Trust Bloomberg Tax's Premier International Tax offering for the news and guidance to navigate the complex tax treaty networks and business regulations.
By Joe Kirwin
Countries that end up on the European Union’s list of tax havens could subject companies operating within their borders to tax sanctions—such as withholding taxes and denied deductions for royalty payments—damaging the businesses’ ability to offset losses in the jurisdictions.
Following a March 1 meeting, politicians identified a range of sanctions to impose on companies in any country or jurisdiction that meets the criteria for being considered a tax haven. According to confidential documents obtained by Bloomberg BNA, the sanctions under consideration for the blacklist by the EU Code of Conduct Group for Business Taxation include:
All of the sanctions could apply to an EU company doing business within a jurisdiction that ends up on the EU tax haven blacklist, which is due to be finalized by the end of 2017.
Based on the confidential documents, the final list of sanctions can be imposed via coordinated measures such as EU legislation or restrictions through EU funding.
The EU Code of Conduct Group for Business Taxation is coordinating the bloc’s work on the tax haven blacklist. It is currently preparing to “screen” 92 countries that fail to meet a range of transparency and corporate taxation criteria. The 92 include the U.S. and Switzerland, as well as a range of offshore finance centers such as Bermuda, the Bahamas, the Cayman Islands, Jersey, Guernsey and the Isle of Man.
“Being listed for tax purposes by the EU is supposed to have already per se a deterrent effect since this would very likely entail potential consequences in terms of international reputation,” according to the document.
It adds that, nonetheless, “member states have asked for concrete, specific and direct countermeasures linked to listed jurisdictions.”
Payments such as royalties, interest and services are currently deductible under domestic law in EU countries when made to persons located in a non-EU country.
“At present this type of domestic countermeasure is triggered by different types of criteria including transparency and harmful tax measures,” the document states.
The document notes that in some cases, “the deductibility of costs may be accepted if the taxpayer can prove that the payments relate to the real transactions justified on economic grounds.”
The code of conduct document notes that the Anti-Tax Avoidance Directive, or ATAD—which takes effect in 2019—provides options for sanctions when it comes to controlled foreign corporations.
“Currently the triggering requirement provided for in the ATAD is essentially based on the level of taxation in the CFC jurisdiction,” the document said. “As a first option the triggering requirement could be automatically satisfied for jurisdictions featuring on the EU list without the need to go to a case-by-case basis.”
The potential withholding tax measures under consideration in the document “provide for a more restrictive tax treatment for certain outbound payments when these have been made to individuals or legal persons located in third-country lists for tax purposes.”
The participation exemption rule applies to dividends paid to shareholders that hold “a given percentage of a company’s stock.” These exemptions are allowed via the EU Parent-Subsidy Directive.
“A possible countermeasure could provide for denial or limitation of the tax exemption if the foreign entity that pays the dividends is located in a listed jurisdiction,” the document said.
Other potential sanctions listed by the conduct group in the confidential document include:
To contact the reporter on this story: Joe Kirwin in Brussels at firstname.lastname@example.org
To contact the editor responsible for this story: Penny Sukhraj at email@example.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)