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1 www.europesefiscalestudies.nl Foundation European Fiscal Studies welcomes you! After the seminar this presentation can be downloaded from our website: Your chairman: Prof. dr. A.C.G.A.C (Arnaud) de Graaf Erasmus School of Law Netherlands Ministry of Finance

2 www.europesefiscalestudies.nl 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

3 DOUBLE NON- TAXATION: OECD DEVELOPMENTS Raffaele Russo 11 December 2012

4 1.Overview 2.Recent ATP Reports 3.Base Erosion and Profit Shifting OUTLINE 4

5 1. OVERVIEW OF THE OECD WORK ON AGGRESSIVE TAX PLANNING 5

6 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 6 OECD Work on ATP

7 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). What’s ATP? A non-definition 7

8 2. RECENT ATP REPORTS 8

9 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. 9 Tackling Aggressive Tax Planning through Improved Transparency and Disclosure (2011)

10 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. 10 Corporate Loss Utilisation through Aggressive Tax Planning (2011)

11 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. 11 Hybrid Mismatch Arrangements - Tax Policy and Compliance Issues (2012)

12 3. BASE EROSION AND PROFIT SHIFTING 12

13 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 13 Perceptions...

14 14 Perceptions... and Media

15 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. 15 Perceptions... and politics (1)

16 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 … 16 Perceptions... and politics (2)

17 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. 17 What the BEPS are we talking about?

18 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 18 Key pressure areas

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

20 www.oecd.org/ctp

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

22 Seminar European Fiscal Studies DOUBLE NON-TAXATION Developments in the EU Rotterdam 11 December 2012 Jaap Tilstra - EU Commission DG Taxation and Customs Union

23 OUTLINE 1.Background 2.Double non-taxation (Public Consultation) 3.The June Communication (COM (2012) 351 final of 27.02.2012) 4.The December Action Plan 5.The Recommendations a)Recommendation on aggressive tax planning b)Recommendation to encourage third countries to apply good governance (tax havens) 6.Follow-up EFS Seminar Double Non-TaxationRotterdam, 11 December 201223

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. 24EFS Seminar Double Non-TaxationRotterdam, 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 EFS Seminar Double Non-TaxationRotterdam, 11 December 201225

26 e.g. EP Resolution 19 april 2012 re. tax fraud and evasion "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" 26 1. BACKGROUND – Role of EP EFS Seminar Double Non-TaxationRotterdam, 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 (…)." 27EFS Seminar Double Non-TaxationRotterdam, 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 (…)" 28EFS Seminar Double Non-TaxationRotterdam, 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 29EFS Seminar Double Non-TaxationRotterdam, 11 December 2012

30 2. DOUBLE NON-TAXATION PUBLIC 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 29 th February and 30 th May 2012. 30EFS Seminar Double Non-TaxationRotterdam, 11 December 2012

31 2. DOUBLE NON-TAXATION PUBLIC CONSULTATION The public consultation listed the following issues: 1)Mismatches of entities 2)Mismatches of financial instruments 3)Application of Double Tax Conventions leading to double non-taxation 4)Transfer pricing and Unilateral Advance Pricing Arrangements 5)Transaction with associated enterprises in countries with no or extremely low taxation 6)Debt financing of tax exempt income 7)Different treatment of passive and active income 8)Double Tax Conventions and third countries 9)Disclosure 10)Other issues? 31EFS Seminar Double Non-TaxationRotterdam, 11 December 2012

32 2. DOUBLE NON-TAXATION PUBLIC 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) 32EFS Seminar Double Non-TaxationRotterdam, 11 December 2012

33 2. DOUBLE NON-TAXATION PUBLIC CONSULTATION Non-Governmental Organisations welcomed consultation most of listed issues relevant for further discussions difficult to provide factual examples 33EFS Seminar Double Non-TaxationRotterdam, 11 December 2012

34 2. DOUBLE NON-TAXATION PUBLIC 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 34EFS Seminar Double Non-TaxationRotterdam, 11 December 2012

35 2. DOUBLE NON-TAXATION PUBLIC 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 35EFS Seminar Double Non-TaxationRotterdam, 11 December 2012

36 2. DOUBLE NON-TAXATION PUBLIC 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 36EFS Seminar Double Non-TaxationRotterdam, 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) EFS Seminar Double Non-TaxationRotterdam, 11 December 201237

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." EFS Seminar Double Non-TaxationRotterdam, 11 December 201238

39 3. THE JUNE COMMUNICATION INPUT 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 EFS Seminar Double Non-TaxationRotterdam, 11 December 201239

