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Europe's Drive for Deficit Reduction: Impact on Taxes
Europe's debt crisis and the drive for deficit reduction means corporate taxes will be an important issue in most, if not all European countries in 2012. The focus on hotly-debated topics from 2011, such as the UK GAAR proposal, FATCA, and a Dutch bank levy will continue. Taxand discusses these and other key topics in more detail.
In the UK, all eyes will be on the publication of the draft Finance Bill, published in December, as this will give a clearer indication of what is to come in 2012.
"Among other things this should contain draft legislation implementing full scale reform of the UK's controlled-foreign company (CFC) regime which we would expect to become law when the Finance Act is passed next year," says Jonathan Hornby, of Taxand UK. "Most UK headquartered multinationals see this as the government's key challenge in delivering on their undertaking to make the UK a more competitive jurisdiction."
More broadly, anti-avoidance is likely to be a central issue throughout Europe.
"Across Europe, tax administrations are coming under increasing pressure to increase tax revenue collections and help plug budget deficits," says Hornby. "We can therefore expect a continuing trend of anti-avoidance measures and perhaps an increase in audit activity."
Iman Damste of Taxand Netherlands says that countries' quest for extra revenues will mean taxpayers should not hold their breath for a shift in the treatment of tax planning, agreeing that attention on avoidance is more likely to increase.
"With increasing country deficits, it's pretty unlikely that there will be more understanding that tax planning for multinationals is a tool, as any other, for managing costs just like they manage employee or raw material costs," says Damste.
Corporate Tax Rates
Damste also believes that the trend of reductions in corporate tax rates has ended because of the economic turmoil. In Ireland the Minister of Finance has reaffirmed his commitment to the 12.5% corporation tax rate.
European Transfer pricing politics has been dominated by anti-avoidance issues from the bigger member states and that is not expected in 2012. While these policies seek to better protect individual jurisdictions' tax base, they can weaken the principles put forward in OECD guidelines. Europe is in the midst of a serious financial debt crisis so anti-avoidance measures are to be expected. As is governments' increasing focus on transfer pricing, which is seen as easy money.
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First published on the ITR Newsletter,1 December 2011