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Foundation European Fiscal Studies welcomes you !

Foundation European Fiscal Studies welcomes you !. Your chairman : Prof. dr. A.C.G.A.C (Arnaud) de Graaf Erasmus School of Law Netherlands Ministry of Finance. After the seminar this presentation can be downloaded from our website:. Double Non-taxation: OECD Developments.

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Foundation European Fiscal Studies welcomes you !

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  1. Foundation EuropeanFiscal Studieswelcomesyou! Yourchairman: Prof. dr. A.C.G.A.C (Arnaud) de Graaf Erasmus School of Law NetherlandsMinistry of Finance After the seminar this presentation can be downloaded from our website: www.europesefiscalestudies.nl

  2. Double Non-taxation: OECD Developments Raffaele Russo Head of the Non-compliance Unit at OECD Centre for Tax Policy and Administration Rotterdam, Novotel, 11 December 2012 www.europesefiscalestudies.nl

  3. Double Non-taxation: OECD Developments Raffaele Russo 11 December 2012

  4. OUTLINE Overview Recent ATP Reports Base Erosion and Profit Shifting

  5. 1.Overview of the OECD Work on Aggressive Tax Planning

  6. OECD Work on ATP • Since 2008 the OECD intensified its work in the area of aggressive tax planning (ATP) and set up the ATP Steering Group. • The OECD's work in this area focuses on helping governments: • to respond more quickly to tax risks, • to identify trends and patterns already identified and experienced by some tax administrations, • to share experiences in dealing with them. • The timely sharing of such information: • assists governments in understanding new schemes, • facilitates their detection, • enables countries to adapt their risk management strategies and identify successful legislative and administrative responses. • The work is supported by the OECD ATP Directory

  7. What’s ATP? A non-definition • The following two areas of concern are referred to as “aggressive tax planning”: • Planning involving a tax position that is tenable but has unintended and unexpected tax revenue consequences. Revenue bodies’ concerns relate to the risk that tax legislation can be misused to achieve results which were not foreseen by the legislators. This is exacerbated by the often lengthy period between the time schemes are created and sold and the time revenue bodies discover them and remedial legislation is enacted. • Taking a tax position that is favourable to the taxpayer without openly disclosing that there is uncertainty whether significant matters in the tax return accord with the law. Revenue bodies’ concerns relate to the risk that taxpayers will not disclose their view on the uncertainty or risk taken in relation to grey areas of law (sometimes, revenue bodies would not even agree that the law is in doubt).

  8. 2.Recent ATP Reports

  9. Tackling Aggressive Tax Planning through Improved Transparency and Disclosure (2011) Conclusions Having timely, targeted and comprehensive information is important both from a compliance and tax policy perspective. Properly targeted disclosure initiatives will also benefit taxpayers at large. Tax audits will continue to play a key role in the detection, deterrence and prevention of aggressive tax planning. However, traditional audits alone may not be a resource-effective way to obtain timely, targeted and comprehensive information on aggressive tax planning schemes. Disclosure initiatives can help to fill the gap between the creation/promotion of aggressive tax planning schemes and their identification by the tax authorities. Recommendations The report suggests countries concerned with ATP to: Review the disclosure initiatives in this report with a view to evaluating the introduction of those best suited to their particular needs and circumstances. Continue to share experiences on the design and implementation of disclosure initiatives to assist in creating a compliance framework that benefits both governments and taxpayers at large.

