1. Tax Avoidance and Tax Evasion: Challenges

I Draft_version 7 September 2012

Preliminary comments to

“Discussion Paper on Expected Measures Against Non-cooperative Jurisdictions and Aggressive Tax Planning and a Possible Strategy at EU level – Seminar July 17, 2012” (“Discussion Paper”)

1. Tax Avoidance and Tax Evasion: Challenges

The Communication adopted by the EU Commission on 27th June 2012 [COM(2012)351], identifies the main challenges of tax avoidance and tax evasion as follows:

-  erosion of tax bases along with undesired shifts of part of the tax burden to less mobile tax bases, such as labour, property and consumption;

-  administrative costs and compliance burdens for both, tax authorities and taxpayers;

-  undermining of integrity and fairness of tax structures;

-  distortion of investment flows.

As suggested by the Discussion Paper, an EU joint solution to the above mentioned challenges might be preferable. An EU joint solution would also increase the effectiveness of measures against tax avoidance and tax evasion towards third countries.

2. Non-cooperative Jurisdictions

As proposed by the Discussion Paper, an EU definition of “non-cooperative jurisdictions” could be based on the implementation of the principles of good governance in tax matters set forth by the EU Commission on the Communication dated 28th April 2009 [COM(2009) 201]. Those principles relate, in particular, to tax transparency, exchange of information and fair tax competition both, within the EU as well as towards third countries. The general objective is to improve tax cooperation and tackle tax evasion and avoidance on as broad a geographical basis as possible.

However, an EU definition of “non-cooperative jurisdictions” should also take into consideration transparency and exchange of information standards set forth by the OECD in its 1998 Report on tax havens. The said standards, in particular, require:

-  exchange of information on request where it is “foreseeably relevant” to the administration and enforcement of the domestic law of the treaty partner;

-  no restrictions on exchange caused by bank secrecy or domestic tax interest requirements;

-  availability of reliable information and powers to obtain it;

-  respect for taxpayers’ rights; and

-  strict confidentiality of information exchanged.

3. Tax Avoidance and Tax Evasion: Measures

In order to successfully deal with tax avoidance and tax evasion at all levels, the following should be ensured:

-  Strengthening existing tools at EU level (i.e., Directive 2003/48/EC, Directive 2011/16/EU, etc.);

-  Enhancing exchange of information between countries;

-  Tackling trends and schemes of aggressive tax planning;

-  Increasing level of taxpayers’ compliance;

-  Enhancing tax governance.

A combination of both, incentive and defensive measures is preferable as well as specific and general anti-abuse measures, such as those provided for by the CCCTB proposal under Articles 80 et seq.

The introduction of an EU-wide general anti abuse rule such as the one provided under Article 80 of the CCCTB proposal could be of advantage in the fight against aggressive tax planning. Pursuant to such a general anti abuse rule, artificial transactions carried out for the sole purpose of avoiding taxation will be ignored when calculating the tax base. The general anti abuse rule should not apply to genuine commercial activities (i.e., where the taxpayer is able to choose between two or more possible transactions which have the same commercial result but which produce different taxable amounts).

As suggested by the Discussion Paper, in designing its own anti abuse measures, each Member State could take into consideration the provisions under the CCCTB proposal, which also contemplates the following specific anti abuse measures:

• Disallowance of interest deductions: interest paid to an associated enterprise resident in a third country is not deductible where there is no agreement on the exchange of information and where one of the following conditions is met:

o  a tax on profits is provided for, under the general regime in the third country, at a statutory corporate tax rate lower than a certain amount of the average statutory corporate tax rate applicable in the Member States;

o  the associated enterprise is subject to a special regime in that third country which allows for a substantially lower level of taxation than that of the general regime.

• Controlled foreign companies: the tax base should include the non-distributed income of an entity resident in a third country where the following conditions are met:

o  the taxpayer holds a direct or indirect participation of more than a certain percentage of the voting rights, or owns more than a certain percentage of capital;

o  under the general regime in the third country, profits are taxable at a statutory corporate tax rate lower than a certain amount of the average statutory corporate tax rate applicable in the Member States;

o  more than a certain percentage of the income accruing to the entity falls within defined categories of income;

o  the company is not a company whose principal class of shares is regularly traded on one or more recognized stock exchanges.

4. Aggressive Tax Planning: Measures

As suggested by the Discussion Paper, the introduction of provisions to ensure that double non taxation is avoided, such as the one provided by the Double Tax Treaty Italy–France (Art. 15 of the Protocol), may be appropriate in order to deal with aggressive tax planning effectively.

However, other measures should be taken into consideration, such as those outlined by the OECD in its Report dated 1st February 2011 (“Tackling Aggressive Tax Planning Through Improved Transparency and Disclosure”). According to the OECD, the underpinning of any strategy against aggressive tax planning is to ensure the availability of timely, targeted and comprehensive information, which traditional audits cannot deliver. The availability of such information is important to allow governments to identify areas of risks in a timely manner and be able to quickly decide whether and how to respond, thus providing increased certainty to taxpayers.

The Report covers a range of approaches from mandatory disclosure rules to forms of co-operative compliance. It provides a toolkit for those countries concerned with aggressive tax planning and recommends a careful review of the different approaches as to inform both, tax policy and compliance. Disclosure initiatives can help fill the gap between the creation/promotion of aggressive tax planning schemes and their identification by the tax authorities, therefore enabling governments to promptly proceed to an assessment of the issue and its resolution.