The European Union’s (EU) finance ministers have agreed on new measures that aim to prevent companies from overpaying tax and reduce costs as part of an effort to improve the eurozone’s international competitiveness.
The proposed new rules would establish a dispute system in place to ensure companies operating in Europe don’t pay tax twice due to discrepancies among the region’s national governments. It would also minimise the potential for long and protracted disputes over tax.
“This directive is an important part of our plan for strengthening tax certainty and improving the business environment in Europe”, said Edward Scicluna, minister for finance of Malta, which currently holds the European Council presidency.
Situations where different member states tax the same income or capital twice can create serious obstacles to doing business across borders. They create an excessive tax burden, can cause economic distortions and have a negative impact on cross-border investment.
The Council said that it will adopt the directive once the European Parliament (EP) has given its opinion.
EU member states will have until 30 June 2019 to transpose the directive into national laws and regulations. It will apply to complaints submitted after that date on questions relating to the tax year starting on or after 1 January 2018. The member states may however agree to apply the directive to complaints related to earlier tax years.
So-called double taxation occurs when different member states tax the same income or capital twice and has increasingly become an issue. According to the EU’s executive arm, the European Commission, an estimated 900 double taxation disputes were ongoing in the EU at the end of 2014 – equivalent to €10.5bn (US$11.8bn) of total tax revenue disputed in the EU, said commission spokeswoman Vanessa Mock.
Several eurozone countries such as Luxembourg and Ireland have reservations about the initiative, but EU officials are confident that harmonising the corporate tax base can facilitate cross-border trade, boost the economy, and assist anti- tax avoidance initiatives.
The move to improve the EU’s competitiveness has been given added impetus by the UK’s decision to exit and become a potential business rival.
In February, EU finance ministers agreed to new rules that will be introduced over two years from January 2020 to close several legal loopholes to reduce tax bills, such as transferring profit and moving debt to countries outside the bloc, which offer more generous interest deductions.
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