  10. Corporate Loss Utilisation through Aggressive Tax Planning (2011) Conclusions The size of loss carry-forwards is constantly increasing and this increase accelerates in downturn years. Loss carry-forwards as a percentage of GDP show large differences among countries, with some as high as 25%. Schemes detected by participating countries aim at achieving a variety results, such as shifting profits or losses to related or unrelated parties, circumventing restrictions on the carry-over of losses, circumventing rules on the recognition or treatment of losses, creating artificial losses, and claiming multiple deductions for the same loss. Financial instruments, corporate reorganisations and transfer pricing are the techniques commonly used to achieve these different results and have been identified as key risk areas by revenue bodies. Recommendations Consider introducing or revising restrictions on use of losses to the extent they are concerned with aggressive tax planning on the use of losses in these cases; Analyse the policy and compliance issues of schemes such as after-tax hedges and evaluate the options available to address them; Continue to share relevant intelligence on aggressive tax planning schemes on losses, Consider the introduction of co-operative compliance programmes, where appropriate to a country’s circumstances, based on the benefits to both taxpayers and tax administrations; Consider the introduction or the revision of disclosure initiatives targeted at aggressive tax planning schemes on losses.

  11. Hybrid Mismatch Arrangements - Tax Policy and Compliance Issues (2012) Conclusions Hybrid mismatch arrangements that arguably comply with the letter of the laws of two countries but that achieve non-taxation in both countries generate significant policy issues in terms of tax revenue, competition, economic efficiency, fairness and transparency; The same concern that exists in relation to distortions caused by double taxation exists in relation to unintended double non-taxation; 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; Countries’ experience in relation to the design, application and effects of specific and targeted rules is positive but a constant monitoring of the application of the rules is needed. Recommendations The report suggests countries to: Consider introducing or revising specific and targeted rules denying benefits in the case of certain hybrid mismatch arrangements; Continue sharing relevant intelligence on hybrid mismatch arrangements, the deterrence, detection and response strategies used, and monitor their effectiveness; Consider introducing or the revising disclosure initiatives targeted at certain hybrid mismatch arrangements.

  12. 3.Base Erosion and Profit Shifting

  13. Perceptions ... There is a growing perception that governments lose substantial corporate tax revenue because of planning aimed at eroding the taxable base and/or shifting profits to locations where they are subject to a more favourable tax treatment. Civil society and non-governmental organisations (NGOs) have been vocal in this respect, sometimes addressing very complex tax issues in a simplistic manner

  14. Perceptions ... and Media

  15. Perceptions ... and politics (1) 19 June 2012, Los Cabos “...We reiterate the need to prevent base erosion and profit shifting and we will follow with attention the ongoing work of the OECD in this area”. 4-5 November 2012, Mexico City “…We also welcome the work that the OECD is undertaking into the problem of base erosion and profit shifting and look forward to a report about progress of the work at our next meeting”. UK – Germany Joint Statement, 5 November 2012 “Britain and Germany want competitive corporate tax systems that attract global companies to our countries, but also want global companies to pay those taxes. That is best achieved through international action in the G20 and other relevant international fora to ensure strong standards. ... Britain and Germany back the OECD – BEPS (tax base erosion and profit shifting) initiative of the OECD and expect its first analysis report to the next G20 meeting in Russia in February 2013.

  16. Perceptions ... and politics (2) 22 November 2012, Australia Assistant Treasurer But when multinational companies can achieve effective tax rates of a few per cent - or even zero - trying to compete with these rates is no different to abandoning our corporate tax base. This kind of international 'race to the bottom' is not protecting the sustainability of the tax system- it's just cutting out the creativity required to avoid paying company tax in Australia. If enormous multinational corporations aren't paying their fair share of tax on economic activity in Australia, then that's not fair game. We do not want to see a future where hard-working Australian families and businesses have to pay disproportionately high taxes because multinational corporations are not pulling their weight. 5 December 2012, New Zealand Minster of Revenue The reality is that tax regimes internationally have generally been developed for an industrial age, and have struggled to keep pace with new business models and technologies not contained by location or national borders …

  17. What the BEPS are we talking about? • Domestic rules for international taxation and internationally agreed standards are still grounded in an economic environment characterised by a lower degree of economic integration across borders, rather than today’s environment of global taxpayers. • Broadly speaking corporate tax planning strategies typically ensure: • minimisation of taxation in a foreign operating or source country • low or no withholding tax at source • low or no taxation at the level of the recipient • no current taxation of the low taxed profits (achieved via the first three steps) at the level of the ultimate parent. • While these corporate tax planning strategies may be technically legal and rely on carefully planned interactions of a variety of tax rules and principles, the overall effect of this type of tax planning is to erode the corporate tax base of many countries in a manner that is not intended by domestic policy.

