11 Taxation
| (35589)
16918/13
+ ADDs 1-3
COM(13) 814
| Draft Council Directive amending Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States
|
| Legal base | Article 115 TFEU; consultation; unanimity
|
| Department | HM Treasury
|
| Basis of consideration | Minister's letter of 12 February 2014
|
| Previous Committee Report | HC 83-xxvii (2013-14), chapter 6 (15 January 2014)
|
| Discussion in Council | Not known
|
| Committee's assessment | Politically important
|
| Committee's decision | Not cleared; further information requested
|
Background
11.1 The purpose of Directive 2011/96/EU, the Parent
Subsidiary Directive (PSD), is to ensure that companies from the
same group are not taxed twice. It achieves this by exempting
dividends paid by a subsidiary in one Member State to a parent
in another Member State and prohibiting withholding tax on these
dividends.
11.2 This draft Directive would make two amendments
to the PSD. Both are intended to prevent tax avoidance and reflect
specific action points detailed in the Commission's 2012 Communication,
Action Plan to strengthen the fight against tax fraud and tax
evasion.[62] The
first amendment would insert what the Commission refers to as
a general anti-abuse rule (GAAR), although in the UK it would
be considered a targeted anti-abuse rule (TAAR) as it is confined
to a specific piece of legislation rather than applying generally
to aggressive tax planning. The second amendment would remedy
a specific tax loophole concerning the use of hybrid loan arrangements
in cross-border situations resulting in double non-taxation.
11.3 When we considered this proposal last month
we heard that the Government's overarching concern would be to
ensure any agreed Directive is in line with developments in the
OECD Base Erosion and Profit Shifting (BEPS) project. So we asked
to hear, before considering this proposal again, about progress
in Council working group negotiations in securing this objective.
Meanwhile the document remained under scrutiny.[63]
The Minister's letter
11.4 The Exchequer Secretary to the Treasury (Mr
David Gauke) first explains that:
· the BEPS Action Plan is wide-ranging in
scope and sets out a detailed work programme covering 15 specific
items spread over a two year period;
· the Government expects, however, that
the first outputs will be achieved by September and these will
include action 2 (hybrids), action 6 (treaty abuse), action 8
(transfer pricing aspects of intangibles) and action 13 (transfer
pricing documentation and the reporting template), along with
a report identifying the issues raised by the digital economy
and a review of member country's tax regimes regarding harmful
tax practices; and
· most of the rest of the work is due for
completion by September 2015, with the exception of some of the
work on transfer pricing and harmful tax practices and action
15 to develop a multilateral instrument to make the necessary
changes to bilateral treaties.
11.5 The Minister then tells us, with regard to this
draft amending Directive, that it is action 2 of the BEPS Action
Plan that is most relevant. This calls for the development of:
"model treaty provisions and recommendations
regarding the design of domestic rules to neutralise the effect
(e.g. double non-taxation, double deduction, long-term deferral)
of hybrid instruments and entities."
11.6 He continues that:
· the amendment that is being proposed with
respect to Article 4 of the current Directive is intended to close
a specific tax loophole with respect to hybrid loan arrangements
and would therefore fall within the scope of the OECD work;
· the Government has therefore reiterated,
in the Council working group, that EU work to address hybrid mismatches
should acknowledge the parallel discussions in the OECD;
· there has been acceptance of this point,
with a number of Member States intervening to support the UK;
and
· the Greek Presidency committed to ensuring
that any relevant developments in the OECD would be notified within
the Council working group.
Conclusion
11.7 We are grateful to the Minister for his prompt
response on the issue of compatibility with developments in the
OECD Base Erosion and Profit Shifting project. We look forward
to hearing in due course about progress in firmly securing this
and other UK interests in the Council working group discussions.
Meanwhile the document remains under scrutiny.
62 (34548) 17637/12 + ADDs 1-16: see HC 86-xxvii (2012-13),
chapter 3 (16 January 2013), HC 86-xxxi (2012-13), chapter 5 (6
February 2013) and HC 83-v (2013-14), chapter 8 (12 June 2013). Back
63
See headnote. Back
| 
