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A New Step In EU Anti-Offshore Policy

Russia
The European Union is planning to take a new step in anti-offshore policy.

In this post-crisis era, the budgets of European countries need an infusion of extra cash from taxpayers, so the EU is trying to harmonise the rules governing a situation in which major multinationals are active in one country with a rather high level of taxation, but pay taxes in other countries where taxes are lower. Taxand Russia investigates the impact an anti-offshore policy could have on multinationals.

Many multinationals indulge in what is often called 'treaty-shopping'. This means that companies try to choose a more "friendly" jurisdiction for taxation and create artificial purposes and circumstances to allow this. These more tax-friendly jurisdictions are not blacklisted off-shore jurisdictions in the classical sense; they are just countries with less onerous domestic tax legislation and with which Double Tax Treaties have been concluded. To achieve this, the major companies try to route their revenues out of the high-tax countries and into lower-tax countries (as opposed to jurisdictions with no taxation at all, like Belize or Seychelles).

The main idea of this EU anti-offshore step is to make anti-avoidance tax rules stricter and to tax income in those countries where that income has genuinely arisen. In other words the EU is trying to apply the concept of substance over form which can help to ensure that taxes are collected in the EU without the tax base being eroded, and also help taxes to be collected and income to be preserved in the counties where such income is generated, rather than in countries with a 'convenient' tax regime.


Your Taxand contacts for further queries are:
Andrey Tereschenko
T. +7 495 967 00 07
E. a.tereschenko@pgplaw.ru

Ivan Zelenin
T. +7 495 967 00 07
E. i.zelenin@pgplaw.ru

Taxand's Take

Budget deficits are prompting the European Commission to take a range of steps to collect taxes and maintain their tax revenues. For example, a frequently debated issue is whether the structure of VAT in the EU should be changed to minimise avoidance from unscrupulous taxpayers. It remains unclear whether this is just talk or whether it could become a real measure in tax policy. In any case it is evident that tax rules are becoming stricter. Tax schemes need to be in line with them and should adhere to the concept of substance over form.

Taxand's Take Author

Andrey Tereschenko