TaxAdministrationTax treaties could be made illegal

Tax treaties could be made illegal

UK tax treaties with the US could be deemed illegal if the European Commission moves to take on responsibility for negotiating agreements for its member states.

Link: US and Europe clash over tax breaks

The current treaty is worth at least £400m in tax savings to UK plc, but that could disappear if the commission follows through on the recent so-called ‘open skies’ judgement, and assumes all duties for negotiating treaties with non-EU nations.

The open skies judgement saw the commission win its battle to control agreements on landing rights between member states and the US.

A spokeswoman for the commission’s internal markets and taxation department told Accountancy Age that it was ‘considering’ tax treaties ‘at the moment’.

She said: ‘In 2004 we will present a communication on bilateral tax treaties and their interaction with the commission treaty.’

Discussions will include whether there is a need for a separate European Union model tax treaty to replace the OECD model, and whether the commission needs ‘to consider some kind of multilateral treaty’.

‘We are working on that, but we don’t plan to present it before next year. We would probably consider the results of the open skies judgement in that,’ she said.

As a result the UK/US tax treaty could be deemed illegal because the UK has a 0% withholding tax rate with the US, while no other EU country enjoys the rate with either the UK or the US.

The commission is likely to meet opposition from national governments if it attempts to take over tax treaties.

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