schemes and income into gift schemes[88],[89].

Table 12: Disclosure Requirements

Type of measure || Disclosure Requirements

What should be reported || Who should report? || Ground of measure || Description of the measure || Remarks

Law

BELGIUM || Direct or indirect payments to recipients located in tax haven || Companies subject to Belgian corporate income tax or Belgian non-resident income tax || Art. 198, 10° and Art. 307 of the BITC || Since 1 January 2010, companies subject to Belgian corporate income tax are obliged to declare direct or indirect payments which exceed EUR 100,000 during the taxable period and which are paid to recipients established in so-called tax havens. For the purposes of this measure a specific list has been established listing the different tax haven countries. || If the payments are not reported, the payments are not deductible. The purpose of the measure is to enhance the efficiency of the tax audits performed by the Belgian tax authorities. If the Belgian tax authorities question certain payments upon a tax audit, the taxpayer should prove that the payments have been performed in the framework of real and sincere transactions and with persons other than artificial constructions

FRANCE || Different types of payments (remuneration, fees and similar payments) || French companies incurring expenses charged out by entities located in NCJ (as defined under French tax law) || Sec. 238A paragraph 3 of the FTC || Expenses resulting from transactions undertaken by French companies with non-residents located in an NCJ (as defined under French tax law) are only deductible provided certain conditions are met. Since 1 January 2011 the French paying company claiming the deduction should also record the expense on a detailed tax return. || If the reporting obligation is not complied with, the expenses are not deductible. The purpose of the measure is to avoid the shifting of profits to countries with a preferential tax regime

HUNGARY || Costs and expenses incurred in connection to payments performed to a CFC || Hungarian entities and foreign entities qualifying as taxpayers according to the CITA || Sec. 8 (1) d) and Point A of Annex 3 of CITA || In order for costs and expenses paid to a CFC to be tax deductible, the Hungarian taxpayer must prepare a specific documentation per agreement supporting the business purpose of the payments to CFCs including amongst others, the name of beneficiary, the registered seat of beneficiary, the tax number of beneficiary, etc. || If the reporting obligation is not complied with, the expenses are not deductible. Moreover in the case of lack of documentation, the Hungarian tax authorities may asses a penalty of HUF 2 million per missing documentation, which may also be increased in the case of repeated default. The purpose of the measure is to defend the Hungarian corporate income tax base

IRELAND || Specified transactions that may result in benefitting from a tax relief || Promoters of certain tax related transactions. Only in very limited circumstances, the users of the transactions are required to provide details || Sec. 817D-817R TCA 1997 || The Finance Act of 2010 introduced a new mandatory disclosure obligation on promoters of certain tax-related transactions to give details of those transactions to the Revenue Commissioners shortly after they are marketed or made available for use. The reporting obligations apply to transactions irrespective of the country of residence of the counterparty. || The purpose of the reporting obligation is to gather details of particular transactions with a view to legislate against schemes that are viewed as aggressive

SPAIN || Transactions with entities in tax havens or shares in entities located in tax havens || Spanish taxpayers || (Included in the instructions of the corporate income tax return) || Transactions with entities located in tax havens or shares in entities located in tax havens should be reported in the corporate income tax return. ||

Bank accounts and securities held abroad || Spanish taxpayers || Draft bill against tax fraud || The Draft bill of measures against tax fraud includes a provision according to which taxpayers must inform if they have foreign bank accounts or hold securities abroad. || If the taxpayers do not comply with this reporting obligation, they face a (minimum) penalty of EUR 10,000. In addition, the income which has not been declared will not be prescribed. The Draft has been approved on April 13, 2012

UK || Transactions such as the issue/transfer of shares/debentures exceeding £100 million unless certain specific conditions are complied with || Reporting body || Schedule 17 of the Finance Act 2009 || Under the International Movement of Capital rules, the reporting body must report a “reportable transaction” to an officer of Revenue and Customs within 6 months of the transaction. || The purpose of this rule is to gather information. Through these rules, information is obtained in relation to major international transactions of UK groups

A scheme should be reported if it meets the required “Hallmarks”, such as where the promoter strives to keep the scheme confidential, etc. It generally concerns arrangements which enable a person to obtain a tax advantage or where the main benefit that might be expected to arise is a tax advantage. || Promoters marketing certain tax avoidance schemes and arrangements || Part 7 of the Finance Act 2004 || The tax avoidance disclosure regime includes a mandatory disclosure obligation on promoters of certain tax-related transactions to give details of those transactions to the HMRC. ||

4.6.7.
General Anti-Abuse Rules

71. Introduction: GAARs. A general overview
of all measures reported with respect to the selected MSs which can be
qualified as general anti-abuse rules (below “GAARs”) is provided at the end of
this section. In a nutshell, GAARs can be summarised as rules applied generally
that prevent taxpayers from entering into abusive transactions/planning, generally
for the sole (or main) purpose of avoiding or reducing a tax charge.

72. All the countries have reported one or more GAARs. A total of 22 measures have been reported by 14 countries. Except Denmark, Cyprus, Germany and the Netherlands, all the reporting countries have
two or more rules.