  18. Key pressure areas Hybrid mismatch arrangements and arbitrage Digital economy Related party financing Transfer pricing Anti-avoidance measures (in particular GAARs, CFC regimes and thin capitalisation rules) and Preferential regimes for certain activities

  19. Next steps Report to the G-20 before February …

  20. www.oecd.org/ctp

  21. Double Non-taxation: EU Developments Jaap Walter Tilstra Political adviser at TAXUD of the European Commission Rotterdam, Novotel, 11 December 2012 www.europesefiscalestudies.nl

  22. Seminar European Fiscal StudiesDOUBLE NON-TAXATIONDevelopments in the EURotterdam 11 December 2012 Jaap Tilstra - EU CommissionDG Taxation and Customs Union

  23. OUTLINE • Background • Double non-taxation (Public Consultation) • The June Communication (COM (2012) 351 final of 27.02.2012) • The December Action Plan • The Recommendations • Recommendation on aggressivetax planning • Recommendation to encourage third countries to apply good governance (tax havens) • Follow-up Rotterdam, 11 December 2012

  24. 1. BACKGROUND International Press: • Google (Facebook, Microsoft): "2.4% Rate Shows How $60 Billion Lost to Tax Loopholes" (Bloomberg 2010) • Starbucks: Special Report: "How Starbucks avoids UK taxes" (Reuters 2012) • Apple & Co: "Große Gewinne, kleine Steuern" (Suddeutsche 2012) • Etc. Rotterdam, 11 December 2012

  25. 1. BACKGROUND • 2.03.2012: the European Council invited the Commission to present a report on concrete ways to improve the fight against tax fraud and tax evasion, including in relation to third countries, by June 2012 "The Council and the Commission are invited to rapidly 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." (point 9 of conclusions) • 19.04.2012: the European Parliament adopted a Resolution calling for concrete ways to combat tax fraud and tax evasion. • European Semester: many CSRs in 2012 exercise on the need to improve tax collection – this provides a COM contribution Rotterdam, 11 December 2012

  26. 1. BACKGROUND – Role of EP e.g. EP Resolution 19 april 2012 re. tax fraudandevasion • "Onderschrijft de conclusies van de Europese Raad van 1/2 maart 2012 • Snel akkoord Spaartegoeden Richtlijn + onderhandelingen CH • Rol CCCTB bij fraudebestrijding • Benadrukt belang van country-by-country reporting • Herziening van de MD Richtlijn en I&R Richtlijn (bestrijden hybrides) in de EU; • Implementeer innovatieve strategieën ter bestrijding van BTW-fraude in de EU; • EU-coördinatie bij de wijziging van bilaterale overeenkomsten tussen lidstaten; • Meer transparantie en strengere controle ter voorkoming van het gebruik van belastingparadijzen: • buitenlandse rechtsmachten die niet tot samenwerking bereid zijn • ontbreken van belastingen of nominale belastingtarieven, • gebrek aan daadwerkelijke informatie-uitwisseling • ontbreken van transparantie in wetgevings-, rechts- of bestuursbepalingen" Rotterdam, 11 December 2012

  27. 1. BACKGROUND - G20 G20 April 2009 - London • "[W]e agree…to take action against non-cooperative jurisdictions, including tax havens." • "We stand ready to take agreed action against those jurisdictions which do not meet international standards in relation to tax transparency." G20 June 2010 – Toronto • "We stand ready to use countermeasures against tax havens." G20 November 2011 – Cannes • "We underline the importance of comprehensive tax information exchange and encourage work in the Global Forum to define the means to improve it." G20 February 2012 – Mexico City • "We call for (..) necessary steps to improve comprehensive information exchange, including automatic exchange of information and, together with the FATF, on steps taken to prevent the misuse of corporate vehicles (…)." Rotterdam, 11 December 2012