40 4. THE DECEMBER ACTION PLAN A.Better use of existing instruments and Commission initiatives to be progressed: 1.A new framework for administrative cooperation for all taxes and for recovery 2.The proposal to amend the EUSD / Mandate to open negotiations with EU neighboring countries 3.The draft EU-Liechtenstein anti-fraud and tax cooperation agreement / Mandate to open negotiations with EU neighboring countries 4.The quick reaction mechanism for VAT 5.The optional application of the VAT reverse charge mechanism 6.The EU VAT forum EFS Seminar Double Non-TaxationRotterdam, 11 December 201240

41 4. THE DECEMBER ACTION PLAN B.New Commission initiatives 7.Recommendation regarding measures intended to encourage third countries to apply minimum standards of good governance in tax matters 8.Recommendation on aggressive tax planning 9.Creation of a Platform for Tax Good Governance 10.Improvements in the area of harmful business taxation and related areas 11."TIN on Europa" portal 12.Standard forms for exchange of information in the field of taxation 13.A euro denaturant for completely and partly denaturated alcohol EFS Seminar Double Non-TaxationRotterdam, 11 December 201241

42 4. THE DECEMBER ACTION PLAN C.Future initiatives and actions to be developed 1.Actions to be undertaken in the short term (2013) 14.Tackle mismatches: a revision of the parent subsidiary directive (2011/96/EU) 15.Review anti-abuse provisions of Interest and Royalties, Mergers and Parent-Subsidiary Directives 16.Promote EU standards, instruments and tools (AEOI and IT tools) at international level 17.Enhance tax compliance: a European taxpayers' Code 18.Enhance tax governance: reinforced cooperation with other law enforcement bodies 19.Enhance administrative cooperation: promote use of simultaneous controls and the presence of foreign officials at audits 20.VAT Admin Coop agreements with 3 rd countries: Council authorisation EFS Seminar Double Non-TaxationRotterdam, 11 December 201242

43 4. THE DECEMBER ACTION PLAN 2.Actions to be undertaken in the medium term (2014) Enhance exchange of information 21.Develop computerised formats for AEOI 22.Use an EU tax identification number (TIN) 23.Rationalise IT instruments Tackle fraud trends 24.Guidelines for tracing money flows 25.Enhance risk management techniques (risk management) 26.Extend EUROFISC to direct taxation Enhance tax compliance 27.Create a one-stop-shop approach in all MS 28.Develop motivational incentives 29.Develop a tax web portal 30.Propose an alignment of administrative and criminal sanctions 31.Develop an EU standard Audit file for tax (SAF-T) EFS Seminar Double Non-TaxationRotterdam, 11 December 201243

44 4. THE DECEMBER ACTION PLAN 3.Actions to be undertaken in the longer term (beyond 2014) 32.A methodology for joint audits by dedicated teams of trained auditors 33.Develop mutual direct access to national data bases 34.Elaborate a single legal instrument for administrative cooperation for all taxes EFS Seminar Double Non-TaxationRotterdam, 11 December 201244

45 4. THE DECEMBER ACTION PLAN CODE 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 45EFS Seminar Double Non-TaxationRotterdam, 11 December 2012

46 4. THE DECEMBER ACTION PLAN CODE 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) 46EFS Seminar Double Non-TaxationRotterdam, 11 December 2012

47 4. THE DECEMBER ACTION PLAN CODE 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 3 rd Countries (CH en LIE) 47EFS Seminar Double Non-TaxationRotterdam, 11 December 2012

48 4. THE DECEMBER ACTION PLAN CODE 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 48EFS Seminar Double Non-TaxationRotterdam, 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: 1.Take a common stance against artificial arrangements and double non-taxation, and 2.A common definition of non-compliant 3 rd countries and joint actions EFS Seminar Double Non-TaxationRotterdam, 11 December 201249

50 5. RECOMMENDATIONS LEGAL 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, 1 st, 2 nd and 3 rd sentence): adopted following a proposal from the Commission in all areas provided by the Treaties (e.g. Article 114(1)). Commission Recommendations (Article 292 4 th sentence): self-standing legal acts once agreed by the College. ECB Recommendations (Article 292 4 th sentence): adopted by ECB only in specific cases provided for by the Treaties (e.g. Article 129(4)) EFS Seminar Double Non-TaxationRotterdam, 11 December 201250

51 5a. RECOMMENDATION 1 AGGRESSIVE TAX PLANNING 1. Double non-taxation clause a)Tax treaties between Member States and/or Member States and third countries; Member States are encouraged to include a clause which permits them to tax an item of income if it is not subject to tax in the other contracting State. b)Where there is no tax treaty; Member States are encouraged to ensure that they tax an item of income if this is not subject to tax in another jurisdiction (source country). EFS Seminar Double Non-TaxationRotterdam, 11 December 201251

