Measures tackling aggressive tax planning in the national recovery and resilience plans

Briefing 28-03-2023

This briefing focuses on policy measures to contain aggressive tax planning (ATP) that six Member States – Ireland, Cyprus, Luxembourg, Hungary, Malta and the Netherlands – have laid out in their individual national recovery and resilience plans, which were drawn up in order to benefit from the Next Generation EU (NGEU) recovery instrument. The countries were selected because their European Semester and 2019 and 2020 country-specific recommendations (CSRs) highlighted ATP concerns. ATP is a harmful practice that exploits differences in countries' tax systems to reduce or avoid tax payments. It can diminish governments' revenues considerably and exacerbate inequalities and unfair competition among countries. In their NRRPs, the countries identified have listed – to varying degrees – reforms and investment to curb ATP practices, while meeting the Recovery and Resilience Facility (RRF) objectives. In most cases, the measures that must be completed by 2026 at the latest include the introduction of a withholding tax on interests, royalties and dividends. Other examples of ATP-related measures include strengthening transfer pricing rules, introducing corporate tax residency tests and enforcing citizenship-by-investment rules. To receive RRF funding, Member States must address at least a significant subset of the CSRs and achieve the accompanying milestones and targets, including those aimed at addressing ATP. The RRF is a central part of NGEU, the EU's biggest financing instrument in support of Member States' efforts to recover from the pandemic while fostering the green and digital transitions. It is also closely linked to the European Semester, which seeks to coordinate national economic policies more effectively and follow up on how the RRF-financed measures are implemented.