Documents considered by the Committee on 7 December 2016 Contents

20Taxation: avoidance

Summary and Committee’s conclusions

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny

Document details

Proposed Council Directive about tax avoidance practices that directly affect the functioning of the single market

Legal base

Article 115 TFEU, consultation, unanimity


HM Treasury

Document Number

(37483), 5639/16, COM(16) 26

20.1We granted the Government conditional waivers allowing it to support aspects of a proposed Council Directive about tax avoidance practices that directly affect the functioning of the single market. These waivers were for use only at the ECOFIN Council of 26 May 2016 and the Government was to report back promptly about the outcome of the Council.

20.2In fact the Government only informed us of developments last month. Agreement was not achieved at the May 2016 ECOFIN Council. Instead Council consideration continued, with Government participation, despite the Scrutiny Reserve Resolution. This culminated in July 2016 with the formal adoption of what is now known as the Anti-Tax Avoidance Directive.

20.3The Council Directive adopted contains five measures which fulfil the UK’s interest that they match recommendations of the OECD’s Base Erosion and Profit Sharing action plan. A sixth proposed measure which was deemed unnecessary in relation to the OECD recommendations, and which the Government opposed, was dropped.

20.4Given the developments of which we are now aware we clear the document from scrutiny.

20.5We note that the proposal, as eventually agreed, was acceptable for the UK. Nonetheless, the Government appears to have overridden scrutiny because of casual indifference to the terms of our scrutiny waiver. Prompt information about developments, as we required, would have meant the override was avoided. While the Minister has apologised, she appears unaware of the seriousness of this breach.

Full details of the document

Proposed Council Directive laying down rules against tax avoidance practices that directly affect the functioning of the internal market: (37483), 5639/16, COM(16) 26.


20.6We first considered this proposed Council Directive in March 2016. It would have required Member States to implement three OECD Base Erosion and Profit Shifting (BEPS) measures35 and three akin to those in an earlier Commission proposal for a Common Consolidated Corporate Tax Base for the EU.36 We heard then that the Government had reservations about the proposal related to possible subsidiarity and proportionality problems, to ensuring that Member States implement the internationally agreed outcomes of the OECD project, to checking the detail of how five of the measures would work and to opposition to the sixth. Our preliminary conclusion was that the subsidiarity concerns raised by the Government were more matters of proportionality than subsidiarity. However, we asked to have a comparative analysis of the six measures in the Common Consolidated Corporate Tax Base proposal and the proposed Council Directive. As for the policy issues the Government had mentioned to us, we asked for information as to how they were being addressed in negotiations before we would consider the proposal again.

20.7In May 2016 the Government told us that there had been unexpectedly rapid progress in Council technical level negotiation of the proposed Council Directive and that the Presidency might seek political agreement on at least some elements of the proposal at the ECOFIN Council later that month. It explained how the text for each of the six elements of the proposal was now, or might now become, acceptable for the UK. Consequently it asked us for a waiver from the Scrutiny Reserve Resolution allowing it to join a political agreement on each of the six elements, conditional on each text being acceptable as predicted to us.

20.8In the light of the information the Government had given us, and of the strong position it had, given that the issues were subject to unanimity, we granted the conditional waivers requested, for use only at the forthcoming ECOFIN Council. We, of course, wished to hear promptly the outcome of that Council consideration of the proposal. Meanwhile the document remained under scrutiny. As for the subsidiarity issue in relation to the proposed Council Directive we were now confirmed in our view that this was more a matter of proportionality, which appeared to be addressed in the emerging texts of the proposal.

20.9In the event the proposed Council Directive was formally adopted in July 2016 as the Anti-Tax Avoidance Directive (ATAD),37 but the Government did not, as we had requested, report back to us.

The Minister’s letter of 22 November 2016

20.10The Financial Secretary to the Treasury (Jane Ellison) first refers to our decision in May 2016 to give her predecessor (Mr David Gauke) conditional scrutiny waivers in relation to the proposed Council Directive and says “I am now writing to update you on events since then, and would like to offer my apologies for not writing to you sooner”.

20.11The Minister then tells us that:

20.12The Minister then comments on the details of the agreement on the ATAD, as follows:

Exit Taxation


Interest Deductibility


Switchover Clause

Hybrid Mismatches

20.13The Minister concludes that:

Previous Committee Reports

Thirty-third Report HC 342-xxxii (2015–16), chapter 10 (11 May 2016) and Twenty-fifth Report HC 342-xxiv (2015–16), chapter 7 (9 March 2016).

36 See (32617), 7263/11 + ADDs 1–2: Thirty-seventh Report HC 219-xxxvi (2014–15), chapter 16 (18 March 2015), Forty-third Report HC 428-xxxviii (2010–12), chapter 11 (19 October 2011), Fortieth Report HC 428-xxxv (2010–12), chapter 5 (7 September 2011) and Twenty-seventh Report HC 428-xxv (2010–12), chapter 2 (4 May 2011).

39 (38212) 13733/16 + ADD 1: see Nineteenth Report, HC 71–xvii (2016–17), chapter 17 (23 November 2016).

9 December 2016