The measures are generally laid down in
primary law. Of the 22 measures, only four are based on case law or derived
from tax-administration practices (Denmark, France, the Netherlands and Sweden). In particular, the reported measures have generally
been part of the legal system for a while. Only one reported measure has not
yet been enacted (the United Kingdom) and
another has been significantly amended very recently (Belgium).

73. Types of GAARs. In a nutshell, the
reported measures can be categorised according to the following concepts/principles:

·
abuse of law: the law is formally complied with
but in a way that is not compatible with its spirit;

·
the 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;

·
the 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.

The GAARs reported in the Study are
briefly summarised in the following table.

Table 13: General Anti-Abuse Rules

Type of measure || General anti-abuse rules

Type of measure || Grounds || Description of the measure || Remarks || Landmark case law

Substance over form || Simulation || Abuse of law || Legal

BELGIUM || || X || X || Art. 344, §1, BITC || The administration is not bound to recognise legal acts or series of legal acts effecting one and the same transaction if it establishes by means of presumptions or by other means of proof and on the basis of objective circumstances that tax abuse results. || Possibility of counter-evidence; the “Purposes” of some provisions could be unclear; “Other reasons” broader than legitimate economic or financial reasons Related concept: Simulation (“sham”) doctrine || Many decisions concerning the former provision led to its being reformulated Provision too recent: no decision currently available

CYPRUS || X || || || Art. 33, ACTL L.4/78 || Where a Cypriot tax-resident company or individual enters into any transaction which the Director of Inland Revenue considers to be “artificial” or “fictitious”, this may be disregarded and taxable income may be adjusted accordingly. || ||

ESTONIA || || || X || Art. 83(4), ETA || Based on the Estonian “abuse of law” principle, fictitious transactions will not be taken into account for tax purposes (i.e. if a fictitious transaction is entered into in order to conceal another transaction) so that provisions concerning the concealed transaction apply to determine tax liability. || These two provisions are equally applicable to all taxpayers irrespective of the country of residence of the counterparty || One decision by the Supreme Court (3-3-1-42-11, 26 Sept. 2011) seems to have set a new trend in developments regarding these two provisions by attributing profits of a non-resident company to an Estonian resident, leading to taxation of these profits in the hands of the Estonian resident (hidden profit distributions)

X || || || Art. 84, ETA || The Estonian “substance-over-form” principle means that, if it is evident from the terms of a transaction or act that it is performed for the purposes of tax evasion, conditions corresponding to the actual economic effect of the transaction or act apply for tax purposes.

FRANCE || || || X || Art. L 64, French Proceedings Code || The abuse of law procedure enables the FTA to disregard transactions or acts carried out by a taxpayer if such transactions or acts are fictitious or if they have as their sole purpose the avoidance of French taxes that the taxpayer should have borne in the normal course of its activity and when the tax benefit of the transaction is contrary to the intent of the legislator. If the abuse of law is proved, the FTA are entitled to reassess avoided tax and to add a penalty of 40% to that tax (increased to 80% if the taxpayer is the principal investigator or beneficiary). || || The Supreme Administrative Tax Court fixed the limits of the abuse of law principle in its Janfin decision

|| || (“Normal act of management”) || (Case law concept) || According to French tax case law, a company engages in an abnormal act of management if it bears an expense or deprives itself of a profit without being able to show that it is in its own interests to do so. || Burden of the proof on the FTA || Many court cases but solutions generally depend on the facts Interesting case by the Versailles Administrative Court of Appeal concerning a share buy-back deal

GERMANY || || || X || Art. 42, General Fiscal Code (Abgabenordnung (AO)) || The purpose of this measure is to avoid non-taxation or a reduced tax charge by "abuse of legal arrangements" contrary to the spirit (if not the wording) of the tax law. In such cases, the tax is due as if an arrangement considered appropriate had been chosen by the taxpayer. || Provision amended by the Legal Tax Act of 2008; now legally defining abusive transactions (a notion developed by the courts) and avoiding incompatibility issues between this general provision and the special anti-avoidance rules ||

HUNGARY || X || || || Sec. 1 (7), Act on Rules of Taxation || This principle requires arrangements to be classified according to their commercial substance, though it does not specify any further detail. It gives the tax authority the right to recharacterise transactions if their substance differs from their declared legal classification. || Burden of proof on the taxpayer Recharacterisation is not considered unconstitutional Limited established court practice regarding interpretation || Two Resolutions of the Supreme Court have been reported (BH2002.509 and BH2002.702); it should be borne in mind that, in Hungary, Supreme Court decisions are not binding on the tax authority

|| || X || Sec. 2 (1), Act on Rules of Taxation || This provision gives the tax authority the right to recharacterise transactions if a taxpayer has not executed its rights within their meaning and intent || Recharacterisation not considered unconstitutional Limited established court practice regarding interpretation || Two Resolutions of the Supreme Court have been reported (BH2005.332 and BH2011.327); it should be borne in mind that, in Hungary, Supreme Court decisions are not binding on the tax authority