52 5a. RECOMMENDATION 1 AGGRESSIVE TAX PLANNING 2.General Anti-Abuse Rule (GAAR) Mainly against novel aggressive tax planning structures outside the scope of specific anti-abuse measures. Main features: 1.Finding of artificiality: lack of commercial substance; 2.Existence of an arrangement (or series thereof); 3.The essential purpose of the arrangement(s) is to avoid taxation (any other purpose at least negligible); 4.Taxpayer derives a tax benefit as a result of the arrangement(s). Detailed wording is determined by existing ECJ jurisprudence EFS Seminar Double Non-TaxationRotterdam, 11 December 201252

53 5b. RECOMMENDATION 2 CONCERNING "TAX HAVENS" Main objective: improve compliance of 3 rd countries with EU standards Concerns 3 rd countries commonly referred to as "tax havens" How? Ensure a minimum common approach between MS vis-à-vis 3 rd countries: 1.Joint definition 2.Joint actions (against non-compliant and in favour of compliant) 1.Joint definition / common criteria based on two pillars: Transparency & Exchange of Information (OECD standards) Harmful tax measures (Code of Conduct criteria) EFS Seminar Double Non-TaxationRotterdam, 11 December 201253

54 2.Joint Action: Listing of non-compliant & de-listing of compliant 3 rd countries Renegotiate, suspend or cancel Double Tax Conventions with listed 3 rd countries Conclude DTCs with compliant 3 rd countries Cooperation & assistance to committed 3 rd countries that need help MS are invited to take complementary actions in full respect of EU law 5b. RECOMMENDATION 2 CONCERNING "TAX HAVENS" EFS Seminar Double Non-TaxationRotterdam, 11 December 201254

55 6. FOLLOW-UP Member States to inform COM on measures taken in order to comply with Recommendations, as well as any changes made to such measures COM to publish a report on the application of the Recommendations within three years COM to establish a Platform for Tax Good Governance composed of experts from Member States and stakeholders representatives to provide assistance in: preparing its report on the application of the two Recommendations its on-going work on aggressive tax planning and good governance in tax matters EFS Seminar Double Non-TaxationRotterdam, 11 December 201255

56 www.europesefiscalestudies.nl Comments from the Confederation of Netherlands Industry and Employers (VNO- NCW) Jeroen Lammers Manager fiscal affairs, corporate governance and corporate law at the Confederation of Netherlands Industry and Employers Rotterdam, Novotel, 11 December 2012

57 Double (non-)taxation from a VNO-NCW perspective 11 december 2012 Jeroen Lammers

58 VNO-NCW Largest employers and industry organization in the Netherlands Looking out for the common interests of Dutch business, both at home and abroad Representing about 90% of employment in the Netherlands Covering almost all sectors of the economy, including more than 80% of all medium-sized companies in the Netherlands and nearly all of the larger, corporate institutions. 58

59 European Commission work February 2012 Public consultation on factual examples and possible ways to tackle double non-taxation cases May 2012 Reaction VNO-NCW on public consultation Preserve delicate balance between tax sovereignty and legitimate protection of tax revenue The possibility of double non-taxation is more often than not the result of deliberate national tax policy No clear distinction is made between cases due to mismatches and cases due to tax competition Efforts to converge tax systems cannot impede on tax sovereignty 59

60 European Commission work December 2012 An action plan to strengthen the fight against tax fraud and tax evasion Better use of existing instruments New Commissions initiatives Future initiatives and actions to be developed Commission recommendation on aggressive tax planning Commission recommendation on a coordinated tax policy towards third countries not meeting certain minimum standards on good governance in tax matters 60

61 OECD work 2011 Guidelines for Multinational Enterprises Chapter XI. Taxation [...] enterprises should comply with both the letter and the spirit of the tax laws and regulations of the countries in which they operate […] […] An enterprise complies with the spirit of the tax laws and regulations if it takes reasonable steps to determine the intention of the legislature and interprets those tax rules consistent with that intention in light of the statutory language and relevant, contemporaneous history […] March 2012 Hybrid mismatches arrangements Tax policy and compliance issues 61

62 OECD work November 2012 Background document on the OECD work on Base Erosion and Profit Shifting Key pressure areas: International mismatches Treaty application to digital goods and services Inter-group financial transactions Transfer pricing Effectiveness GAARs, CFC-regimes and thin capitalization Preferential regimes Early 2013 Report on actions to tackle BEPS 62

63 VNO-NCW comments Business welcomes the initiatives of the EC and OECD Business supports efforts to eridicate tax fraud and tax evasion Tax fraud and tax evasion are illegal Tax fraud and tax evasion distort the level playing field Business wants and needs a level playing field to operate Business supports efforts to increase information exchange between states Enhance tax co-operation, tax administration, tax enforcement and tax collection for cross border situations Both between member states and third countries 63

