EC Proposes Tax Transparency: An Article Authored by Paul Oliveira, CPA from KLR - Accounting Firm Boston, Massachusetts, Providence, Rhode Island

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EC Proposes Tax Transparency

posted May 26, 2015 by Paul Oliveira, CPA

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The European Commission (EC) has proposed a tax transparency package in its efforts to tackle corporate tax avoidance in the European Union (EU).

A key element of the package is a requirement for EU member states to exchange information on cross-border tax rulings with each other on a quarterly basis. Currently, an EU member state can unilaterally decide whether a cross-border tax ruling is relevant to another member.

EU Tax Commissioner Pierre Moscovici said in a speech that the economic bloc is committed to global tax transparency beyond the mandatory exchange of cross-border tax rulings.

Single market approach

Moscovici called the EU a pioneer in this area, similar to how the U.S. led the way with its Foreign Account Tax Compliance Act. Speaking about a single market approach, Moscovici said the EU will continue to work with the Organization for Economic Co-operation and Development on its base erosion and profit shifting project but that it cannot rely solely on that group’s work.

Corporate tax avoidance is thought to deprive EU member states of billions of euros a year, according to the Commission. It also undermines fair burden-sharing among taxpayers and fair competition between businesses, the Commission said.

The Commission noted that companies rely on the complexity of tax rules and the lack of cooperation among EU member states to shift profits and minimize taxes. Increasing transparency and cooperation is vital in the battle against aggressive tax planning and abusive tax practices, the Commission stated.

Moscovici also said the EC is working on an action plan to create a true single market from a corporate tax perspective — one that is transparent and predictable to businesses and consumers. He indicated that the action plan would include further discussions about a Common Consolidated Corporate Tax Base (CCCTB).

What to expect in the future

The CCCTB is a single set of rules that companies operating within the EU could use to calculate taxable profits. A company or qualifying group of companies would have to comply with just one system for computing taxable income, rather than different rules in each EU member state.

According to Moscovici, the question of where tax profits ought to be taxed is paramount because of the existence of a single currency and an internal market with 28 different tax systems.

The Commission expects the package to be in place by Jan. 1, 2016. The European Parliament welcomed the tax transparency package, but called for further effective proposals to be included in the coming months to combat tax havens and tax avoidance.