On the 28th January of this year, the European Commission released a proposal for a Council Directive laying down rules against tax avoidance practices that directly affect the functioning of the internal market.

The European Council has expressed “an urgent need to advance efforts in the fight against tax avoidance and aggressive tax planning, both at global and European Union (EU) levels)”, with the goal of creating a level playing field for all businesses operating within the EU’s internal market. The Commission’s proposal is a key part of its consolidated Anti- Tax Avoidance Package, which seeks to address global concerns as well as demands from the European Parliament, several Member States, businesses and civil societies. This is, in turn supported by a range of international initiatives to combat corporate tax avoidance such as the OECD’s Base Erosion and Profit Shifting (BEPS) project.

This proposed Anti-Tax Avoidance Directive, known also as the anti-BEPS directive, details extensive and comprehensive rules against identified tax avoidance practices that impact the functioning of the internal market. The intended outcome of the measures to be introduced by this directive is to prevent situations where taxpayers act against the actual purpose of the law by taking advantage of disparities between national tax systems, for instance by benefiting from law tax rates and double deductions, or by ensuring that income remains untaxed by making it deductible in one jurisdiction while not including it in the tax base in another jurisdiction either.

The key rules contained in this directive law down rules in six specific fields, and include measures not included in the OECD BEPS action plan:

  • Deductibility of interest;
  • Exit taxation;
  • A switch-over clause;
  • A general anti-abuse rule (GAAR);
  • Controlled foreign company (CFC) rules; and
  • A framework to tackle hybrid mismatches.

The Commissioner for Economic and Financial Affairs, Taxation and Customs Pierre Moscovici has stated that “billions of tax euros are lost every year to tax avoidance – money that could be used for public services like schools and hospitals, or to boost jobs and growth. Europeans and businesses that play fair, end up paying higher taxes as a result. This is unacceptable and we are acting to tackle it. Today we are taking a major step towards creating a level playing field for all our business, for fair and effective taxation for all Europeans.”

Further details on the Directive can be found at the European Commission’s Press Release.

Off the back of this decision, Monaco has initiated a new tax transparency agreement which allows the automatic exchange of information on the finances and accounts of Monegasque and other member state citizens from 2017.

Jean Castellini, the Monégasque Minister for Finance and Economy stated: “The initialling of this agreement constitutes a further example of the policy implemented by Monaco to combat international tax avoidance and evasion, as a part of its commitment to conclude agreements which respect international standards developed by both the EU and the OECD, in terms of the exchange of information.”

Under the terms of this new agreement, EU member states will be given access to the names, addresses, D.O.B’s, account balances and tax details of their citizens with Monégasque bank accounts in order to help identify individuals and businesses that attempt to hide income and assets. This initiative is being regarded as an important step to counter tax avoidance scandals of the last several years, mirroring similar transparency agreements with countries such as Andorra, Lichtenstein, Switzerland and San Marino.

For more information as to how these changes could affect you, contact Ramona Azzopardi, Senior Advisor at WH Partners.

Ramona.Azzopardi@whpartners.eu