– having regard to the Commission proposal to the Council (COM(2010)0784),
– having regard to Article 115 of the Treaty on the Functioning of the European Union, pursuant to which the Council consulted Parliament (C7-0030/2011),
– having regard to the Interinstitutional Agreement of 28 November 2001 on a more structured use of the recasting technique for legal acts(1),
– having regard to the letter of 25 March 2011 from the Committee on Legal Affairs to the Committee on Economic and Monetary Affairs in accordance with Rule 87(3) of its Rules of Procedure,
– having regard to Rules 87 and 55 of its Rules of Procedure,
– having regard to the report of the Committee on Economic and Monetary Affairs (A7-0314/2011),
A. whereas, according to the Consultative Working Party of the legal services of the European Parliament, the Council and the Commission, the proposal in question does not include any substantive amendments other than those identified as such in the proposal and whereas, as regards the codification of the unchanged provisions of the earlier acts together with those amendments, the proposal contains a straightforward codification of the existing texts, without any change in their substance,
1. Approves the Commission proposal as adapted to the recommendations of the Consultative Working Party of the legal services of the European Parliament, the Council and the Commission and as amended below;
2. Calls on the Commission to alter its proposal accordingly, in accordance with Article 293(2) of the Treaty on the Functioning of the European Union;
3. Calls on the Council to notify Parliament if it intends to depart from the text approved by Parliament;
4. Asks the Council to consult Parliament again if it intends to substantially amend the Commission proposal;
5. Instructs its President to forward its position to the Council, the Commission and the national parliaments.
Proposal for a directive
Text proposed by the Commission
(9) In relation to the treatment of permanent establishments Member States may need to determine the conditions and legal instruments in order to protect the national tax revenue and fend off circumvention of national laws, in accordance with the Treaty principles and taking into account internationally accepted tax rules.
(9) In relation to the treatment of permanent establishments Member States may need to determine the conditions and legal instruments in order to protect the national tax revenue and fend off circumvention of national laws, and to avoid extreme forms of under-taxation or non-taxation, in accordance with the Treaty principles and taking into account internationally accepted tax rules.
Proposal for a directive
Article 4 – paragraph 1 – point a
Text proposed by the Commission
(a) refrain from taxing such profits; or
(a) refrain from taxing such profits if they have been taxed in the country of the subsidiary at a statutory corporate tax rate not lower than 70% of the average statutory corporate tax rate applicable in the Member States; or
Proposal for a directive
Article 4 – paragraph 1 – point b
Text proposed by the Commission
(b) tax such profits while authorising the parent company and the permanent establishment to deduct from the amount of tax due that fraction of the corporation tax related to those profits and paid by the subsidiary and any lower-tier subsidiary, subject to the condition that at each tier a company and its lower-tier subsidiary fall within the definitions laid down in Article 2 and meet the requirements provided for in Article 3, up to the limit of the amount of the corresponding tax due.
(b) tax such profits at a statutory corporate tax rate not lower than 70% of the average statutory corporate tax rate applicable in the Member States while authorising the parent company and the permanent establishment to deduct from the amount of tax due that fraction of the corporation tax related to those profits and paid by the subsidiary and any lower-tier subsidiary, subject to the condition that at each tier a company and its lower-tier subsidiary fall within the definitions laid down in Article 2 and meet the requirements provided for in Article 3, up to the limit of the amount of the corresponding tax due.
The great strain on public households requires parliaments to be creative when trying to rebalance their budgets. This is the case not only since the eruption of the financial crisis. Additionally to the unsustainably high level of sovereign debt and budget deficits, growing social inequalities in all European societies call for far-reaching initiatives.
But whereas the single market is integral part of the European project it limits at the same time the sovereignty of Member States, especially in the field of taxation. The establishment of the common internal market for the benefit of business and consumers was the core argument in favour of almost all European directives in the area of corporate taxation. Unfortunately, in combination with the persisting ideology of absolute independence for national legislators in the area of taxation, very detrimental effects became more and more significant.
The room for manoeuvre to decide autonomously continuously decreased, the easier the movement of capital in the EU became.
Tax competition in the EU now is a deadlock for Member States’ room of manoeuvre in public sector policies. Because of this the average EU corporate tax rate decreased from 44% in 1980 to 35% in 1995 and finally to 23,2% in 2010.(1) Providing for a more sustainable and socially integrated society in the meantime becomes very difficult when capital and profit shifting is easily possible and very lucrative for some while inaccessible for others.
Different national tax regimes are applicable to persons and undertakings that operate throughout the European Union. National protection of the tax base is almost always illegal and double taxation for corporations is tackled by bilateral agreements and community legislation. To stop and reverse the race to the bottom of corporate tax rates, a common European approach is needed.
