New EU corporate tax package aimed at ensuring stability for investors welcomed by Eurosif

Two key legislative proposals on tax planned by European authorities

An ambitious package of proposals from the European Union for legislation to curb egregious corporate tax avoidance has been warmly welcomed by Eurosif, the European Sustainable Investment Forum – though campaign groups said the measures didn’t go far enough.

The new package, released yesterday by the executive arm of the EU, the European Commission, builds on the Base Erosion and Profit Shifting (BEPS) project on international tax reforms launched by the Organization for Economic Cooperation and Development (OECD) in 2013 that was endorsed by the G20 in November 2015.

The measures aim to tackle practices used by large companies to avoid taxation and to ensure that profits are “taxed where economic activities deriving the profits are performed and where value is created.”

The Commission is proposing two new directives. The first would be an Anti-Tax Avoidance Directive to implement most G20/OECD anti- tax avoidance measures following the recommendations of the BEPS project. There would also be a directive implementing G20/OECD Country-by-Country Reporting.

“Unilateral efforts by Member States to protect their tax bases create administrative burdens for businesses, legal uncertainty for investors and new loopholes for tax avoiders to exploit,” the Commission said.

It said new rules are needed to align the tax laws in all 28 EU countries in order to fight aggressive tax practices by large companies efficiently and effectively. It said it was a “new chapter” in its campaign for “fair, efficient and growth-friendly taxation”.

Eurosif, which represents investors with a combined asset base of €8trn, came out strongly in favour of the developments. It said: “The whole set of reputational risks stemming from regulatory scrutiny, brand erosion, relation with host countries, taxauthorities interventions and consequential financial risks, are all part of the investor’s rationale in support of Country-by Country Reporting and a more transparent tax system in general.”

But the response from campaign groups was less welcoming. ActionAid said the proposals could end up worsening competition between Member States to attract companies with super-low tax rates. It said: “The legislative proposals include some good principles, but so weak and timid in detail that they may well fail to achieve their objectives and could even incentivize some Member States to lower their corporate tax rates still further.” Oxfam said developing countries would “feel the EU’s failure most”.

Corporate lobby group BusinessEurope said it didn’t want the EU to act as “lone front-runner” in implementing the OECD base erosion agreement and, in its words, “undermine the competitiveness of EU industry or damage the EU’s attractiveness as an investment location.”

The package’s two legislative proposals will now be submitted to the European Parliament and the member-state level Council.

In a separate development, 31 countries (though not the US) have quietly signed a tax co-operation agreement to enable automatic sharing of country-by-country information.

The Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country-by-Country reports is being seen as a milestone in implementing the OECD/G20 BEPS Project.

“This is a much-needed tool towards the goal of ensuring that companies pay their fair share of tax, and would not have been possible without the BEPS Project,” said OECD Secretary-General Angel Gurría.