Enhancing EU tax certainty for multinational groups has become a hot topic. The subject was taken up during a recent informal meeting of the Economic and Financial Affairs Council (ECOFIN) in Malta and is also the focus of a new European Commission taxation paper.
ECOFIN president Edward Scicluna is promoting the concept in Europe.
“The idea about tax certainty comes from the OECD, we discussed it at the G20, and we want the [European] Commission also to show its own opinion at the EU level,” Scicluna told reporters April 7, just prior to the informal ECOFIN meeting.
Scicluna, who is Malta’s Minister for Finance, maintained that the EU needs to enhance tax certainty so that multinationals can understand ahead of time how their EU investments will be treated. At a minimum, companies must know that they have access to a dispute resolution mechanism to resolve instances of double taxation, he said.
EU tax certainty vs. tax avoidance
Scicluna assured that, contrary to press reports, the presidency’s push for tax certainty does not mean it also seeks to cut back EU efforts to stamp out tax avoidance by multinational groups.
Reuters had reported April 7 that Malta’s presidency would offer a paper at the ECOFIN meeting advocating that the EU slow efforts to close tax loopholes because such measures might increase uncertainty and thus hurt the European economy.
According to Scicluna, though, “it is really a big misinterpretation to discuss the tax certainty papers as if it is slowing down.”
Malta has delivered on the anti-tax avoidance tax directive 2 (ATAD 2) regarding hybrid mismatches with third counties and is working on other tax avoidance files, including the common consolidated tax base (CCCTB), Scicluna said. He added that there is an expectation that these files will be completed by June. “There is no slowdown whatsoever,” he asserted.
Valdis Dombrovskis, European Commissioner for the Euro and Social Dialogue, also assured that EU anti-tax avoidance efforts would continue apace. The EU will continue to lead by example in the area of anti-tax avoidance measures, he said.
Intermediaries, VAT guidance
Dombrovskis said that the EU Commission will put forward a proposal this summer to address the roles and responsibilities of intermediaries, such as accounting firms, tax consultancies, and banks, in terms of aggressive tax planning or advising on tax avoidance or evasion schemes.
He added that, because tax avoidance is not limited to direct taxation, the Commission intends to also put forward a VAT proposal which will have “major implications.”
Dombrovskis said that, in his view, tax certainty is increased when tax avoidance is reduced.
EU taxation uncertainty paper
Also in the area of tax certainty, the Commission on April 7 issued EU Commission Taxation Paper n. 67, titled “Tax Uncertainty: Economic Evidence and Policy Responses.”
The work starts from the point that tax uncertainty stems from institutional flaws in the tax policy process, unclear domestic tax rules, lack of tax coordination and cooperation between countries, and increased globalization coupled with the emergence of new business models.
To improve tax certainty at a domestic level, tax rules and tax compliance should be simplified and the process for creating tax law, including the tax ruling and tax policy process, should be made clearer, the paper states.
At the international level, better cooperation and more coordination between countries is needed to combat tax uncertainty, the paper states, Therefore, countries should develop common approaches to fighting aggressive tax planning as well as agree on a clear and sustainable distribution of tax revenues for cross-border investment, and, more generally, on transparent and non-harmful tax competition.
The EU survey points out that initiatives taken at the OECD and G20 level, like the base erosion profit shifting (BEPS) project, and the new standards on automatic exchange of information, may reduce the fragmentation of the international tax system stemming from unilateral actions and the uncertainty associated with that.
At the EU level, the EU Commission’s proposal for a CCCTB and simplification and modernization of the VAT regime would create a simpler system and enhance tax certainty, the paper concludes.
These proposals allow companies to treat the Union as a single market for the purpose of corporate taxation and thereby facilitate cross-border activity and promote trade and investment, the survey says.
The paper concludes that, in the future, more empirical research is needed to shed light on the effects of tax uncertainty on economic outcomes, as well as on the positive effects of policy measures to tackle tax uncertainty.