Answer given by Mr Moscovici on behalf of the Commission

22.3.2018

The compatibility of the international tax provisions in the national law of third countries with their double taxation treaties with EU Member States is for Member States to assess in conjunction with the relevant third country.

The United States (US) tax reform of 2017 has introduced two provisions that are of concern from the perspective of World Trade Organisation (WTO) compatibility. The Base Erosion and Anti-abuse Tax (BEAT) could give rise to discrimination and incompatibility with WTO rules because this tax would in certain cases be imposed on purchases from abroad while it would not be imposed on purchases made domestically. The tax deduction for Foreign Derived Intangible Income (FDII), equal to 37.5% of US corporation’s intangible income multiplied by the ratio of the US corporation’s exports of goods and services divided by its gross income, seems to result in an export subsidy prohibited by the WTO Agreement on Subsidies and Countervailing Measures.

The Commission welcomes the steps taken by the US to deliver on its international commitments to implement the actions from the G20-OECD[1] Base Erosion and Profit Shifting (BEPS) project, such as the rules on hybrid mismatches, and interest deductibility. These are in line with the concrete action that we have already taken to implement these measures in the EU through the Anti-Tax Avoidance Directive. However, we have some concerns that the FDII may be contrary to the OECD BEPS action 5 modified nexus approach for intellectual property regimes.

• [1] Organisation for Economic Cooperation and Development