The issue of double taxation is one facing the majority of companies operating in both the public and private sectors in the European Union.
Due to the fact that each of the EU member states has the right to develop their own tax systems, it is no wonder that the possibility of double taxation is present with 28 different tax regimes being applied. This means that a company operating in several member states would be taxed on the same income within these various states; therefore, it is easy to see the complexity of the matter. It is important to work with an international law firm to determine how to properly manage double taxation across the globe.
To date, there have been several strategies put in place to address the issue of double taxation; however, they have not proven useful or effective in all situations. The result of these strategies was, in fact, a significant increase in administrative costs for each company and a burden on overall financial spending. To resolve this challenge facing cross-country economic relations, the European Commission launched a public consultation regarding how double taxation mechanisms can be improved.
The consultation was completed in the early months of 2016, closing on May 10th, and aimed to gather opinions from member states on particular economic issues.
The issues included the relevance of removing double taxation for multinational enterprises; the effectiveness of the double taxation dispute resolution strategies; as well as how these strategies can be improved to resolve double taxation situations.
It must be noted that the consultation was also utilized to address the debate of cross-border tax avoidance schemes where multinational establishments attempt to evade tax by moving from one member state to another.
This was a particularly important area to approach as it identified the implementation of the recently accepted Action Plan for a Fair and Efficient Corporate Tax System paper; as well as the tax avoidance system as introduced in January 2016.
Of course, while the debate regarding tax avoidance among multinationals was at the forefront of many member state representatives’ minds; the primary issue at hand was consultation regarding double taxation and the complexity of the tax planning systems.
The final result of the consultation uncovered the negative impacts of cross-border investments and financial operations; thereby proposing an initiative for improving double taxation dispute resolution mechanisms including inception impact assessments. The publication of this initiative was released to the general public in June of 2016.