ECOFIN postpones extension of ATAD
At their December session, the EU finance ministers (ECOFIN) negotiated the anti-tax avoidance directive, ATAD2. Some issues remain open, such as the financial sector’s exception from the rules and the member states’ date of transposition of the new legislation. At the session, the European Commission also repeated its commitment to submit a legislative proposal on a reverse charge by 2016, which is pursued by the Czech Republic.
On 21 December 2016, the European Commission passed a legislative proposal on the temporary application of a generalised reverse-charge mechanism. According to the proposal, the mechanism cannot be applied directly to supplies in excess of EUR 10 000, but only upon a permit granted by the commission. Member states may apply for an application ruling only if they fulfil three predefined criteria: their VAT gap according to the most recent EU study is at least the EU median +5 percentage points; carousel fraud accounts for at least 25% of a state’s total VAT fraud and the state has established that it is not able to effectively fight tax VAT evasion (carousel fraud) by any conventional measures. The commission will then review the application and decide on granting the permit.
As a part of its fight against tax avoidance, ECOFIN adopted a proposal granting tax administrators access to information gathered under the Anti-Money Laundering Directive. This involves mainly information on beneficial owners and on processes carried out by financial institutions to check their customers (due diligence). This regulation will be contained in the Directive on Administrative Cooperation and should apply starting from January 2018.
The Council did not reach an agreement on the proposal to extend the rules on hybrid mismatches also to structures between EU member states and third countries (ATAD2), to make the rules compliant with Point 2 of the BEPS Action Plan (OECD). As the wording of the proposed extension was modified at the very last minute, some states asked for time to deliberate it within their national parliaments. The Netherlands ask that the implementation deadline be postponed to 1 January 2019.
Please also note that the Commission released its proposal for Common Consolidate Corporate Tax Base C(C)CTB in November. National parliaments and member state governments are currently commenting on the proposal. In early December of last year, the Dutch parliament decided not to support the proposal. The position of other governments remains unclear. The Czech Republic has not yet issued its official standpoint: while the finance minister has taken a negative stance on the proposal, arguing that it partly limits the national sovereignty in tax policy, the prime minister has welcomed the proposal, pointing out that fighting tax evasion is the coalition’s priority and must concern not just small-scale entrepreneurs, but also large corporations, including multinationals.
The media have been also quoting academic research results indicating that the Czech Republic would earn up to CZK 6 billion per year for the state budget by participating in the system. The new European rules for the taxation of large corporations would affect approximately one thousand companies in the Czech Republic.
So far, it seems that the proposal in its current shape has no chance of being passed, as EU proposals concerning tax have to be passed unanimously by all 28 member states. It is also possible that within the enhanced cooperation procedure it will be adopted by only some of the member states.