IRELAND || X || || X || Sec. 811, Taxes Consolidation Act 1997 || This measure is designed to counteract transactions which lack commercial reality and are put in place with a view to reducing or avoiding a charge to Irish tax, i.e. the so-called “tax avoidance transaction” or “tax avoidance scheme”. If the transaction is found to be a “tax avoidance scheme”, the Irish tax benefit arising from it will be denied and this will result in a tax liability together with interest and penalties owed on the underpayment of tax. || || Only one case (Revenue Commissioners v. O’Flynn Construction) confirming the Revenue’s ability to look at the purpose for which tax relief was introduced in determining whether a transaction is a “tax avoidance scheme”

LUXEMBOURG || || X || || §5, Steueranpassungs-Gesetz (“StAnpG”) || Where the agreement is found to be a “sham” (put in place to conceal another agreement), the tax authorities will tax the outcome of the “real” transaction that should have occurred without simulation. || ||

X || || X || §6, Steueranpassungs-Gesetz (“StAnpG”) || This measure applies when the route chosen to carry out a transaction is one which would not usually be taken – and there is a lack of other (non-tax) reasons justifying this choice – leading to tax liability being circumvented. In that case, the fiscal consequences that the taxpayer wanted to circumvent are applied. || || In its decision no. 18971 (11 May 2005), the Administrative Court took a more “substance-over-form” approach to this measure in a case concerning tax residence

MALTA || X || || || Art. 51(1), ITA || Any scheme which reduces the amount of tax payable by any person is disregarded when it is artificial or fictitious or it is not, in fact, given effect to. The relevant person is assessable accordingly. || || A landmark decision (Enterprises’ Limited v. Frank Bowers) specified that there is nothing wrong if a person legitimately makes use of the methods available in the law to reduce his ultimate tax liability, provided, naturally, that any planning falls within the parameters allowed by law

|| || X || Art. 51(2), ITA || This measure allows the Maltese tax authorities to nullify or modify schemes and connected advantages obtained as a direct or indirect result of any scheme whose sole or main purpose was to obtain any advantage which has the effect of avoiding, reducing or postponing liability to tax, or to obtain any refund or set-off of tax. ||

|| || X || Art. 42, ITA || Arrangements including a series of transactions effected with the sole or main purpose of reducing the amount of tax payable by a person by reason of operation of the investment income provisions (which broadly allow for a lower tax rate of 15%) are disregarded. In such cases, the person is assessable as if the aforesaid provisions did not apply. || ||

|| || X || Art. 51(4) and (5), ITA || Specific deductions are allowed on income resulting from a scheme or a change in the shareholding of a company only if it has not been put in place or performed solely or mainly for the purpose of obtaining the benefit of any loss or of any capital allowances so as to avoid liability to tax. || || Much case law, but on a case-by-case analysis so that it is difficult to provide a summary of the main case law.

NETHERLANDS || || || X || (Case law concept) || On the basis of the fraus legis concept, the tax authority has an instrument to challenge transactions (or sets of transactions) by taxpayers that are contrary to the purpose of the law. || If fraus legis is applied successfully, transactions are eliminated / substituted to arrive at an outcome that is in line with the object and purpose of the law. || Since this is a case law concept, the courts are decisive on applying this measure (e.g. HR, 26 May 1926 – first application of the concept – and HR, 21 Nov. 1984 – development of the main criteria of the concept)

SPAIN || || X || || Art. 16, SGTA || In the event of sham or simulation, the taxable event will be the transaction actually carried out by the parties. This can be a partial (another transaction is executed) or a full (no transaction is executed) simulation. || ||

|| || X || Art. 15, SGTA || When a taxable event is wholly or partially avoided or when taxable income is reduced by acts or means where the following circumstances are met (i) the acts, whether individually or jointly, are contrived or unsuitable for the result attained; or (ii) as a result of the acts, there are no significant legal or economic consequences beyond tax savings. If a tax assessment is made under this rule, the tax is imposed on those acts or businesses that are avoided. || On an annual basis, the Spanish Tax Authorities publish a set of tax collection and audit objectives which are used as guidance and focused on in their tax audits. These guidelines explain which transactions are going to be challenged by the tax authorities. The guidelines specifically state that the fight against tax fraud is a priority. ||

SWEDEN || || || X || Tax Avoidance Act (Sw: Skatteflyktslagen (1995:575)) || A legal act undertaken by a taxpayer may be disregarded if it results in a significant tax benefit for the taxpayer and the tax benefit has been the main reason for it; the final, decisive criterion is that taxing the situation as presented would be contrary to the purpose of the legislation. || Measure only applied in court cases, i.e. the Tax Agency may not apply it in levying tax without a court ruling and, thus, it has to request the court to apply the law. || Many cases, but on a case-by-case analysis so that it is difficult to provide a summary of main case law. However, most recently (HFD 2012 ref 6), the Supreme Administrative Court refused to apply the GAAR in a case relating to interest deductions where it was clear that the interest-stripping rules were not applicable

X || || || (Administrative practice/case law concept) || Where an agreement or transaction is incorrectly labelled, the Tax Agency or Administrative Court may tax the agreement or transaction according to its true meaning, by applying the ordinary interpretive methods of civil law. || The measure may not be used to recharacterise the agreement itself (e.g. characterising debt as equity); the legal form of an agreement is thus generally upheld for tax purposes. || In two cases (no. RÅ 2004 ref. 27 and RÅ 2008 not. 169), the Supreme Administrative Court rejected the “true meaning” approach taken by the Swedish Tax Agency

