Fis­cal Policy

Posi­tion on EU initia­tive against tax avoi­dance

The EU commission has launched an initiative against companies that have a letterbox but no office, inventory or employees and that are used to avoid taxes. The Commission´s proposal for a "council directive laying down rules to prevent the misuse of shell entities for tax purposes and amending Directive 2011/16/EU" obliges certain "risk case" companies to report on their substance. If a company fails the substance test by the tax authority certain tax benefits are turned off.

GDV in its statement to the EU commission points out that the risk case criteria catch too many constellations. For example, the draft uses outsourcing as a risk case criterion irrespective of whether activities are outsourced cross-border or within the same jurisdiction. The latter should not be viewed as generally being prone to tax avoidance. Furthermore, to minimise compliance burden, the exemption which the draft directive foresees for no-risk cases should be accessible for companies through a simple process. The GDV is also concerned about double taxation risks. The current wording of the draft directive should be altered to make sure that profits of a shell entity is taxed in the hands of its shareholder(s) once but not twice. Finally, the substance test as envisaged by the draft directive could be an effective instrument to harmonise the substance test in the EU. To that end, the proposal would need to be amended so that an entity which was found to have sufficient substance by its state of residence is fully recognised by all other EU Member states, e.g. for withholding tax purposes. Currently, the proposal foresees only an obligation by EU Member States to disallow tax advantages where the state of residence establishes that an entity lacks sufficient substance. 

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