The recently proposed EU Council Directive on a Common Consolidated Corporate Tax Base (CCCTB) for the EU includes a number measures aimed at preventing base erosion and profit shifting (BEPS), including measures based on the outcomes of various Actions of the OECD BEPS Project. The measures are summarized as follows.
The general anti-abuse rule includes that an EU Member State will ignore an arrangement or a series of arrangements that have been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law.
The rules regarding artificial avoidance of a permanent establishment (PE) include defined cases that will or will not give rise to a PE based on Action 7. This is marked as unresolved until the definition of PE is finalized under the OECD Multilateral Instrument to amend tax treaties (Action 15).
The interest deduction limitation rules are based on Action 4, with the deduction limit equal to the higher of:
Also included is a carve-out rule whereby Member States may allow a full deduction if the taxpayer's ratio of its equity over its total assets is equal to or higher than the equivalent ratio of the group.
A switch-over clause is included where passive foreign income will not be exempted but instead subject to tax, with a deduction allowed for tax paid in a third country on the income, if:
The switch-over clause may be made an option to the CFC rules (below).
The controlled foreign company rules are based on Action 3. Under the rules, the tax base of a taxpayer will include the non-distributed income of any entity resident in a third country (non-EU) if:
The rule will not apply for any third country that is part of the European Economic Area or that has concluded an automatic exchange of information agreement with the EU.
The exit tax rules include that tax will apply on the amount equal to the market value of transferred assets less their value for tax purposes, with the option to defer the tax payment for 5 years or pay installments over 5 years in certain cases. The deferral or installment option is decided by the Member State, not the taxpayer.
The rules also set out the cases in which exit tax and the option for deferral or installments applies.
Rules based on Action 2 are included for determining the treatment of hybrid mismatches for tax purposes between Member States in the following cases:
Rules for determining the treatment of hybrid mismatches for tax purposes in cases involving third countries cover the same cases as for those involving EU Member States. However, instead of specifying set treatment, the rules specify that the EU Member State will apply the same treatment as applied by the third country.
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