UK || || || “reasonable tax planning” || Consultation document released on 12 June 2012 || This future measure will target business and individuals that do not undertake “sensible and responsible tax planning”, i.e. tax planning that “can [not] reasonably be regarded as a reasonable exercise of choices afforded by the provisions of the Acts". || Could lead to additional corporation tax revenue of £2.1 bn a year || n/a (future measure)

|| || X || Interest: Sec 441 and 442, CTA 2009 Manufactured payments: Sec. 799 and 800, CTA 2010 || A company is not entitled to any relevant tax relief so far as this is in respect of interest or a manufactured payment where the payment is attributable to the unallowable purpose, i.e. one of the reasons why the company is party to them is not among the business/commercial purposes of the business. || || First Tier Tribunal - A.H. Field (Holdings) Limited vs. HMRC (March 2012) in favour of HMRC:  FTT determined that tax avoidance was a main purpose of entering into the loan note and therefore that the borrowing costs were not deductible for tax purposes.

4.6.8. Various Measures

74. Introduction. The purpose of this
section is to give a non-exhaustive overview of other reported anti-abuse
measures that do not fit in the aforementioned categories of measures but are
nevertheless not sufficiently representative so as to constitute a separate
category of measures.

75. Measures in relation to the use of tax losses. Certain countries have reported some specific measures in relation to
the use of tax losses which fall in scope of the current Study. In most
cases the measures prevent or limit the use of losses in the case of a change
of control of company as a result of change in shareholders due to a sale of
shares or as a result of a restructuring. This is for instance the case
in Belgium, Germany, Spain and the UK. The
purpose of such measures in the given countries is to avoid the trading of
loss-making companies by another company to reduce the tax liability of the
latter.

Again, we cannot exclude that some
countries have decided not to report this kind of measures, like for exit
taxation, Transfer Pricing rules, etc. (cf. above), these rules being probably not
be considered as anti-abuse provisions in every cases.

76. Anti-treaty shopping provision. Germany has adopted an anti-treaty shopping provision
which prevents that a treaty or a directive is applied with the sole purpose of
reducing the German WHT. As a result of this provision a foreign entity is not
entitled to the benefit from a treaty or a directive if, amongst other things,
its shareholders would not be entitled to this benefit in their own name and
there are no commercial or other significant non-tax reasons for interposing
the foreign entity. The burden of proof in this respect lies with the foreign
company. It should demonstrate that there are economic or sufficient non-tax
reasons, etc.

77. Exit charge on migration of a company. Ireland has an exit charge provision if a company moves its tax
residence outside Ireland. Exceptions to
this rule apply for instance if the Irish company is controlled by a company
located in a country with which Ireland has
concluded a Double Tax Treaty. Therefore, if the Irish company is controlled by
a non-treaty resident, this exclusion does not apply. Similarly, the United Kingdom also that there is a deemed
disposal of assets on company ceasing to be resident in the United Kingdom.

For the remaining, we refer to our
previous comment made under paragraph 28 above.

78. Specific provisions included in Double Tax Treaties. The Netherlands have reported
to have included specific anti-abuse provisions in certain Double Tax Treaties.
For instance the Treaties with Hong Kong and Japan contain a specific
limitation of benefits clause.

Luxembourg has reported that it has signed a significant number of Double Tax
Treaties with Third Countries (for instance with Liechtenstein, Monaco, San Marino, etc.) which include the “exchange of information provision” as included in the
OECD Model Tax Convention.

79. Rules in relation to the residency. In Spain, the tax authorities
could presume that entities located in tax havens or countries with a low
taxation have their tax residency in Spain
provided certain conditions are met.

4.7.
Pending Proposals or Future Measures

80. Pending proposals or future measures.
Based on the input provided in the Questionnaire, some countries have reported pending
proposals or future developments regarding anti-abuses measures. We list below
the most relevant ones.

In Sweden,
a reinforcement has been proposed for the current interest stripping rules.
This amendment should enter into force as from 1 January 2013. As a result of
this reinforcement the scope of application of the interest stripping rules would
be extended to all intra-group loans, instead of merely loans granted for the
purpose of acquiring a related party.

Also Spain
has mentioned that a new measure is being proposed that obliges taxpayers to
inform the tax authorities if they have bank accounts and securities held
abroad. This obligation has been included in the Draft bill of measures against
tax fraud, which has been approved on April 13, 2012.

With respect to Belgium,
the thin capitalisation rule has been amended by the Programme Act of 2012, which replaces the former 7/1 debt-equity ratio
with a new rule introducing a (general) 5/1 debt-equity ratio. This new thin
capitalisation rule has not yet entered into force. Indeed the new Programme
Act states that the entry into force would be determined by a Royal Decree,
which has not yet been published, and in any case on 1 July 2012 at the latest.

In Germany,
the Government published a white paper on 14 February 2012 suggesting different
wide-ranging provisions aiming on tax planning like e.g.

