Tackling double taxation for a stronger Single Market
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Double taxation, and double non-taxation, contradict the very spirit of the Single Market. Yet many citizens and businesses are still suffering heavier tax burdens just because they operate in more than one Member State. Meanwhile, others are using loopholes between national systems to escape paying taxes that they owe.
Determined to tackle this problem, the European Commission has adopted a Communication on Double Taxation. This Communication highlights where the main double taxation problems lie within the EU, and outlines concrete measures that the Commission will take to address them. In doing so, the Commission seeks to remove real obstacles to a more competitive economy and make the EU easier to invest and do business in.
Algirdas Šemeta, Commissioner for Taxation, Customs, Anti-Fraud and Audit, said, “We must be able to send the message to all citizens, businesses and trading partners: the EU does not tax twice! Double taxation is one of the biggest tax obstacles to the Internal Market, and can no longer be overlooked. Today I have presented clear and feasible ways to tackle double taxation, which will make the EU a more attractive place to live and work in.”
A public consultation carried out by the Commission found that more than 20% of reported cases of double taxation of businesses were worth over €1 million, while for individuals, more than 35% of double taxation cases were worth more than €100 000.
Currently under EU law, there is nothing to oblige Member States to prevent non-discriminatory double taxation. Although Member States try to relieve double taxation through measures such as bilateral and multilateral double taxation conventions, these do not provide adequate protection for citizens and businesses due to various shortcomings (e.g. too narrow scope, lack of uniformity amongst Member States’ provisions, administrative burdens, long time-lines for dispute resolution etc.). The 2010 Citizenship report highlights the inadequacy of existing mechanisms to avoid double taxation in the EU. The problem of double taxation therefore continues to create barriers to cross-border establishment, activity and investment in the EU.
Clearly, given its cross-border nature, further action at EU-level is needed to fully and effectively address this problem. Over the past year, the Commission has already made headway in tackling double taxation in specific areas e.g. the proposal for a Common Consolidated Corporate Tax Base. Today’s Communication launches the next phase of work to try to bring an end to the problem of double taxation, for the benefit of both citizens and businesses across Europe.
As an immediate first step to strengthen existing legislation against double taxation, the Commission also adopted today a simultaneous proposal to improve the Interest and Royalties Directive. This aims to reduce the instances of one Member State levying a withholding tax on a payment, while another Member State taxes the same payment. Other areas in which the Commission intends to propose specific solutions to double taxation problems include cross-border inheritance tax in the near future and dividends paid to portfolio investors later on.
The Commission will also work on other possibilities to help eliminate cross-border double taxation, such as creating an EU Forum to develop a code of conduct on double taxation and a binding dispute resolution procedure for unresolved double taxation cases.
With regard to double non-taxation, which causes considerable losses to public revenues, the Commission will launch a consultation to gauge the full scale of the problem. On the basis of this consultation, it will determine the most appropriate and effective measures to prevent double non-taxation and come forward with solutions next year.
The Commission will submit the Communication on Double Taxation to the European Parliament, Council and European Economic and Social Committee for discussion and the Interest and Royalty Directive proposal to Council and the European Parliament.