On 6 February 2017, the Maltese Presidency of the Council of the European Union presented to the members of the High Level Working Party on Taxation (HLWP)1 an EU-BEPS Roadmap (the Roadmap) setting out how the Maltese Presidency intends to carry out work on various European Union (EU) initiatives relating to tax competition and base erosion and profit shifting (BEPS) during its term, which ends in June 2017.
The Roadmap addresses the Maltese Presidency’s agenda regarding the European Commission’s (the Commission) Anti-Tax Avoidance Package2 comprising, inter alia, hybrid mismatches. It also addresses the proposal for improvement of dispute resolution mechanisms within the EU, an EU list of third country non-cooperative jurisdictions, the proposal for a renewed Common (Consolidated) Corporate Tax Base, and the Interest and Royalties Directive among others.
Lastly, the Roadmap outlines work items that the Member States have expressed a willingness to undertake in the medium term which includes: (i) work on patent boxes; (ii) the implementation of the Council conclusions on the future of the Code of Conduct (Business Taxation); (iii) work on outbound payments; and (iv) mandatory disclosure rules.
The Roadmap traces back to a 25 November 2014 HLWP meeting during which the members discussed plans to carry out further work relating to unfair tax competition and BEPS in an EU context. It was decided that a concrete roadmap should be developed, setting out the actions and clear timelines for carrying out the work and taking account of the Organisation for Economic Co-operation and Development’s (OECD’s) BEPS Action Plan. Accordingly, roadmaps were developed during the EU Presidencies of Italy (July-December 2014), Latvia (January-June 2015), Luxembourg (July-December 2015), the Netherlands (January-June 2016) and Slovak Republic (July-December 2016).
The Maltese Presidency states that its Roadmap takes into account views expressed by Member States in informal bilateral contacts, as well as the recent Commission initiatives and the results of the OECD’s work on BEPS. The Roadmap sets out work that the Maltese Presidency intends to carry out in the short term (i.e., between now and the end of its term in June 2017), and work that could possibly be carried out in the medium term (i.e., the work could begin during the Maltese Presidency’s term but may not necessarily be completed by June 2017).
Short term work
The Maltese Presidency notes that the Commission produced a Proposal for a Council Directive amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries on 25 October 2016, as part of the EU’s second Anti-Tax Avoidance Package (ATAD2). It also noted that the Slovak Presidency carried out detailed work on this proposal. At the meeting of ECOFIN in December 2016,3 the text was agreed to except on two items i.e., Articles 9(4)(b) and (c), and the date of entry into force. With a view to swiftly finding an agreement, the Maltese Presidency aims to work on pending aspects of ATAD2.
Proposal for improvement of dispute resolution mechanisms within the EU4
The Commission has submitted a proposal for improvement of dispute resolution mechanisms within the EU, to the Council in October 2016 and the Slovak Presidency carried out a preliminary examination of this proposal. The Maltese Presidency considers this proposal to be a priority and intends to reach agreement by the end of its term in June 2017.
EU list of third country non-cooperative jurisdictions5
In May 2016, the Council adopted conclusions on the Commission Communication on an External Strategy for Effective Taxation and Commission Recommendation on the Implementation of Measures against Tax Treaty Abuse. The establishment of an EU list of third country non-cooperative jurisdictions was agreed by the Council and it also considered the need to work closely with the OECD and the work of the Global Forum while developing the EU list of non-cooperative jurisdictions. Further, in November 2016, the conclusions on the criteria for and process leading to the establishment of the EU list of non-cooperative jurisdictions for tax purposes was adopted by the Council.
The Maltese Presidency’s intention is that, during its term, the work outlined in the context of Council conclusions of May 2016 and November 2016 is carried out in accordance with the timeline agreed by the Council.
Proposal for a renewed Common (Consolidated) Corporate Tax Base6
The proposal for a Common Consolidated Corporate Tax Base (CCCTB) was relaunched by the Commission, with a Common Corporate Tax Base (CCTB) as a first step. In December 2016, the Council noted the two-step approach concerning the proposals on a CCCTB and CCTB. In the Roadmap, the Maltese Presidency states that it aims to initiate examination of proposals for a CCTB with a view to having a stable CCTB proposal by the end of June 2017.
Interest and Royalties Directive (IRD)
The Latvian EU Presidency carried out work on developing a de minimis anti-abuse clause to the proposed recast of the Interest and Royalties Directive (IRD), similar to the one adopted for the Parent-Subsidiary Directive (2011/96/EU). The Latvian Presidency hoped to reach an agreement by June 2015 on that aspect of the IRD, leaving the remaining provisions for later discussions. However, a political agreement was not reached, as Member States insisted on including a provision for setting up a minimum effective level of taxation. Much of the work was carried out towards examining various alternatives to include a minimum effective taxation clause in the IRD, during the last three Presidencies.
The Maltese Presidency now intends to reach agreement on the IRD, by following up on the above work while taking into account the input received from bilateral discussions with the Member States.
Finally, the Roadmap also includes references to the Good Governance in Tax Matters clause in EU agreements with third countries, agreements with five European “third countries” to counter fraud and all other illegal activities to the detriment of public financial interests (EU anti-fraud agreements) and OECD BEPS issues in double taxation agreements (where an exchange of views through the HLWP is foreseen with a view to the signature of the OECD multilateral instrument to modify tax treaties, expected in June 2017).
Medium term work
The Maltese Presidency notes that the Member States have expressed a willingness to undertake work in the medium term on several other items.
The Maltese Presidency states that it will support the Code of Conduct Group in its task to continue monitoring the legislative process necessary to change existing patent box regimes (following the agreement reached on the interpretation of the modified nexus approach) and Member States’ subsequent commitment to report on the progress made through the annual standstill and rollback reports.
The Roadmap also addresses under the medium term work the implementation of the Council conclusions on the future of the Code of Conduct (Business Taxation), work on outbound payments and mandatory disclosure rules.
The Roadmap reflects the position of the Maltese Presidency to bring forward pending topics in respect of aligning the tax laws of the 28 Member States and counter base erosion and profit shifting. It is therefore important to constantly monitor the developments at the EU level in order to be prepared for upcoming legislative changes.
1. The HLWP is a preparatory body of the Economic and Financial Affairs Council of the European Union (ECOFIN) that examines tax-related legislative proposals sent by the Commission to ECOFIN. The HLWP is composed of experts from each Member State and is chaired by the delegate of the country holding the rotating six-month Presidency of the Council.
2. See EY Global Tax Alert, European Commission releases anti-tax avoidance package designed to provide uniform implementation of BEPS measures and minimum standards across Member States, dated 28 January 2016.
3. See EY Global Tax Alert, European Council achieves broad consensus on draft directive aimed at closing down hybrid mismatches with third country tax systems, dated 7 December 2016.
4. See EY Global Tax Alert, European Commission announces proposal on double taxation dispute resolution mechanisms in the European Union, dated 26 October 2016.
5. See EY Global Tax Alert, European Council agrees on criteria for screening of third country jurisdictions, dated 10 November 2016.
6. See EY Global Tax Alert, European Commission proposes staged approach towards harmonized group tax base, dated 26 October 2016.
EYG no. 00582-171Gbl