The most impactful change is the abolition of taxes charged on cross-border payments of dividends, interest and royalties between companies. This alone accounts for around €5.3bn of the projected savings.
Wester van Gaal
The European Commission has launched a far-reaching overhaul of its corporate tax rules, designed to save businesses a little under €8bn a year.
It will make Europe a “more attractive and easier place to invest, innovate and do business,” said economy commissioner Valdis Dombrovskis on Wednesday (24 June).
An EU official, speaking off the record, called it the EUs “biggest and most ambitious” tax reform to date.
The package consists of two proposals: a Direct Taxation Omnibus that amends six major tax directives at once, and another, the Directive on Administrative Cooperation (DAC), that merges nine overlapping pieces of tax legislation into a single text.
Cross-border tax removal
The most impactful change is the abolition of taxes charged on cross-border payments of dividends, interest and royalties between companies. This alone accounts for around €5.3bn of the projected savings.
There is a bit of a snag: it will only enter into force eight years after member states have formally adopted the proposal. The extended timeline was necessary to “convince” member states that still rely on these revenues.
In fact, even though promises were made to end cross-border tax on dividends within companies 36 years ago, and interest and royalty 23 years ago, “half of member states still charge it today,” the official said.
There are refund procedures. But these are so complex, time-consuming and costly that most companies don’t bother claiming it back. “It’s just not worth the effort,” said the official.
“Ending the withholding tax makes the single market work much better,” said the official.
“When member states decided to terminate custom duties, it had a fiscal cost. Was it the wrong decision? Definitely not,” he also said.
Anti-tax avoidance
Beyond withholding tax, the plan targets the labyrinthine Anti-Tax Avoidance Directive (ATAD). This piece of legislation was built as a minimum standard, but this left a lot of room for national interpretation.
