The European Commission has published a new report describing responses the European Union (EU) has received from a consultation launched in mid-2010, in which respondees were asked to submit details of previous cross border tax problems.
The announcement comes hot on the heels of the publication of the findings of an EU consultation that little progress has been made on easing the burden on corporations and individuals operating internationally.
The report shows that several problems remain despite the EU redoubling efforts in 2001 to ease the burden on internationally-active corporations and individuals when suffering double taxation paid on cross-border transactions. The submissions further evidence a significant prevalence of disputes with non-EU countries, demonstrating that a one-fix solution will require cooperation with tax authorities outside the EU.
The report found that Transfer Pricing is the most frequent reason for disputes according to corporate taxpayers (98 cases reported out of 290, almost 34%). Conflicts of qualification of income and withholding taxes are common problems for corporate taxpayers and individuals. In terms of individuals, major concerns demonstrated were those surrounding disputes on individuals' tax residency, and the taxation of inheritances and gifts.
The report further shows that the scale of tax involved is significant: more than 20% of the cases are above EUR1m for corporate taxpayers, and more than 35% of the cases are above EUR100,000 for individuals.
According to the Commission, the results of the Public Consultation seem to confirm that - notwithstanding several planned and ongoing initiatives e.g. the possible Common Consolidated Corporate Tax Base (CCCTB) and the Joint Transfer Pricing Forum - the obstacles identified in 2001 remain and there are also some additional problems to be addressed such as:
As the next step forward, the Commission has said it is to consider the results of the Consultation, and plans to issue a Communication during the 2nd quarter of 2011.
The announcement comes hot on the heels of the publication of the findings of an EU consultation that little progress has been made on easing the burden on corporations and individuals operating internationally.
The report shows that several problems remain despite the EU redoubling efforts in 2001 to ease the burden on internationally-active corporations and individuals when suffering double taxation paid on cross-border transactions. The submissions further evidence a significant prevalence of disputes with non-EU countries, demonstrating that a one-fix solution will require cooperation with tax authorities outside the EU.
The report found that Transfer Pricing is the most frequent reason for disputes according to corporate taxpayers (98 cases reported out of 290, almost 34%). Conflicts of qualification of income and withholding taxes are common problems for corporate taxpayers and individuals. In terms of individuals, major concerns demonstrated were those surrounding disputes on individuals' tax residency, and the taxation of inheritances and gifts.
The report further shows that the scale of tax involved is significant: more than 20% of the cases are above EUR1m for corporate taxpayers, and more than 35% of the cases are above EUR100,000 for individuals.
According to the Commission, the results of the Public Consultation seem to confirm that - notwithstanding several planned and ongoing initiatives e.g. the possible Common Consolidated Corporate Tax Base (CCCTB) and the Joint Transfer Pricing Forum - the obstacles identified in 2001 remain and there are also some additional problems to be addressed such as:
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- Insufficiency of existing instruments to address double taxation situations. In particular:
The scope of the interest and royalties directive does not cover indirect holdings;
- The mutual assistance procedures provided for by the Arbitration Convention and double tax conventions does not allow a timely resolution of disputes;
- Double tax conventions do not cover triangular situations;
- The scope of double tax conventions is too narrow (e.g. inheritance and gift taxes are not covered);
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- Improper functioning of existing instruments to relieve double taxation. In particular:
The lack of a consistent interpretation of double tax conventions between Member States result in conflicts of qualification (mainly, the concept of royalties, business income, dividends, permanent establishments);
- The implementation at Member States' level of double tax conventions may lead to the adoption of procedural requirements which are in practice inconsistent and deprive the taxpayers of the rights provided by the conventions; and,
- More generally, it seems that these difficulties also create a general impression that crossborder tax issues are overall complex.
As the next step forward, the Commission has said it is to consider the results of the Consultation, and plans to issue a Communication during the 2nd quarter of 2011.