  28. 1. BACKGROUND – Member States • Joint statement by the United Kingdom and Germany in the aftermath of the G20 meeting, 5 November 2012 • "(..) German Finance Minister Wolfgang Schäuble and British Chancellor of the Exchequer George Osborne called at the G20 meeting today for concerted international cooperation to strengthen international standards for corporate tax regimes. (…) international tax standards have had difficulty keeping up with changes in global business practices, such as the development of e-commerce in commercial activities. As a result, some multi-national businesses are able to shift the taxation of their profits away from the jurisdictions where they are being generated (…)" Rotterdam, 11 December 2012

  29. 1. BACKGROUND - OECD Global Forum (117 members) • Restructured September 2009 Mexico • Peer Review Process: Phase 179, Phase 250 (end 2013) • International Standards – Terms of Reference OECD "BEPS" Project • G20 June 2012, Mexico: “...We reiterate the need to prevent base erosion and profit shifting and we will follow with attention the ongoing work of the OECD in this area” • Base Erosion and Profit Shifting: "whether, and if so why, MNEs taxable profits are being allocated to locations different from those where the actual business activity takes place." • CFA to coordinate • Tax policy analyses, tax treaties, transfer pricing, aggressive tax planning and harmful tax practices Rotterdam, 11 December 2012

  30. 2. DOUBLE NON-TAXATIONPUBLIC CONSULTATION Communication on Double Taxation in the Single Market, COM(2011) 712: • that it is important that Member States take the necessary measures to remove double taxation and double non-taxation. • that it would launch a fact-finding consultation procedure as regards double non-taxation. • Public consultation on double non taxation between 29th February and 30th May 2012. Rotterdam, 11 December 2012

  31. 2. DOUBLE NON-TAXATIONPUBLIC CONSULTATION The public consultation listed the following issues: • Mismatches of entities • Mismatches of financial instruments • Application of Double Tax Conventions leading to double non-taxation • Transfer pricing and Unilateral Advance Pricing Arrangements • Transaction with associated enterprises in countries with no or extremely low taxation • Debt financing of tax exempt income • Different treatment of passive and active income • Double Tax Conventions and third countries • Disclosure • Other issues? Rotterdam, 11 December 2012

  32. 2. DOUBLE NON-TAXATIONPUBLIC CONSULTATION The Commission received 25 contributions • - 15 from business community, • - 4 from NGO's and • - 4 from academics and other tax professionals • Several contributions from non-EU (i.e. USA) Rotterdam, 11 December 2012

  33. 2. DOUBLE NON-TAXATIONPUBLIC CONSULTATION Non-Governmental Organisations • welcomed consultation • most of listed issues relevant for further discussions • difficult to provide factual examples Rotterdam, 11 December 2012

  34. 2. DOUBLE NON-TAXATIONPUBLIC CONSULTATION • Business community: • Double non-taxation vs. tax competition • Member states sovereignty in the tax area • Double non-taxation and double taxation • Impact on European economic competiveness • Coordination with other international initiatives Rotterdam, 11 December 2012

  35. 2. DOUBLE NON-TAXATIONPUBLIC CONSULTATION Most contributors seems to find the following issues of double non-taxation least acceptable: • Mismatches of entities • Mismatches of financial instruments • Application of Double Tax Conventions Rotterdam, 11 December 2012

  36. 2. DOUBLE NON-TAXATIONPUBLIC CONSULTATION • COM Envisaged the following follow up: • Code of Conduct continue its work on mismatches • Possibly: Forum on double taxation and double non-taxation • Initiative on good governance in relation to tax havens and aggressive tax planning Rotterdam, 11 December 2012

