EU Fails to Reach Deal on Foreign Country Hybrid Mismatches

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By Joe Kirwin

Dec. 6 — European Union finance ministers have failed to agree on extending anti-tax avoidance rules to hybrid mismatches—the mismatch in tax outcomes due to different jurisdictional tax treatments—between member countries and foreign territories, amid disputes over financial sector exemptions and an implementation date.

The failure to reach an agreement on the hybrid mismatch proposal during the monthly meeting of 28 EU finance ministers comes after Slovakia submitted more than six compromises in the past month.

The latest hurdle concerned exemptions demanded by the U.K. for the financial sector as Chancellor of the Exchequer Philip Hammond insisted the exemptions were in line with the Organization for Economic Cooperation and Development’s base erosion and profit shifting reforms on hybrid mismatches.

However, a number of other EU member countries refused to go along with the exemptions.

“Unfortunately we have not been able to find terms that all EU member states can agree and therefore further negotiation will be needed in order to get an agreement in early 2017,” said Slovak Finance Minister Peter Kazimir at a press conference held after the meeting.

“This is not just a thematic exercise. Multinational companies use hybrid mismatches that are costing governments hundreds of millions if not billions in lost revenue.”

A second key stumbling block concerned demands by Dutch Finance Minister Jeroen Dijsselbloem to delay implementation from 2019 to 2024.

“This proposal will have a serious impact on many U.S. multinational companies based in the Netherlands. We are talking about job losses here,” Dijsselbloem said. “That is why we need more time.”

Most other EU member countries opposed the 2024 implementation deadline.

Beneficial Ownership, CCCTB

Finance ministers did, however, formally approve legislation requiring EU tax authorities to share company beneficial ownership information that financial institutions will have to collect as part of their due diligence requirements.

The agreement requiring EU tax authorities to exchange company beneficial ownership information amends the EU Administrative Cooperation Directive that already requires mandatory exchange on bank data, capital gains as well as tax rulings.

Ministers also backed a two-step approach for adopting a pending Common Consolidated Corporate Tax Base (CCCTB).

“This is yet another leap forward in improving transparency and cross-border tax cooperation within the EU, providing member states with a valuable tool to protect the integrity of their tax systems,” European Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici, said in a statement.

Public Registry Concerns

Meanwhile, EU ministers considered a separate proposal to amend the EU Anti-Money Laundering Directive, to compel commercial trusts to reveal beneficial ownership.

However, some EU member states are opposed to the stricter rules following concerns raised by the Council of Ministers’ legal service over the legality of putting beneficial owners of trusts on public registries.

“This legislation is the EU response to the Panama Papers and we can not lose the momentum on this file,” said Kazimir in addressing the divisions among the 28 EU member countries. “We must try to get an agreement by the end of the year.”

Financial Transaction Tax Doubts

Talks on implementation of the financial transaction tax have also stalled after more than three years of ongoing discussions, despite 10 countries reaching an accord in October on a “core engine” platform for taxing shares and derivatives.

German Finance Minister Wolfgang Schaeuble raised further doubts about the financial transaction tax when questioned on the use of a legislative procedure called “enhanced cooperation” which that allows like-minded countries to get around unanimity rules for EU tax legislation.

“We have to be honest,” Schaeuble said. “This is not the right instrument. If there is an agreement there will be a problem between countries that implement the tax and those that do not.

“We suffer between the expectations we have created and our failure to reach an agreement,” Schaeuble said.

To contact the reporter on this story: Joe Kirwin in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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