64 VNO-NCW comments Tax fraud and tax evasion cannot be grouped together with tax avoidance and tax planning Tax fraud is a form of deliberate evasion of tax punishable under criminal law Tax evasion is a from of illegal arrangements designed to pay less tax than legally obligated to by hiding income or information from tax authorities Tax avoidance is the use of legal methods to modify tax payers financial situation in order to lower the amount of income tax owed. Tax planning is to accomplish (financial) activities in the most tax-efficient manner possible, as provided in tax laws. 64

65 VNO-NCW comments Wholly artificial constructs that lead to double non- taxation can result in undesirable competitive (dis)advantages These constructs are also not in accordance with ECJ jurisprudence and the MNE Guidelines Optimizing fiscal position is an integral part of doing business. Companies have to reduce their overall tax burden to be able to compete on the international labour markets, capital markets and consumer markets. 65

66 VNO-NCW comments International discussion in the OECD and UN has lead to further convergence of global tax systems over the years Efforts to converge tax systems cannot impede on tax sovereignty Tax competition works Tax competition forces states to keep on innovating and updating their tax systems and tax policy Research shows that without tax competition economic activity tends to gravitate towards the largest markets OECD countries have a responsibility towards non-OECD countries to assist them in developing a sound tax policy and reliable tax system 66

67 VNO-NCW comments Tax competition can lead to aggressive tax planning The distinction between harmful tax competition and benign tax competition is not always clear Within the EC work on this has been done in the Code of Conduct group The OECD and EC initiatives provide opportunity to improve debate on the issue 67

68 VNO-NCW comments Discussion on aggressive tax planning is multi- facetted It is a legislative issue, a moral issue, a political issue and a budget issue Business has adopted a mostly legislative viewpoint, however it is legitimate to consider moral implications NGO’s have adopted a mostly moral viewpoint, however business needs objectively set rules to operate. Otherwise there is too much uncertainty to make investment decisions. Legislators are quick to forget that rules that make cross border tax planning possible are the result of very deliberate tax policy and political consideration Reducing cross border tax planning possibilities does not result in more tax revenue for all states involved 68

69 VNO-NCW comments EC considers on aggressive tax planning […] taking advantage of the technicalities of a tax system or of mismatches between two or more tax systems for the purpose of reducing tax liability Member states find it difficult to protect their national tax bases […] States […] in their double taxation conventions […] may not necessarily take account of whether […] there is a risk of double non-taxation. EC does not seem to address the role of tax policy of individual member states the importance of upholding the principle of tax sovereignty The responsibility of states in concluding DTC’s 69

70 VNO-NCW comments EC attempts to give a working definition on aggressive tax planning More work on this is necessary Definition is too broad Overlap with OECD standards such as transfer pricing rules Overlap with general and/or specific anti-avoidance rules in national legislation Effect on generally accepted concepts such as the participation exemption 70

71 VNO-NCW comments Business wants to resolve the issue International fiscal problems can be solved by business and government through a constructive partnership and dialogue Tax fraud and tax evasion have to be eradicated through increased checks and balances Double (non)-taxation can be reduced by strengthen international OECD and UN standards concerning attributing taxing rights and determining transfer pricing rules 71

72 VNO-NCW comments Discrepancies between tax systems can be resolved through international agreement on how to coordinate tax policy on these issues and implement this in DTC’s Further collective work on transfer pricing is needed. Political perception of Transfer Pricing EU Joint Transfer Pricing Forum Joint Transfer Pricing audits 72

73 VNO-NCW comments Tax competition needs to be preserved with regard to the delicate balance between tax sovereignty and legitimate protection of tax revenue A global level playing field has to be ensured to strengthen investment climate for both foreign and domestic investments The possibilities for arbitration and dispute resolution have to be improved and expanded There is much to be done 73

74 Thank you for your attention! VNO-NCW en MKB-Nederland Manager Fiscaliteit, Corporate Governance en Ondernemingsrecht tel: 070 349 0 423 / 06 158 38 434 fax: 070 349 0 417 Postbus 93002, 2509 AA Den Haag e-mail: lammers@vno-ncw.nllammers@vno-ncw.nl web: www.vno-ncw.nlwww.vno-ncw.nl 74

75 www.europesefiscalestudies.nl Discussion Your chairman: Prof. dr. A.C.G.A.C (Arnaud) de Graaf Erasmus School of Law Netherlands Ministry of Finance

76 www.europesefiscalestudies.nl Foundation European Fiscal Studies thanks you for your presence and wish a good journey home More information about our activities can be found at our website: Closure and drinks


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