EU Special Committee On Financial Crimes, Tax Evasion And Tax Avoidance (TAX3)- Final Report

Author:Elias Neocleous & Co LLC
Profession:Elias Neocleous & Co LLC

The EU's Special Committee on Financial Crimes, Tax Evasion and Tax Avoidance (TAX3) has received the EU Parliament's approval for implementation of its recommendations regarding anti-money laundering and aggressive tax planning. The European Parliament established the Tax3 Committee to address significant issues identified following the recent tax scandals such as the Panama Papers, Luxleaks and Paradise Papers among others.

Co-authored by Luděk Niedermayer and Jeppe Kofod, the report's main aim was to align EU-wide tax systems with the technological challenges of the 21st century and achieve tax collection efficiency and fairness. The final meeting of the TAX3 Committee took place on 27 February 2019 in order to vote on the draft Report which sets out the proposals of the Committee with the final report of the Committee being adopted by the European Parliament on 26th March 2019.

Tackling artificial taxable presence:

The adoption of a comprehensive definition of aggressive tax planning is included within the measures to be adopted, as is the definition of permanent establishment and the setting of economic activity requirements and expenditure tests to avoid companies having an artificial taxable presence in a Member State. The importance of having corporate taxes being paid in the jurisdiction where profits are actually generated is a key feature stressed in the report.

Adopting the rules of ATAD and BEPS action plan:

The report acknowledges the exit taxation rules adopted by the EU in the ATAD I and the implementation of the BEPS action plan. It was noted that the implementation of both ATAD I and ATAD II has provided a minimum level of protection against tax avoidance in the EU and the proposed provisions on hybrid mismatches to prevent double taxation were welcomed, as were the provisions relating to controlled foreign companies (CFC) and the general anti abuse rules in calculating corporate tax.

Digital Tax package:

The report identified that digitalisation allows some companies to enjoy an unfair lower tax burden when compared to those companies with a physical presence. As a result, the EU has adopted a digital tax package to ensure that profits are registered and taxed where businesses have significant interaction with end users through digital channels and that interim tax will be...

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