Corporate tax practices and aggressive tax planning in the EU

This paper forms part of a series of analytical pieces on the absence of EU-coordination regarding aggressive tax planning and its effects, prepared by Policy Department A at the request of the ECON Committee of the European Parliament. It provides some background to the political debate and to the efforts which are currently underway to reform the tax system both at an international level, through the Base Erosion and Profit Shifting (BEPS) project led by the OECD and the G20, as well as at an EU level. It describes the basic structure and the fundamental flaws of the current international tax system. A number of techniques and mechanisms have been and are used by modern multinational enterprises (MNEs) for aggressive tax planning purposes. It also illustrates that these structures exploit the interaction of the tax systems of different states. The paper concludes with a description of the key features and role of the Platform for Tax Good Governance, Aggressive Tax Planning and Double Taxation.

BEPS and EU

The relationship between the OECD BEPS project and the EU is more complex than might appear at first glance. On the one hand, the EU Commission is an active supporter of the project and some of its proposals have already made it into EU legislation. On the other hand, the EU Commission and the Parliament are committed to the adoption of the CCCTB, a formulary apportionment system, which departs dramatically from the international tax system which the BEPS project is meant to fix. More immediately, EU law might act as a constraint on the proposals resulting from the project. This research examines the relationship between the OECD BEPS project and EU law. As a first step it identifies the OECD proposals most susceptible to challenge on the grounds of incompatibility with EU law and provides a careful legal analysis of the matter. The research then explores the unilateral and coordinated avenues through which, as a practical matter, EU Member States could adopt the OECD proposals. The research concludes by asking whether the adoption of the BEPS proposals implies a different conception of the internal market from that which emerges from current EU case law.

John Vella and Anzhela Yevgenyeva