EU ‘minimum effective taxation’ of interest, royalties among Dutch Presidency’s BEPS priorities

The Dutch Presidency of the EU hopes to achieve political agreement in the coming months on adding a clause on minimum effective taxation (MET) to the interest and royalties directive, according to a roadmap of the Presidency’s priorities on addressing base erosion and profit shifting (BEPS).

Seven other priority issues, which the Presidency hopes to conclude in the short-term, were identified in the roadmap dated February 19. Medium-term priorities were also identified.

According to the document, EU Finance ministers last fall began debating the merits of a MET clause, which is an antiavoidance measure that allows EU states to impose withholding tax if a minimum effective level of taxation is not imposed by a member state on interest or royalty payments made between associated companies.

Among the ministers that support adding a MET clause, some believe that a low rate of taxation should be the sole criterion for denying the benefits of the directive, while other ministers support an additional economic activity test.

The Netherlands Presidency intends to use these discussions as the basis for proposing a compromise on the subject, with the goal being a “well targeted MET clause, giving legal certainty and preventing loopholes,” the roadmap said.

Inclusion or reference to the OECD’s modified nexus approach in the directive could also be explored, the document noted.

Anti-tax avoidance package

Netherlands Presidency will also give priority to proposals in the EU Commission’s January 28 anti-tax avoidance package (ATAP) for a directive on anti-avoidance measures and for revision of an existing directive to implement EU-wide country-by-country reporting for multinationals, the roadmap said.

The anti-BEPS aspects of the 2011 common consolidated corporate tax base proposal will also be given priority, the roadmap said.

The Presidency will also “pay attention” to good governance in tax matters in third countries and will discuss a way forward on those issues. The Council may also reach conclusions on the Commission’s external stragety for effective taxation, included in the ATAP package.

The roadmap said that attention also will be given to improving the political visibility and transparency of the Code of Conduct Group.

“The Presidency intends to put forward concrete proposals in this area, with the aim to reach a swift consensus,” the roadmap said.

After that, efforts will focus on resolving whether the Code’s mandate should be extended to include the concept that profits should be subject to an effective level of taxation within the EU.

The Presidency also hopes to reach agreement by the end of its term on guidance and explanatory notes on hybrid permanent establishment mismatches in situations involving third countries.

Another priority area is tackling treaty abuse, where an exchange of views among member states is foreseen, the document said.

Medium-term work

The roadmap also identified “medium-term” BEPS work of lower priority. On this list is work coordinating EU rules on transfer pricing with the OECD, which will be undertaken by the Code of Conduct Group. Work on outbound payments, which could begin in spring 2016, is also on this list.

Also on this list is work on disclosure of beneficial ownership of non-transparent entities and dispute settlement for transfer pricing. Finally, work establishing conditions for the issuance of tax rulings is on the “medium term” list.

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