This article will provide in- depth analysis on the measures that the OECD and the European Union are carrying out to combat international tax evasion.
This week at Del Canto Chambers we have focused on providing analysis on international tax evasion. Since 2013, the OECD, has leads the Base Erosion and Profit Shifting (BEPS) Project. We decided internally that it was worth providing information on this via a series of articles.
The European Union is responsible for implementing the advice provided by the OECD. To this end, it recently enacted the 2016/1164 Directive which takes measures against tax evasion.
This project to combat tax evasion has 15 action’s areas in order to prevent companies from taking advantage of double exemption, lower taxation and the withdrawal of benefits so that they are taxed less.
Of these fifteen fields, we have highlighted those aimed at avoiding “so-called hybrid mechanisms”. Via these mechanisms, companies try to exploit loopholes between the existing different international tax treaties.
Other mechanisms that the OECD has implemented in this regard include measures to prevent tax engineering practices and treaty abuse. Some companies with fiscal engineering practices intended to settle in countries with low tax simply to pay less. On the other hand, treaty abuse refers to cases of what is known as “treaty-shopping”, namely looking for the most favourable treaty.
Also, the OECD recommends redefining the concept of permanent establishment. This term refers to where an enterprise wholly or partly carries out its business.
This project is coordinated in Europe by the EU.. With its 2016/1164 Directive enacted last June, this policy sets its sights on measures such as limiting the deductibility of interest and departure taxes, controlled foreign corporations (CFC) and what are known as hybrid asymmetries.
With them, companies intend to inflate the interest on their loans so that they are accounted for as losses in order to be taxed less. In addition they also move their business assets from one Member State to another or to a third country or otherwise between different permanent establishments located in different Member States.
These transfers also occur between subsidiaries of a parent company and intend to benefit from differences in the laws of each country to pay less in corporate tax.
We hope to meet again next week and offer more content on tax and commercial issues. Until next time.
Xavier Nova (@xavinova)
Director of Del Canto Chambers