Therefore a thorough revision of the Council Directive on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States is necessary now. Its purpose is to facilitate multinational mergers. Therefore, it intends to abandon double taxation on income from dividends:
Where a parent company by virtue of its association with its subsidiary receives distributed profits, the State of the parent company must either refrain from taxing such profits or tax such profits while authorizing the parent company to deduct from the amount of tax due that fraction of the corporation tax paid by the subsidiary which relates to those profits.
Due to this provision inner European treaty shopping became very important for tax planning purposes. A struggle between Member States and investors regarding the allocation of the seat of head offices developed. Simply codifying the so-called parent-subsidiary Directive does not solve the more and more pressing problems of long-term-non-taxation and even double-non-taxation.
Furthermore, it is questionable that profit gained by a (European) multinational company in a subsidiary outside the EU flows into the common market, benefiting from certain national tax systems which attract such capital flows by not or hardly making inflows from third countries subjective to taxation. Such profits usually come from tax havens and are based on transfer pricing in licensing schemes (e.g. royalties for the application of intellectual property). After such a low-tax-entry the profit can circulate in the EU and to the parent company located in any other Member State without ever being taxed in the EU.
A special case is Switzerland, which per bilateral Swiss – EU agreement became part of the scope of the directive.(2) Here the same applies as described above. The received dividends from Swiss subsidiaries by EU parent companies are not subject to taxation or can be deducted anywhere within the EU. The state looses out against multinational corporations which do no longer pay their fair share towards financing social needs. Therefore, a requirement has to be implemented that when no taxation to outbound flows is allowed a 25% minimum tax rate has to be applicable in the inbound state.
These cases show that stronger anti abuse provisions have to be integrated into the directive. The inflow of dividends from third country subsidiaries into the scope of the directive has to be subject to minimum requirements to limit tax base erosion by EU corporations.
Beyond that further measures to tackle double-non-taxation are necessary. Recently the Commissions published a proposal for a Common Consolidated Corporate Tax Base (CCCTB).(3) But this measure can only be effective in terms of both; limiting the possibilities for corporate tax evasion in the EU, as well as easing the compliance burden of businesses, if firstly the rules are compulsory applicable for all EU undertakings engaging in cross border activities, and secondly a minimum tax rate on an equal taxable basis is levied commonly.
Compare Art. 15 of the agreement between the EU and Swiss providing for measures equivalent to those laid down in Council Directive 2003/48/EC on taxation of savings income in the form of interest payments; OJ L 385/30 (29.12.2004).
The Committee on Legal Affairs, which I am honoured to chair, has examined the proposal referred to above, pursuant to Rule 87 on Recasting, as introduced into the Parliament's Rules of Procedure.
Paragraph 3 of that Rule reads as follows:
"If the committee responsible for legal affairs considers that the proposal does not entail any substantive changes other than those identified as such in the proposal, it shall inform the committee responsible.
In such a case, over and above the conditions laid down in Rules 156 and 157, amendments shall be admissible within the committee responsible only if they concern those parts of the proposal which contain changes.
However, if in accordance with point 8 of the Interinstitutional Agreement, the committee responsible intends also to submit amendments to the codified parts of the proposal, it shall immediately notify its intention to the Council and to the Commission, and the latter should inform the committee, prior to the vote pursuant to Rule 54, of its position on the amendments and whether or not it intends to withdraw the recast proposal.
Following the opinion of the Legal Service, whose representatives participated in the meetings of the Consultative Working Party examining the recast proposal, and in keeping with the recommendations of the draftsperson, the Committee on Legal Affairs considers that the proposal in question does not include any substantive changes other than those identified as such in the proposal and that, as regards the codification of the unchanged provisions of the earlier acts with those changes, the proposal contains a straightforward codification of the existing texts, without any change in their substance.
In conclusion, after discussing it at its meeting of 22 March 2011, the Committee on Legal Affairs, by 17 votes in favour and no abstentions(1), recommends that your Committee, as the committee responsible, proceed to examine the above proposal in accordance with Rule 87.
Encl.: Opinion of the Consultative Working Party.
Common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (recast)
The following Members were present: Klaus-Heiner Lehne, Tadeusz Zwiefka, Luigi Berlinguer, Françoise Castex, Lidia Joanna Geringer de Oedenberg, Antonio Masip Hidalgo, Bernhard Rapkay, Evelyn Regner, Alexandra Thein, Diana Wallis, Cecilia Wikström, Jiří Maštálka, Kurt Lechner, Angelika Niebler, Jan Philipp Albrecht, Eva Lichtenberger, Sajjad Karim.