On 21 June, the EU’s ministers of Finance and Economic Affairs (ECOFIN Council) reached unanimous political agreement on a draft Anti-Tax Avoidance Directive. This will provide a set of legally binding anti-avoidance measures, which all Member States must implement to further tax reform and counter harmful tax practices. These measures are very much side by side with the OECD’s Base Erosion Profit Shifting (‘BEPS’) measures. The Directive is one of a range of measures that forms part of the EU’s Anti-Tax Avoidance Package agreed in January 2016.
The key measures of the Directive are as follows;
- The introduction of Controlled Foreign Company (‘CFC’) rules by all member states. CFC rules are anti-avoidance rules that reattribute the income of a low-taxed controlled foreign subsidiary to its - usually more highly taxed - parent company.
- An exit tax on IP developed in the EU when it is transferred outside the EU.
- New rules on interest deductibility rules for intra-group loans (limiting the deduction to 30% of a company's earnings). Certain exceptions to the interest limitation rules apply.
- New General Anti-Avoidance Rules.
The EU Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici, commented on 21 June "Today's agreement strikes a serious blow against those engaged in corporate tax avoidance. For too long, some companies have been able to take advantage of the mismatches between different Member States tax systems to avoid billions of euros in tax. I congratulate our Member States who are now fighting back and working together to make the changes needed to ensure that these companies pay their fair share of tax."
The Directive is subject to formal approval by the EU Council and will have to be transposed by member states to local law by December 31st 2018.
The interest limitation rule includes a grandfathering rule, which means debt in place prior to June 17 2016 will be excluded from the scope of the rule, as will interest used to fund long-term public infrastructure projects. Member States which have equivalent rules will be allowed to continue with those rules until the OECD recommends a minimum standard of interest limitation rules, or at the latest by 1 January 2024. These provisions will be deferred for Ireland until 2024.
Wile the implications of the Directive will need to be studied carefully by Irish based MNCs, it is understood that Ireland was broadly in favour of the package of measures covered in the Directive. The Directive will have no effect on Ireland’s corporate tax rate of 12.5%, which has been continually stated as a matter of long term strategic government policy which will not be subject to change. Following agreement at ECOFIN, Ireland’s Minister for Finance Michael Noonan stated;
“Ireland continues to play an important role in international tax reform. It is important that we meet the best international standards, while at the same time retaining our sovereign taxing rights and our right to compete on a level playing field. Ireland will retain its 12.5% corporate tax rate which is transparent and there for all to see.”
The Commission’s press release can be viewed at the following link http://europa.eu/rapid/press-release_IP-16-1886_en.htm
RSM Ireland Breakfast Briefing 14 July
RSM Ireland is holding a breakfast briefing on 14 July at Hilton Dublin (Charlemont Place), 8am – 10am, on BEPS and Transfer Pricing. To attend this event, please email Orla Coughlan, [email protected], or your usual contact at RSM Ireland.