·
Exclusion of losses of foreign permanent
establishments

·
Extended anti-loss trafficking rules/net
operating losses forfeiture in the case of mergers

·
Limitation of "leveraged buyouts"
(debt-pushdown structures) by way of limitation of interest expense deduction

·
Avoidance of double-dip benefit through hybrid
financing structures

·
Treatment of cross-border investments in
partnerships

However, the Government's draft bill of
the Annual Tax Act 2013 presented on 23 May 2012 does not contain any of those
proposed provisions. Thus, currently there are no official proposals available,
aiming at introducing new measures which could fall in the scope of this Study.
Furthermore, the measures indicated in the white paper do no specifically aim
at Third Countries.

In the Netherlands, Art. 13l CITA 1969 was proposed in June 2012 as a measure to reduce the
Bosal gap. In the Bosal judgment (C-168/01), the CJEU held that the Netherlands should allow the deduction of interest expenses at the level of a Dutch
parent company if these interest expenses were used to finance the acquisition
of/fund a non-resident, EU subsidiary. As the interest expenses are (generally)
deductible, and the income is (generally) exempt, this had significant
budgetary consequences. Consequently, the Dutch Government has now announced a
measure to limit the deduction of interest expenses on a loan that was used to
acquired/fund a subsidiary.

Finally, in the
United Kingdom, the rules regarding CFC are being amended for
accounting periods beginning on or after 1 January 2013 and there are proposed
changes to taxation of interest, which include removing the distinction between
yearly interest and interest that is not yearly, such that all interest would
be subject to WHT. This would mean that interest to territories without a
Double Tax Treaty would be subject to WHT (and therefore this would apply only
to third countries without a Double Tax Treaty). In addition, there is the
draft GAAR proposal.

4.8. Impact Assessments and Evaluation

81. Limited Information Available. It appears
from the Study that very few information was available with respect to
(expected) quantitative impact of the identified problems and of the measure
(i.e. tax revenues) and with respect to the evaluation made by the concerned MSs
of the effectiveness and sufficiency of such measures. This could most probably
be explained by the absence of quantitative assessment, by the fact that most
of the measures are relatively old, following which the quantitative assessment
which might have been performed initially (if any) is no longer representative
or usefull today, or because such information is considered as confidential.
Another element which can entail that there is no relevant quantification
available in relation to a measure, is the fact that a measure has been
implemented in a Law containing various measures or together with other
measures. In such a case any impact assessment or evaluation will generally be
a global assessment not linked to a specific measure included in the Law,
therefore no relevant figures for the purposes of the current Study will be
available.

Some information is nevertheless available
for the following countries:

For Germany, the quantitative effect of
the specific measure in relation to the use of tax losses (anti-loss
trafficking rule) is estimated at EUR 1.475 mio per year.

Prior to the entry into force of the
interest stripping rules in Sweden, the
Swedish Tax Agency released a survey in which they estimated that the
deductions for the deemed artificial party debt reduced the Swedish tax income
with SEK 7 billion. Post enactment of the interest stripping rules, the Swedish
Tax Agency mentioned in its latest report that the total interest reductions
were back at the level of 2003-2006, meaning again an increase of the interest
deductions. As Sweden has adopted an amendment to this rule, extending the scope to all
intra-group loans (instead of loans granted for the purpose of acquiring a
related party), a new assessment is made providing for an estimated increase of
the Swedish tax income with SEK 6.29 billion.

In the Netherlands, quantitative impact assessments were mentioned with respect to two Non-Specific
Measures, being the restriction on the deduction of interest on acquisition
debt (EUR 31 mio. (2012), EUR 62 mio. (2013), EUR 93 mio. (2014), EUR 124 mio.
(2015), and EUR 155 mio. (after 2015) and the restriction on the deduction of
interest on participation debt (EUR 150 mio).

In the United
Kingdom, the 2011 budget report sets out the expected cost of the full
reform to the CFC rules (£210m in 2012-13, £540m in 2013-14, £770m in 2014-15
and £840m in 2015-16). With respect to the upcoming General Anti-Avoidance Rule, the Liberal
Democrats had initially estimated that it could raise £2.1bn per year in
corporation tax. However, this figure is likely to be smaller if the scope of
the GAAR is narrowed (as suggested in Graham Aaronson’s report). With respect to the anti-arbitrage measures, the Budget 2005 report
sets out the expected Exchequer yield as a result of this policy to £130m in
2005-6, £200m in 2006-7, and £200m in 2007-8 (indexed figures).

France also reports some quantitative information with respect to its thin
capitalisation rule.

\*           \*

\*

5. Conclusion

82. Context. The European Commission is
currently drafting a Communication on good governance in the tax area in
relation to the so-called concepts of Non-Cooperative Jurisdictions (NCJs) and
Aggressive Tax Planning. In order to contribute to the assessment it is currently
carrying out, the Commission is looking for additional input and information on
existing anti-abuse measures applying, exclusively or otherwise, to Third
Countries (i.e. non-EU/EEA countries).

83. Scope. In this framework, data has been
collected and analysed with respect to 14 European Union Member States (Belgium, Cyprus, Denmark, Estonia, France, Germany, Hungary, Ireland, Luxembourg, Malta, the Netherlands, Spain, Sweden and the United Kingdom).

84. Classification. Given the specific scope
of the Study, the reported anti-abuse measures existing in the selected Member
States (MSs) have been divided into two main categories: those specifically
applicable to transactions with Third Countries (“Specific Measures”), and
other measures (“Non-Specific Measures”).

