Documents considered by the Committee on 22 March 2017 Contents

10Taxation: avoidance

Committee’s assessment

Politically important

Committee’s decision

Cleared from scrutiny (decision reported on 23 November 2016)

Document details

Proposed Council Directive amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries

Legal base

Article 115 TFEU, special legislative procedure, unanimity

Department

HM Treasury

Document Number

(38212), 13733/16 + ADD 1, COM(16) 687

Summary and Committee’s conclusions

10.1In October 2016 the Commission proposed an amending Council Directive which sought to address hybrid mismatches (the tax benefit that multinational entities receive from exploiting the different tax treatment of instruments and transactions between jurisdictions) between Member States and third countries that were not covered in the current Anti-Tax Avoidance Council Directive, which is aimed at preventing tax avoidance by large multinational entities within the EU.

10.2In November 2016 given significant progress that had been achieved in the negotiations of the proposed Council Directive, we cleared it from scrutiny. However, we asked the Government whether it was yet able to fully ascertain what burdens the proposal would place on businesses and tax authorities, and whether these were proportionate to the objective of the proposed Council Directive and to confirm our presumption that the Brexit deal would not weaken the push for the UK and the remaining Member States, together with third countries, to fully implement the OECD’s Base Erosion and Profit Shifting Action Plan.

10.3The Government has now told us that:

10.4We are grateful for this additional information from the Government, which we draw to the attention of the House.

Full details of the documents

Proposed Council Directive amending Directive (EU) 2016/1164 as regards hybrid mismatches with third countries: (38212), 13733/16 + ADD 1, COM(16) 687.

Background

10.5The Anti-Tax Avoidance Council Directive, which was adopted in July 2016 in the context of both the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan52 and the Commission’s Anti-Tax Avoidance Package,53 was aimed at preventing tax avoidance by large multinational entities within the EU. However, the Council Directive did not fully cover hybrid mismatches (the tax benefit that multinational entities receive from exploiting the different tax treatment of instruments and transactions between jurisdictions). So in October 2016, at the request of the Council, the Commission presented a proposed amending Council Directive which sought to address hybrid mismatches between Member States and third countries that were not covered in the current Council Directive.

10.6The Government told us that it believed it would be beneficial to ensure that all Member States, including those that are not members of the OECD, implement the OECD Action Plan, that it welcomed the aim of the proposed Council Directive and, in particular, the focus on ensuring that Member States would implement the internationally agreed OECD outcomes, and that it supported the proposal to extend the scope of the current Council Directive’s hybrid mismatch rules to cover mismatches involving third countries.

10.7But in its Explanatory Memorandum the Government also drew our attention to a number of provisions in the proposed Council Directive which matched neither the OECD recommendations nor the UK’s legislation concerning hybrid mismatches. It also noted the lack of a proper impact assessment from the Commission. This seemed to suggest that the complexity of dealing with hybrid mismatches meant that this proposed Council Directive needed careful, unrushed, consideration before it would be ready for unanimous adoption by the Council.

10.8However, the Government told us subsequently that there had been very rapid progress in negotiating the proposal, that the Presidency had developed a compromise text which took on board all the Government’s key concerns, that the text was now in a place it could consider consistent with and as effective as the OECD recommendations and that the Government would consider supporting a general approach on the proposed Council Directive at the ECOFIN Council on 6 December 2016. On this basis the Government asked us to clear the document from scrutiny.

10.9Given the significant progress that had been achieved in the negotiations of the proposed Council Directive, we cleared it from scrutiny. However, we asked the Government:

The Minister’s letter of 16 March 2017

10.10The Financial Secretary to the Treasury (Jane Ellison) has now told us that although agreement on the proposed amending Council Directive was not reached in December 2016, the Maltese Presidency presented the file at the February 2017 ECOFIN Council and Member States reached political agreement on the compromise text at that meeting. She commented that:

10.11Turning to our question as to whether the Government was yet able to fully ascertain what burdens the proposal would place on businesses and tax authorities, and whether these would be proportionate to the objective of the proposed Council Directive, the Minister said, while apologising for not responding earlier, that:

10.12The Minister next addressed our request for confirmation that the UK’s decision to leave the EU would not weaken the push for the UK and the remaining Member States, together with third countries, to fully implement the OECD Action Plan, first reiterating the Government mantra that until exit negotiations were concluded, the UK would remain a full member of the EU and all the rights and obligations of EU membership would remain in force. She then said that the UK has already taken significant steps in implementing BEPS recommendations (such as hybrids, country by country reporting by transnational corporations, patent box amendments, and interest restriction) and remained committed to coordinated implementation at EU level, as well as an active participant in multilateral discussions on tax issues at the OECD and G20 covering the OECD Action Plan and beyond.

Previous Committee Reports

10.13Nineteenth Report HC 71-xvii (2016–17), chapter 17 (23 November 2016).


53 (37480) 5636/16 + ADD 1: see Twenty-fifth Report HC 342-xxiv (2015–16), chapter 7 (9 March 2016).




24 March 2017