  37. 3. THE JUNE COMMUNICATION (COM (2012) 351 FINAL OF 27.06.2012) • The June Communication identifies: • Key challenges posed by tax fraud and evasion • Concrete approaches and actions, using a combination of: • existing instruments and systems (e.g. new legislative tools for administrative cooperation for all taxes) • legislative proposals already in the pipeline (e.g. the EU savings directive) • new initiatives which need to be fast-tracked, wherever possible (e.g., enhancing exchange of information, tackling trends and schemes of fraud/evasion, ensuring taxpayers' compliance, enhancing tax governance) • a coherent policy vis-à-vis third countries (promoting EU standards) Rotterdam, 11 December 2012

  38. 3. THE JUNE COMMUNICATION (COM (2012) 351 FINAL OF 27.06.2012) • The June Communication also announced an Action Plan for the end of 2012:"Before the end of 2012 the Commission intends to come forward with an action plan based on a proportionate impact assessment, which will identify specific measures which could be developed rapidly if the appropriate political priority is given. The presentation of this plan is foreseen together with the initiative on tax havens and aggressive tax planning. This action plan will set out concrete steps to enhance administrative cooperation and will support the development of the existing good governance policy, the wider issues of interaction with tax havens and of tackling aggressive tax planning and other aspects, including tax-related crimes." Rotterdam, 11 December 2012

  39. 3. THE JUNE COMMUNICATIONINPUT FROM MEMBER STATES AND STAKEHOLDERS • 14.07.2012: Tax Policy Group (MS) • 17.07.2012: FISCALIS seminar (MS and stakeholders: business representatives and NGOs) • 11.09.2012: Council HLWP • 11.10.2012: Council HLWP • 13.11.2012: ECOFIN Council Conclusions  allowed the Commission to define priorities Rotterdam, 11 December 2012

  40. 4. THE DECEMBER ACTION PLAN • Better use of existing instruments and Commission initiatives to be progressed: • A new framework for administrative cooperation for all taxes and for recovery • The proposal to amend the EUSD / Mandate to open negotiations with EU neighboring countries • The draft EU-Liechtenstein anti-fraud and tax cooperation agreement / Mandate to open negotiations with EU neighboring countries • The quick reaction mechanism for VAT • The optional application of the VAT reverse charge mechanism • The EU VAT forum Rotterdam, 11 December 2012

  41. 4. THE DECEMBER ACTION PLAN • New Commission initiatives • Recommendation regarding measures intended to encourage third countries to apply minimum standards of good governance in tax matters • Recommendation on aggressive tax planning • Creation of a Platform for Tax Good Governance • Improvements in the area of harmful business taxation and related areas • "TIN on Europa" portal • Standard forms for exchange of information in the field of taxation • A euro denaturant for completely and partly denaturated alcohol Rotterdam, 11 December 2012

  42. 4. THE DECEMBER ACTION PLAN • Future initiatives and actions to be developed • Actions to be undertaken in the short term (2013) • Tackle mismatches: a revision of the parent subsidiary directive (2011/96/EU) • Review anti-abuse provisions of Interest and Royalties, Mergers and Parent-Subsidiary Directives • Promote EU standards, instruments and tools (AEOI and IT tools) at international level • Enhance tax compliance: a European taxpayers' Code • Enhance tax governance: reinforced cooperation with other law enforcement bodies • Enhance administrative cooperation: promote use of simultaneous controls and the presence of foreign officials at audits • VAT Admin Coop agreements with 3rd countries: Council authorisation Rotterdam, 11 December 2012

  43. 4. THE DECEMBER ACTION PLAN • Actions to be undertaken in the medium term (2014) • Enhance exchange of information • Develop computerised formats for AEOI • Use an EU tax identification number (TIN) • Rationalise IT instruments • Tackle fraud trends • Guidelines for tracing money flows • Enhance risk management techniques (risk management) • Extend EUROFISC to direct taxation • Enhance tax compliance • Create a one-stop-shop approach in all MS • Develop motivational incentives • Develop a tax web portal • Propose an alignment of administrative and criminal sanctions • Develop an EU standard Audit file for tax (SAF-T) Rotterdam, 11 December 2012