Moreover, the Study provides additional
insight into the most recent Specific Measures reported in the various Member States
(“New specific measures”, defined as measures enacted after 1 January 2007 or
substantially amended after that date, as well as possible future measures).

85. Definitions. Based on the data
collected, it appears that few of the 14 Member States in scope of the Study
have a clear definition of the terms “Non-Cooperative Jurisdictions” and “Aggressive
Tax Planning” to the extent of their (i) only relating to Third Countries but
(ii) only where those countries present specific characteristics (being non-cooperative
in one way or another).

On the other hand, many countries did
report having various concepts that are akin to these definitions. In this
respect, it is interesting to note that anti-abuse measures in some Member
States apply to countries where the level of taxation is considered as inappropriate
(e.g. no taxation at all or a very low nominal/effective tax rate), whereas, in
other Member States, the decisive criterion is the level to which they
cooperate in terms of exchange of information (which is more like the OECD
approach). However, those countries are not always Third Countries. The
concepts are sometimes crystallized in black, grey or white ‘lists’.

86. Specific Measures. The Study also finds
that there are not many Specific Measures, i.e. measures specifically dedicated
to tackling abuse or aggressive tax planning in relation to Third Countries.
However, that does not mean that Member States do not have measures to fight
what they consider abusive transactions in relation to Third Countries. Indeed,
many anti-abuse provisions do apply to Third Countries, even if they usually
also apply in purely domestic situations or within the European Union.

Moreover, we cannot rule out the
possibility that some of these measures are, in practice, applied more often in
transactions/arrangements with Third Countries than in purely domestic
situations or within the European Union. Some Member States even lay down more
stringent rules for entities/taxpayers established/resident in countries with
which they have no double tax treaty (or no double tax treaty with an exchange
of information clause). Given the available network of double tax treaties
within the European Union (and also Council Directive 2011/16/EU of 15 February
2011 on administrative cooperation in the field of taxation and repealing
Directive 77/799/EEC), the chance that these rules might apply within the EU is
much lower compared to Third Countries, so that de facto these rules
might essentially apply to Third Countries. The case law of the Court of Justice
of the European Union also restricts the scope of application of the existing
anti-abuse measures within the EU.

87. Significant Number of Anti-Abuse Measures. Notwithstanding the absence of a precise definition of “abuse”, we
can conclude that many Member States have a significant number of anti-abuse
provisions in their legislation, covering many different forms of potentially
abusive behaviour (according to local tax legislation or administrative
practice/case law), such as shifting profits to low tax jurisdictions, erosion
of the tax base through excessive debt financing, etc.

88. GAAR. Plus, all Member States report
having at least one general anti-abuse rule (“GAAR”), which can take various
forms. The foundations of these GAARs range from the “abuse of law” principle,
to the “sham” transaction theory, to the “substance over form” principle.
Generally, none of these measures applies only to Third Countries (let alone to
NCJs); on the contrary, they are often equally applicable regardless the
territorial scope of a given transaction (i.e. purely domestic situations,
transactions within the European Union and transactions outside the European
Union).

89. Quantification. Finally, based on the
information collected, it is difficult to assess whether the anti-abuse provisions
listed in the Study can be considered as effective in combating what the Member
States consider as abusive: most did not report any (actual or predicted)
quantitative impact of the identified abuses or of the anti-abuse measures
(i.e. in terms of tax revenues) or make any evaluation of the effectiveness and
sufficiency of the measures. A limited number of countries did nonetheless cite
figures reflecting the expected budgetary impact of some measures.

\*           \*

\*

Appendices:

1.
Blank questionnaire

2.
Questionnaires filled in for the 14 Member
States

[1] “PwC” is the brand under which member firms of
PricewaterhouseCoopers International Limited (PwCIL) operate and provide
services.  Together, these member firms form the PwC network. Each member firm
in the network is a separate and independent legal entity and does not act as
an agent for PwCIL or any other member firm. PwCIL does not provide any
services to clients. PwCIL is not responsible or liable for the acts or
omissions of any of its member firms, nor can it control the exercise of their
professional judgment or bind them in any way.

[2] “PwC” is the brand under which member firms of
PricewaterhouseCoopers International Limited (PwCIL) operate and provide
services. Together, these member firms form the PwC network. Each member firm
in the network is a separate and independent legal entity and does not act as
an agent for PwCIL or any other member firm. PwCIL does not provide any
services to clients. PwCIL is not responsible or liable for the acts or omissions
of any of its member firms, nor can it control the exercise of their
professional judgment or bind them in any way.

[3] Ongoing project.

[4] Cfr. Appendix 2, Estonia, Definition of NCJ, p86.

[5] Cfr. Appendix 2, Belgium, Part 2: General Information, Measure n°6,
p 32.

[6] Cfr. Appendix 2, Belgium, Part 2: General Information, Measure n°1,
p 19 and Appendix 2, Belgium, Part 3: Detailed Information, Measure n°1, p 53.

[7] Cfr. Appendix 2, France, Part 2: General Information, Measure n°2,
p 109.

[8] Cfr. Appendix 2, Sweden, Definition of NCJ, p 334.

[9] Cfr. Appendix 2, Sweden, Part 2: General Information, Measure n° 1,
p 337.

