Aggressive tax planning in the international arena
Various international forums are labeling as “aggressive” certain tax planning which, while strictly legal, leads to an unintended outcome. Thus, advantage is taken of legal loopholes, complex techniques or, simply, the absence of harmonization/coordination of tax legislations in order, for example, to deduct the same expense in several jurisdictions or to ensure that untaxed income (or income that has generated a deductible expense) is declared exempt in another State.
On December 6, 2012, the European Commission published an action plan to strengthen the fight against international tax fraud and tax evasion (COM(2012) 722/2 and C(2012) 8806 final) which, among other types of measures, includes a recommendation to the member states to restrict aggressive planning through the inclusion of clauses in both domestic legislation and tax treaties that make the taxation of income or expenses conditional on its impact on other States (so as to ensure that there is taxation in some jurisdiction). It also recommends adopting a common general anti-abuse rule.
Such steps are in keeping with those already published by the OECD on the abusive use of tax losses (2011), the abuse of hybrid instruments or entities (2012) and the most recent (of February 12, 2013) on Base Erosion and Profit Shifting (BEPS). The OECD highlights that, alongside a decrease in tax revenues, these schemes tend to give multinationals a competitive edge over small or exclusively local companies that do not have access to this sophisticated planning and bear higher taxes.
Although these instruments of soft law are not directly binding and therefore require legal reforms, these initiatives arise in the context of a clear international trend towards greater corporate responsibility (also in the tax scope) and look set to have an impact on the future of corporate and investment structures of multinationals.