On December 9, 2014 the EU Council of Economics and Finance Ministers (ECOFIN) reached political agreement on the inclusion of a general anti-abuse rule in the Parent-Subsidiary Directive. A directive to expand the existing automatic exchange of information was also approved and the current status and progress of the proposal to introduce a financial transaction tax (FTT) was discussed.
Amendment of the Parent-Subsidiary Directive
The general anti-abuse rule on which agreement was reached obliges Member States to introduce national rules that will deny the benefits granted in the Directive if an arrangement or series of arrangements was artificially set up in order to receive tax benefits, while not reflecting economic reality. Member States have until December 31, 2015 to do this. Please note: this is a minimum requirement; Member States are free to adopt stricter national rules. The amendment means that as of January 1, 2016 a general anti-abuse rule will make it possible to combat tax avoidance based on misuse of the Directive. Earlier this year it had already been agreed that, as of January 1, 2016, the interest received on cross-border hybrid loans would no longer be exempt.
The general anti-abuse rule is also the first step toward a similar rule in the Interest and Royalties Directive.
Expansion of the automatic exchange of information
The ECOFIN has formally approved the revised directive on the mandatory automatic exchange of information. This means that interest, dividends, gross capital gains realized from the sale of assets, and other income, including bank balances, now fall within the scope of the automatic exchange of information. This information will automatically be exchanged as of September 2017. The European Commission also announced that a proposal to exchange tax rulings will be presented at the beginning of 2015.
Status of FTT
No agreement has yet been reached on the form of the FTT, which is scheduled to be implemented on January 1, 2016. Latvia, which will assume the presidency of the European Union on January 1, 2015, has been asked to continue working on reaching an agreement in 2015. One of the issues on which there is still no agreement is the extent to which transactions relating to financial instruments, such as derivatives, should be subject to the FTT. Another unresolved issue is whether the FTT should be imposed on the basis of the state of residence of financial institutions or on the basis of the state in which the instrument is issued. More work will also have to be done on how the FTT is to be collected.
Although patent boxes were expected to be discussed in light of the report by the Code of Conduct group, no public debate was held. Contrary to expectations, neither the anti-BEPS (‘Base Erosion and Profit Shifting’) Directive nor the CCCTB (‘Common Consolidated Corporate Tax Base’) were discussed, despite the European Commission’s call for more concrete action to tackle specific forms of alleged abuse in its letter of November 28, 2014 to Germany, France and Italy.
Commentary by Meijburg & Co
The approved changes are part of increased international efforts to combat aggressive tax planning, tax avoidance and tax evasion by using the exchange of information. As such, the adoption of a general anti-abuse rule in the Parent-Subsidiary Directive can be regarded as complementing the previously adopted amendment that dealt with hybrid loans. We will have to wait and see how the Netherlands transposes these amendments in its legislation during the course of 2015.