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Parliament report asks European Commission to propose new tax measures

The Economic and Monetary Affairs Committee (ECON) of the European Parliament has finalised a report asking the European Commission to put forward new measures to "improve corporate tax transparency, coordination and EU-wide policy convergence".02 Dec 2015

The report asked the Commission to put forward a proposal for country-by-country reporting on profit, tax and subsidies by June 2016.

It also asked the Commission to propose measures to introduce a 'fair tax payer' label, to encourage companies to pay tax as part of their corporate social responsibility policy, and to come up with a proposal for a common consolidated corporate tab base (CCCTB) as a second step after introducing a mandatory common corporate tax base.

It requested the creation of a common European tax identification number, legal protection of whistleblowers, and improved cross-border dispute resolution mechanisms.

The Commission should table a proposal for a new mechanism where member states must inform one another of any new allowances or rules that might affect the tax bases of other states, the report said.

The Parliament called on the Commission to create a methodology for measuring the corporate 'tax gap', or gap between the tax owed and what has been paid, and to strengthen the mandate and improve the transparency of the council code of conduct working group on business taxation.

Guidelines are needed on 'patent boxes' and other tax incentives, to make sure they are not harmful, the report said, and the Commission should come up with common definitions of 'permanent establishment' and 'economic substance' to make sure profits are taxed where value is generated. Likewise, a definition is needed for 'tax haven' and counter-measures should be developed for anyone who uses them.

The EU transfer pricing framework also needs to be improved, the report said.

Tax expert Heather Self of Pinsent Masons, the law firm behind Out-Law.com said: "The report is wide-ranging, and shows a marked degree of enthusiasm for EU involvement in direct tax matters.  In some respects it is positive, for example in proposing a co-ordinated EU response to the BEPS report rather than ad hoc implementation by Member States, with specific reference to the UK’s diverted profits tax.  However, other aspects of the report seem impractical, such as the proposed timetable for implementation of a mandatory CCCTB, which has been discussed at EU level for more than a decade already."

"Some of the comments in the report show a lack of understanding of the complexities of multinational business. For example, the optimistic assumption that it is possible to devise a basis for formulary apportionment which 'reflects the real economic activities of companies and does not unduly advantage certain Member States'," Self said.

"There are also some interesting references to a review of state aid principles as they apply to tax, particularly the suggestion that any recovery should go to the EU budget rather than to individual member states," she said.

The recommendations build on the work of the European Parliament' Special Committee on Tax Rulings and Other Measures Similar in Nature or Effect (the TAXE committee).

The committee resolution will be put to a vote by Parliament on 16 December. Because the ECON report is an "initiative legislative report", the Commission must then respond within three months, either with a legislative proposal or giving reasons if it does not follow the report's recommendations.