  44. 4. THE DECEMBER ACTION PLAN • Actions to be undertaken in the longer term (beyond 2014) • A methodology for joint audits by dedicated teams of trained auditors • Develop mutual direct access to national data bases • Elaborate a single legal instrument for administrative cooperation for all taxes Rotterdam, 11 December 2012

  45. 4. THE DECEMBER ACTION PLANCODE OF CONDUCT (BUSINESS TAXATION) • 1 December 1997 ECOFIN conclusions: • Resolution of the Council and the Representatives of the Governments of the Member States, meeting within the Council, of 1 December 1997 on a Code of Conduct for Business Taxation • 9 March 1998 ECOFIN conclusions concerning the establishment of the Code of Conduct Group: • High level representatives • Fixed chairman • Special Council working group • Supporting role for COM • Unanimity • 4 – 6 meetings per year + bi-annual Report to ECOFIN Rotterdam, 11 December 2012

  46. 4. THE DECEMBER ACTION PLANCODE OF CONDUCT (BUSINESS TAXATION) • Is a measure potentially harmful (par. A) • Assessment against Code criteria (par. B) • Standstill + Rollback (par. C – D) • Assessment is based on political commitment: soft law (peer pressure) • Includes associated & overseas territories • Driven by Member States (Council leads) Rotterdam, 11 December 2012

  47. 4. THE DECEMBER ACTION PLANCODE OF CONDUCT (BUSINESS TAXATION) • Work Package 2008 & 2011 more focus on "horizontal issues" • Par. K : "The Council calls on the Member States to cooperate fully in the fight against tax avoidance and tax evasion, notably in the exchange of information between Member States, in accordance with their respective national laws." • Par. L: "The Council notes that anti-abuse provisions or countermeasures contained in tax laws and in double taxation conventions play a fundamental role in counteracting tax avoidance and evasion." • General guidelines rulings / unilateral APAs (spontaneous EoI) • General guidelines on anti-abuse measures in relation to inbound profit transfers (CFC & switch-over) • Guidance in relation to mismatches (hybrid arrangements) • Dialogues with 3rd Countries (CH en LIE) Rotterdam, 11 December 2012

  48. 4. THE DECEMBER ACTION PLANCODE OF CONDUCT (BUSINESS TAXATION) • Cssr Semeta speech 7 December: • "Tax competition must not open the door to fraudulent or abusive tax practices." • "In the EU, we have an instrument to ensure fair tax competition: the Code of Conduct. I believe that this Code could be used with more ambition by Member States than it is today" (strengthen + expand). • Action Plan: • Political discussions ECOFIN • Mismatches: Find and implement solutions  legislative action • Expatriates ad wealthy individuals • Third country initiatives Rotterdam, 11 December 2012

  49. 5. RECOMMENDATIONS • Some tax payers use complex, artificial arrangements relocating tax base to other countries and hiding it from MS tax administrations • They thrive on mismatches in cross border situations creating double non-taxation and set up their arrangements using MS with the weakest remedies • Within the EU this can only be effectively tackled by an approach shared by all MS • COM therefore Recommends as a first step MS to take effective action in two specific areas: • Take a common stance against artificial arrangements and double non-taxation, and • A common definition of non-compliant 3rd countries and joint actions Rotterdam, 11 December 2012

  50. 5. RECOMMENDATIONSLEGAL FRAMEWORK • Recommendations are a "legal act through which the Union exercises its competences", Article 288(1) TFEU. • Recommendations have no binding force (Article 288(5) TFEU). Legal basis Article 292 TFEU: • Council Recommendations (Article 292, 1st, 2nd and 3rd sentence): adopted following a proposal from the Commission in all areas provided by the Treaties (e.g. Article 114(1)). • Commission Recommendations (Article 292 4th sentence): self-standing legal acts once agreed by the College. • ECB Recommendations (Article 292 4th sentence): adopted by ECB only in specific cases provided for by the Treaties (e.g. Article 129(4)) Rotterdam, 11 December 2012

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