Mr. Philip Kermode:

If I could trespass on your good nature, Chairman, I will say a word about the action plan and what we are doing now. There are two aspects I ought to mention. One is the famous, or infamous, CCCTB or common consolidated corporate tax base. That proposal was made by the Commission in 2011 and it remains on the Council table but has not been agreed as it stands. This was the Commission's take on finding a solution to the complexities of taxation in the corporate field for corporate groups. I am sure the joint sub-committee is familiar with the subject.
The second point I wish to mention is the action plan. In 2012, the Commission adopted a so-called action plan to deal with tax fraud and evasion, but also to tackle issues of avoidance. It did this because the heads of state and government asked the Commission to come forward with some concrete measures. A list of measures was proposed and these varied quite considerably. One of the more important things that came out of this was an indication in the action plan that member states needed to use the instruments they have better. In addition, there needed to be greater co-operation using the existing instruments. In some areas there was not a need to legislate, per se, but there was a need to co-operate more closely.
The Commission made two recommendations at the time. One was in relation to non-co-operative jurisdictions. This was part of the wider EU policy that has been on the table since 2008 encouraging jurisdictions to apply so-called good governance. Our good governance formula included exchange of information and transparency on harmful tax practices. If we wanted to go out towards non-EU states, as the Council asked, we needed to promote these ideals with others. Part of the underlying logic of this is to get the degree of co-operation required to avoid the need to put in place counter measures and aggressive strategies which have a negative effect on all types of business, whatever they might be.
These two recommendations - the second of which was on aggressive tax planning - were adopted in 2012. The Commission is in a process of discussion with the member states, NGOs and business organisations in a so-called platform of good governance, on the follow up to these and how they can improve the general situation. If needs be, Chairman, we can talk about the detail of those.
I will now deal with the base erosion and profit shifting, or BEPS, exercise. I understand that the joint sub-committee has had Mr. Pascal Saint-Amans of the OECD here to speak on the subject. It is an ambitious project that the OECD has undertaken with a tight timetable. There are a number of areas where this base erosion and profit shifting exercise impacts on issues of EU law. The Commission has been following these matters closely.
It is worth mentioning a couple of issues, in particular, but the joint sub-committee may wish to deal with others later. One is the whole question of harmful tax practices, to which I have already alluded. There is more pressure in the base erosion profit shifting exercise to come up with agreements on what is, or is not, harmful. It is clear that if the wider G20, OECD plus and other jurisdictions wish to come to agreements on changing the general rules on international taxation, there has to be some sort of accommodation on what is, or is not, acceptable tax competition. That underlies the work the OECD is doing in this area, which is similar to the work going on with the EU's code of conduct. That has helped to defuse some of the tension in the area of international taxation.
The other question concerns hybrid loans and hybrid entities - essentially mismatches between tax systems. This is something we discussed with the member states in the code of conduct group from the viewpoint, at the beginning, of trying to decide if they were harmful tax practices according to the criteria that the code group itself uses. That essentially defines a harmful tax practice as a form of predatory, ring-fenced regime which offers a lower tax rate than the general tax rate in a given member state.
This exercise of looking at the hybrids started from the viewpoint of trying to define whether they were harmful. One of the most important conclusions of the group - and it is an indication of the sort of thinking we like to see - was that it is not anybody's fault in particular in this case. One cannot tie it down to one or other of these jurisdictions, but we all agreed that it has harmful effects so we should do something about it. The upshot of that was an agreement in the group about how all member states would apply the same solution to tackling it. It was fairly clear from a short examination of the problem that it not only concerned two member states together, but that it could also have effects on a third.
They agreed on the way to do it and then the question was how to implement it. This has now come forward in a change to the existing EU parent-subsidiary directive whereby we are now close to an agreement between all member states about how to close this particular loophole. This helps to give a bit of impetus in general to the solutions concerning mismatches, not only within the EU but also outside it.
I would also like to mention the so-called digital economy. The Chairman may be aware that the Commission has asked an expert group to look into the taxation of the digital economy. A report has been produced which we see as being a useful input, not only into discussions within the Union but also in wider discussions in the OECD. That is something we can touch on if members of the joint sub-committee have questions about it. For the moment, the Commission has not given a formal view as to what actions it would take on the basis of that, but there are a number of encouraging signals for us in it.

Another issue that comes from the base erosion and profit shifting, BEPS, discussion is treaty abuse. A substantial discussion is happening about the extent to which double tax treaties can be manipulated to cause so-called abuse. This has considerable implications under EU law, partly for the reasons I set out earlier, namely, that the jurisprudence of the court takes a very dim view of a discrimination practice between member states, and many anti-abuse laws can be construed in a way to cause discrimination. This discussion will have an impact in the EU, probably later in the year, again, under the parent-subsidiary directive and the interest and royalties directive, which are existing pieces of community law, as member states attempt to square the circle of providing effective anti-abuse measures that do not conflict with EU law or create situations that make life even more complicated for businesses. Over the years the Commission has made various proposals, legislative and non-legislative, in the area of corporate tax, and our starting point has invariably been the interest of the internal market and ensuring businesses can do business and not just fill in forms. That was the underlying logic behind, for example, the common consolidated corporate tax base, CCCTB.

We are entering a very important period, given the progress being made on the BEPS project. Between now and the end of 2015, jurisdictions and the EU will have to take a decision as to whether they want to take further action and how. While there are very many different options, even in the OECD there is a discussion of multilateral solutions, and I suspect there will be a relatively complicated geometry to try to ensure some of the results of the BEPS exercise can be applied on the ground. One of the most important general conclusions of our expert group on the digital economy was the need for member states to try to speak with one voice on some of these matters and lever their political and economic power to act together on taxation as they do in other areas. This depends very largely on an acceptance of what is acceptable tax competition and what is not, and an acceptance that in some cases there are arguments for greater simplification of rules, which may have effects in one way or another but which would be justified if we can promote trade and business.