[10] This definition is not yet effective though as the work of the Peer Review Group is still ongoing.

[11] Cfr. Appendix 2, Estonia, Definition of NCJ, p 86.

[12] Cfr. Appendix 2, France, Definition of NCJ, p 102.

[13] Cfr. Appendix 2, Belgium, Part 2: General Information, Measure n°1,
p 19 and Appendix 2, Belgium, Part 3: Detailed Information, Measure n°1, p 54.

[14] Cfr. Appendix 2, Spain, Part 2: General Information, Measure n°1, p
306.

[15] Cfr. Appendix 2, Spain, Part 2: General Information, Measure n°2, p
307.

[16] Cfr. Appendix 2, Spain, Part 2: General Information, Measure n°8, p
314.

[17] Cfr Appendix 2, Spain, Part 2: General Information, Measure n°11, p
319.

[18] Cfr. Appendix 2, Spain, Part 2: General Information, Measure n°13,
p 321.

[19] Cfr. Appendix 2, Spain, Part 2: General Information, Measure n°15,
p 324.

[20] Cfr. Appendix 2, Spain, Part 2: General Information, Measure n° 17,
p 306.

[21] Cfr Appendix 2, Sweden, Part 2: General Information, Measure n°3, p
340.

[22] With the exception of Sweden but only in specific cases (concerns
Belgium, Bulgaria, Cyprus, Estonia, Hungary, Ireland, Luxembourg, Netherlands),
Spain (concerns Cyprus, with divergent interpretations though) and the United
Kingdom but only in specific cases (concerns Belgium, Greece, Hungary, Italy,
Luxembourg, Malta, Netherlands, Portugal, Spain)

[23] That is to say a nominal or effective tax rate below 15%.

[24] That is to say a nominal tax rate below 10%.

[25] In case of countries not belonging to, or being excluded
(“excepted”) from the “white list”, there is a burden on the taxpayers to prove
that the entities there are not considered to be located on the "low tax
rate territory" (i.e. taxpayer has to prove that the tax rate there is
higher than 1/3 of the tax applicable to individuals in Estonia, more than 50%
of the income of the entity there is derived from actual economic activity,
etc.).

[26] That is to say a an effective tax rate on the income below 14.5%.

[27] It should be noticed that the UK CFC legislation is currently
undergoing reform and the list might be amended in a near future.

[28] Companies obtaining exemption from tax on income from transactions,
activities or operations carried on in, or from goods located in, tax free
areas in accordance with Law 19640 of 16th May 1972.

[29] Only for income from banking operations that are not taxed under
the ordinary income tax regime.

[30] Only for income not taxed under the ordinary income tax regime.

[31] Only for income not taxed under the ordinary income tax regime.

[32] Companies qualifying as ‘‘pioneer companies’’ under the Investment
Incentives Enactment 1975.

[33] Only for income from banking operations that are not taxed under
the ordinary income tax regime.

[34] Companies obtaining exemption from tax under Law 16,441 of 1st
March 1966 on income from property located in the Department of Isla da Pascua
or from activities developed in that Department.

[35] Only for income considered to arise in another territory and not
subject to tax.

[36] Companies which do not fall within the scope of Article 111, Book 2
of Law 157 of 1981 because they do not operate in Egypt.

[37] Companies deriving interest from Faroese financial institutions
from which tax is deducted at source under Law 4 of 26th March 1953.

[38] Only for income considered to arise in another territory and not
subject to tax.

[39] Companies deriving income in or from the Hong Kong Special
Administrative Region and submitting tax returns to the authorities of that
Region.

[40] Companies having income exempted from tax under paragraph 11 of
Schedule 1 to the Income Tax Act 1973.

[41] Only for income from banking and finance, other financial and
insurance services.

[42] From 20th December 1999, companies deriving income in or from the
Macao Special Administrative Region and submitting tax returns to the
authorities of that Region.

[43] (1) Companies exempt from tax in accordance with section 54A of the
Income Tax Act 1967 (shipping). (2) Companies subject to tax at 5 per cent in
accordance with sections 60A and 60B of the Income Tax Act 1967 (inward
reinsurance and offshore insurance). (3) Companies deriving dividends from a
company or companies deriving income from one or more of the activities
referred to in paragraphs (1) and (2) above. (4) Companies obtaining a tax
benefit under the Offshore Companies Act (Island of Labuan) 1990.

[44] Only for income from such banking and finance, other financial and
insurance services that are not taxed under the ordinary income tax regime.

[45] Only for income from banking and finance, other financial and
insurance services that are not taxed under the ordinary income tax regime as
well as income from coordination centres.

[46] Companies receiving a tax benefit under Law 58–90 of 1992 (offshore
financial centres).

[47] Companies deriving royalties, commissions or fees which are exempt
from tax under paragraph 139 in Part I of the second Schedule to the Income Tax
Ordinance 1979.

[48] Only for income considered to arise in another territory and not
subject to tax.

[49] (1) Companies authorised under Presidential Decree 1034 of 30th
September 1976, or under Presidential Decree 1035 of 30th September 1976, to
operate an offshore Banking Unit or a Foreign Currency Deposit Unit as defined
in those Decrees. (2) Companies receiving interest on deposits with a Foreign
Currency Deposit Unit, or other interest subject to the reduced rates of tax
under section 27(D) of the National Internal Revenue Code 1997.

