Eliminating Tax Obtacles in Single Market & Information Exchange

Source: Mario Sammut¸ PKF Malta¸ 1st June 2012

Algirdas Semeta¸ the European commissioner for taxation and customs union¸ audit and anti-fraud¸ won this year’s Editor’s Choice Award at International Tax Review’s European Awards.

His objective is to create a real single market from the tax perspective which is of utmost important for tax professionals.  His focus is on developing tax systems that ensure a fair division of the tax burden¸ are efficient and cost effective¸ and are not open to abuse.  He believes that tax professionals can and should assist in the identification of weaknesses in tax systems¸ which will eventually create benefits for companies and individuals who are willing to maintain high reputational standards.

The Commission has already taken action against tax fraud in many areas. It has adopted a series of measures¸ including the creation of Eurofisc¸ to tackle large – scale fraud taking advantage of the weaknesses of the EU VAT system. The Commission has also announced measures to be adopted soon to fight VAT fraud such as the rapid reaction mechanisms to allow member states to take action when confronted with new fraud schemes.

If tax authorities are to combat double non-taxation then the application of targeted linking rules¸ and not harmonisation¸ is the only realistic option.

While harmonisation of tax rules offers a theoretical solution to the problem¸ it is unlikely to happen anytime soon¸ meaning tax officials must make linking or matching rules their primary focus in tackling unintended non-taxation. Furthermore in its Hybrid Mismatch Arrangements report¸ endorsed by all 34 member countries¸ the OECD recognises that harmonisation of domestic tax laws would eliminate the possibility for companies to exploit mismatches between tax regimes.

The European Commission launched a consultation on double non-taxation in the EU in February with the aim to find solutions to the problem of tax payers exploiting differences between member states’ tax laws to avoid tax¸ though it seems the Commission remains convinced that the common consolidated corporate tax base (CCCTB) would be the best solution.

However CCCTB¸ seems a remote possibility at present. The UK¸ Ireland¸ Netherlands¸ Sweden¸ Poland¸ Romania¸ Malta¸ Bulgaria and Slovenia have all rejected the proposals on grounds of subsidiarity. If the proposal were to be adopted under enhanced cooperation¸ it would create further mismatches in tax rules between the opposed member states and those operating under CCCTB¸ and thus CCCTB would do nothing to solve mismatches between countries outside the EU.

Harmonisation on a global level may never become a reality. What the recent OECD meeting showed is that there is an emerging global consensus that double non-taxation due to hybrid mismatching is a policy issue which will require increased engagement between tax authorities to solve.

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