Presentation delivered at the 2016 TARC Conference, Exeter Business School on April 21st 2016. First comments to the EU Commission proposal for a Anti Tax Avoidance Directive

1. And Yet it Moves
The Proposed EU Council Directive against Tax
Avoidance Practices and its Possible Impact
Marco Greggi
Exeter, April 21st 2016

2. Outline of the Presentation
1. Understanding the Framework;
2. The struggle against international tax avoidance: ways and means;
3. Why a Directive ?
4. The core provisions, the potential impact;
5. Chances of success, chances of failure … and the cost of it;
6. Concluding remarks: does this matter to the UK ?
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3. Understanding the Framework
• 2013 – 2015 the OECD inspired BEPS project, 15 actions, summary
reports, set or recommendation (Soft Law);
• BEPS: wider than tax avoidance;
• Priorities:
• Symmetry (value creation - power to tax);
• Equity (reasonable level of taxation, prevention of double non taxation cases);
• Transparency (seamless flow of information between States);
• Fairness (prevention of possible aggressive planning schemes).
• Holistic approach.
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4. European Framework for BEPS
Base Erosion and Profit Shifting Freedom of Establishment (art.
49 TFUE)
Abuse of hybrid structures /
hybrid financial instruments
Free circulation of persons and
of capitals (art. 63 TFUE)
Limitation on benefit clauses
(LOBs)
Principle of Non-discrimination
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5. Tackling Tax Avoidance:
Ways and Means
• Different approaches to avoidance in Europe and alternative ways to
address aggressive tax planning;
• Unilateralism:
• The UK: Diverted Profit tax (2015);
• Continental countries: progressive implementation of a GAAR;
• Different attitude by the Judiciary and Revenue service (Google / Apple
cases);
• Multilateralism:
• Treaty / Agreement EU – Switzerland on the Exchange of information (2015);
• Demanding approach towards States considering accession (Andorra,
Monaco, San Marino, …).
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6. Pitfalls ad Inefficiencies
• Unsatisfactory approach to avoidance and aggressive tax planning;
• Loss of competitiveness of qualified Countries;
• Inadequate implementation of the BEPS Recommendations;
• Friction / Possible conflict with TFEU and with Double taxation
conventions currently in force;
• Uncertain compatibility with the constitution in Continental states;
• Lack of intervention so far by some States;
• Lack of a level playing field for the business in the EU
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7. The Reasons of the Directive
• Harmonizing the approach to tax avoidance;
• Creation of a de minimis approach to that ? (Proaction)
• Creation of safe harbours for domestic rules ? (Hedging)
• Need for a homogeneous implementation of the BEPS Action plan on
avoidance;
• First comprehensive directive on avoidance;
• Harmonization, the other way round …
• Case of success: implementation of a GAAR within the Parent-
Subsidiary directive (see Directive 2015/121 EU passed on January
27th 2015).
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8. … a Reasonable Directive ?
• Coherent with the Commission’s approach in the latest years in
addressing Tax Planning (Aggressive):
• European Commission:
• Exploitation of technical aspects of a tax system or disparities between two or
more tax systems in order to minimise the amount of the tax due (abridged
summary). C (2012) 8806, December 6th 2012.
• Perspective DTCs should have a specific clause aimed at granting the
advantages of the treaties only to those taxpayers who are actually and fully
liable to tax.
• The Proposed Directive, a further development of this approach;
• Bilateral LOBs are not enough.
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9. Stakeholders’ Position
• Over-critic …
• Inter alia, the CFE (European Fiscal Confederation) position: repeal
the Proposal or significantly amend it;
• Sceptical / Careful approach by the big Consultancy Firms;
• Ground of criticism:
• Shaky / Weak legal foundations;
• Disproportionate measures;
• Inconsistencies with OECD recommendations;
• Possible lack of competitiveness.
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10. The Core Provisions …
• Identifying priority areas for the European Commission:
1. Interest limitation rule (article 4);
• Threshold to deduction: 30% EBITDA;
2. Exit taxation (article 5);
• Deferred taxation, protection of the power to tax in case of outbound transfers;
3. “Switch Over” Clause (minimal taxation) (art. 6);
• Residence state may tax if double non taxation might otherwise occur;
4. GAAR (article 7);
5. CFC Regulations (Articles 8 and 9);
• Double standard approach depending on the residence of the subsidiary / the pace
where the financial instrument is issued;
6. Hybrid Mismatches (Article 10);
• Tie break rule.
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11. A broader Vision (the Anti Tax
Avoidance Package 2016)
The Anti Tax
Avoidance Package
2016
Anti Tax Avoidance Directive
New Tax Treaties Policy - C(2016) 271 final
Enhanced Administrative Cooperation - COM(2016) 25 final
Joint External Strategy in Taxation - COM(2016) 24 final
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12. … and the Potential Impact
• Asymmetric Shock on domestic legislations:
• Some measures currently in force in qualified states (UK, Germany, Italy, …);
• Need to consider the CJEU case law:
• Possibility to test the consistency of the directive with the TFEU;
• Possible Tax treaties override ?
• Claw back of the power to tax under the “Switch Over clause”;
• Check consistency with BEPS project further implementation;
• Potential reaction by third Countries
• US Senate Finance Committee position on State Aid regulations enforcement and
possible retaliation under Section 891 of the Internal Revenue Code, January 15th 2016.
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13. Chances of Success, Chances of
Failure
• The Directive in a Delicate balance situation:
• De minimis approach to tax avoidance / Tax planning ?
• Need for a proactive approach by the Different member States covering:
• Tax offices’ best practice;
• Judicial interpretation of the provisions (see in particular Article 7);
• How to deal with the possible willing executioners of it ?
• Transparent approach;
• Essential role of the CJEU in promoting more aggressive approach(If needed)
in the application of the GAAR;
• A new benchmark for harmful tax competition ? The need for an positive approach by
Member states ?
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14. In praise of the “Better Together”
Approach
• The UK in a complex situation:
• The proposed Directive adopts a double standard approach towards
(1) avoidance or (2) aggressive tax planning schemes:
1. Somehow a bit more relaxed, when they occur within the EU / EEA;
• CFC, Switch over, etc.
• Need to respect reasonableness and proportionality (see Cadbury case);
2. Extremely aggressive when third Countries are involved;
• Opting out of the EU would possibly mean opting out from the more
gentle approach towards avoidance;
• Adverse impact on the financial sector and on the UK based legal entities.
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15. Thanks for your attention
marco.greggi@unife.it
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