[50] (1) Companies obtaining a tax benefit under section 2(o) of the
Industrial Incentive Act 1978 (designated service industries). (2) Companies
obtaining a tax benefit under section 25 of the International Banking Centre
Regulatory Act 1989 (International Banking Entities).

[51] Only for income from such banking and finance, other financial and
insurance services that are not taxed under the ordinary income tax regime.

[52] Only for income from such banking and finance, other financial and
insurance services that are not taxed under the ordinary income tax regime.

[53] (1) Any company obtaining tax concessions under Ministry of Finance
Regulations pursuant to section 43A, and sections 43C to 43K, of the Income Tax
Act. (2) Companies obtaining exemption from tax on the income of a shipping
enterprise in accordance with section 13A of the Income Tax Act. (3) Companies
obtaining relief from tax in accordance with sections 45 to 55 (international
trade incentives), and sections 75 to 84 (warehouse and service incentives), of
the Economic Expansion Incentives (Relief from Income Tax) Act. (4) Companies
deriving dividends from a company or companies deriving income from one or more
of the activities falling within paragraphs (1) to (3) above.

[54] Companies obtaining relief or exemption from income tax under any
of the following provisions of the Inland Revenue Act 1979– (a) section
8(c)(iv) (foreign currency banking units); (b) sections 10(d) and 15(b) (income
derived from approved bank accounts); (c) section 10(e) (interest of newly
resident companies); (d) section 15(cc) (services rendered outside Sri Lanka);
(e) section 15(p) (re-export of approved products).

[55] Only for income from banking and finance, other financial and
insurance services

[56] Companies relieved or exempted from income tax under section 15(1)
or (1A) of the Income Tax Act 1973.

[57] Only for income from banking operations that are not taxed under
the ordinary income tax regime.

[58] Companies obtaining a tax benefit under Royal Decree 280 of 22nd
September 1992 (offshore banking units).

[59] Companies obtaining exemption from, or reduction of, tax under Law
76/63 of 12th July 1976 (financial and banking institutions dealing with
non-residents).

[60] Only for income from such banking and finance, other financial and
insurance services that are not taxed under the ordinary income tax regime.

[61] Domestic International Sales Corporations as defined in section
992(a) of the Internal Revenue Code 1954.

[62] Regardless of whether these measures are to be considered as New
Specific Measures or Other Specific Measures.

[63] Appendix 2, France, Part 2: General Information, Measure n°12, p
125.

[64] Cfr Appendix 2, France, Part 2: General Information, Measure n°2, p
109.

[65] Cfr Appendix 2, France, Part 2: General information, Measure n°10,
p 123.

[66] Cfr Appendix 2, Denmark, Part 2: General information, Measure n°4,
p 75.

[67] Cfr Appendix 2, Sweden, Part 2: General information, Measure n°3,
340.

[68] Cfr Appendix 2, The United Kingdom, Part 2: General information,
n°2, p 364.

[69] Cfr. Appendix 2, Estonia, Definition of NCJ, p86.

[70] Cfr Appendix 2, France, Part 2: General Information, Measure n°1, p
106.

[71] Cfr Appendix 2, Germany, Part 2: General Information, Measure n°4,
p 163.

[72] Cfr Appendix 2, Hungary, Definition of NCJ, p 177.

[73] Cfr Appendix 2, Spain, Part 2: General Information, Measure n°10, p
316.

[74] Cfr Appendix 2, The United Kingdom, Part 2: General Information,
Measure n°2, p 365.

[75] Cfr Appendix 2, Sweden, Part 2: General Information, Measure n°3, p
340.

[76] Cfr Appendix 2, Denmark, Part 2: General Information, Measure n°4,
p 75-76.

[77] Cfr Appendix 2, Sweden, Part 2: General Information, Measure n°3, p
342-344.

[78] Cfr Appendix 2, The United Kingdom, Part 2: General Information,
Measure n°2, p 365-366.

[79] Cfr Appendix 2, Spain, Definition of NCJ, p 301.

[80] Cfr Appendix 2, The United Kingdom, Part 2: General Information,
Measure n°6, p 371-372.

[81] Cfr Appendix 2, Hungary, Part 2: General Information, Measure n°3,
p 185.

[82] Cfr Appendix 2, Hungary, Part 3: Detailed Information, Measure n°1,
p 191.

[83] Cfr Appendix 2, Malta, Part 2: General Information, Measure n°6, p
270.

[84] Cfr Appendix 2, The United Kingdom, Part 2: General Information,
Measure n°5, p 370.

[85] Cfr Appendix 2, Spain, Part 2: General Information, Measure n°16, p
325.

[86] Cfr Appendix 2, Ireland, Part 2: General Information, Measure n°16,
225.

[87] Cfr Appendix 2, The United Kingdom, Part 2: General Information,
Measure n°15, p 384.

[88] Cfr Appendix 2, Ireland, Part 2: General Information, Measure n°16,
p 226-227.

[89] Cfr Appendix 2, The United Kingdom, Part 2: General Information,
Measure n°15, p 385.

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