Reflections on the EU objectives in addressing aggressive tax planning and harmful tax practices Final Report Written by: CEPS November 2019 FOR THE EUROPEAN COMMISSION Directorate-General for Taxation and Customs Union Directorate D — Direct taxation, Tax coordination, Economic Analysis and Evaluation Unit D-1 Company Taxation Initiatives European Commission B-1049 Brussels Reflections on the EU objectives in addressing aggressive tax planning and harmful tax practices Final Report Europe Direct is a service to help you find answers to your questions about the European Union. Freephone number (*): 00 800 6 7 8 9 10 11 (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you). LEGAL NOTICE This document has been prepared for the European Commission however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet (http://www.europa.eu). Luxembourg: Publications Office of the European Union, 2020 ISBN 978-92-76-14317-8 DOI 10.2778/39958 © European Union, 2020 Reproduction is authorised provided the source is acknowledged. The reuse policy of European Commission documents is regulated by Decision 2011/833/EU (OJ L 330, 14.12.2011, p. 39). For any use or reproduction of photos or other material that is not under the copyright of the European Union, permission must be sought directly from the copyright holders 4 Authors: Andrea Renda (Project Director) Felice Simonelli (Project Manager) Willem Pieter De Groen Nadina Iacob Alexandra Campmas Support Team: Mattia Di Salvo Inna Oliinyk Independent experts: Asa Gunnarsson Carlo Garbarino Christiana HJI Panayi Dennis Weber Ekkehart Reimer Emer Hunt Éva Erdős Luc De Broe Mihaela Tofan Werner Haslehner The authors would like to thank Carlo Garbarino and Luc De Broe for peer-reviewing the entire Report. The authors also thank Jackie West for editing assistance with the text of the Report. 5 Table of contents List of acronyms, abbreviations and terms used in the Report ......................... 8 ABSTRACT ................................................................................................ 9 CITIZENS’ SUMMARY ............................................................................... 10 EXECUTIVE SUMMARY .............................................................................. 11 1 Context and scope ........................................................................... 11 2 Methodology ................................................................................... 11 3 Key observations ............................................................................. 12 Coherence ..................................................................................... 12 Relevance ...................................................................................... 12 EU Added Value.............................................................................. 12 4 Suggested improvements ................................................................. 13 REPORT .................................................................................................. 14 Introduction ............................................................................................ 15 1 Background .................................................................................... 16 Aggressive tax planning and harmful tax practices .............................. 16 Trends in corporate taxation ............................................................ 17 EU instruments addressing aggressive tax planning and harmful tax practices ....................................................................................... 20 EU tax instruments in scope ............................................................ 21 2 Methodology ................................................................................... 23 Research framework ....................................................................... 23 Data collection ............................................................................... 24 Data analysis ................................................................................. 27 Limitations .................................................................................... 28 3 Coherence ...................................................................................... 29 Introduction ................................................................................... 29 Analysis ........................................................................................ 30 4 Relevance ...................................................................................... 41 Introduction ................................................................................... 42 Analysis ........................................................................................ 42 5 EU Added Value .............................................................................. 56 Introduction ................................................................................... 56 Analysis ........................................................................................ 57 6 Conclusions and suggested improvements .......................................... 64 ANNEXES TO THE FINAL REPORT ............................................................... 68 List of acronyms and abbreviations used in the Annexes ............................... 69 ANNEX A: Research framework ................................................................. 70 ANNEX B: Intervention logics .................................................................... 73 B.1 Aggregate intervention logics .................................................................. 73 B.2 Individual intervention logics ................................................................... 78 1 Anti-Tax Avoidance Directive (1 & 2) ................................................ 78 2 Parent-Subsidiary Directive.............................................................. 82 3 Administrative Cooperation Directive (3, 4 & 6) .................................. 85 6 4 Commission Recommendation of 6 December 2012 regarding measures intended to encourage third countries to apply minimum standards of good governance in tax matters (2012/771/EU)............... 89 5 Commission Recommendation of 6 December 2012 on aggressive tax planning (2012/772/EU) .................................................................. 92 6 Commission Recommendation of 28 January 2016 on the implementation of measures against tax treaty abuse (2016/271/EU) ... 95 7 Commission Recommendation of 21 March 2018 relating to the corporate taxation of a significant digital presence (2018/1650/EU) ...... 98 8 Code of Conduct for Business Taxation ............................................ 101 9 The European Semester for economic policy coordination (corporate taxation aspects) .......................................................................... 104 10 Joint Transfer Pricing Forum .......................................................... 107 11 Communication from the Commission to the European Parliament and the Council on an External Strategy for Effective Taxation (COM/2016/024 final) ................................................................... 110 B.3 Intervention logic of state aid rules ........................................................ 114 ANNEX C: Questionnaire for interviews..................................................... 118 ANNEX D: Synopsis report of the consultation activities.............................. 139 1 Objectives of the consultation activities ........................................... 139 2 Methodology ................................................................................ 139 3 Results ........................................................................................ 140 7 List of acronyms, abbreviations and terms used in the Report BEPS Base erosion and profit shifting CCCTB Common Consolidates Corporate Tax Base CCTB Common Corporate Tax Base CEPS Centre for European Policy Studies CFC Controlled foreign corporation DAC Administrative Cooperation Directive DG COMP Directorate-General for Competition, European Commission DG DEVCO Directorate-General for International Cooperation and Development, European Commission DG JUST Directorate-General for Justice and Consumers, European Commission DG TAXUD Directorate-General for Taxation and Customs Union, European Commission DG TRADE Directorate-General for Trade, European Commission EU European Union G20 Group of Twenty GAAR General anti-abuse rule IMF International Monetary Fund NGO Non-governmental organisation OECD Organisation for Economic Co-operation and Development Report Reflections on the EU objectives in addressing aggressive tax planning and harmful tax practices Research Team Team of researchers led by CEPS SECGEN Secretariat-General, European Commission SME Small and medium-sized enterprise(s) TAXUD Directorate-General for Taxation and Customs Union, European Commission UN United Nations 8 ABSTRACT This Report analyses the EU’s instruments to tackle aggressive tax planning and harmful tax practices. Based on desk research, interviews with stakeholders and expert assessments, it considers the coherence, relevance, and added value of the EU’s approach. The instruments under analysis are found to be internally coherent