Limiting Base Erosion

S. 2301. Introduction

It is acknowledged that existing CFC rules not always kept pace with the changes in the economic situation and the development of corporate group structures in a globalized world. Many provisions have been enacted preserving the specificities that in fact do not solve all the arising base erosion and profit shifting BEPS issues; furthermore, they often represent structural problems and are not in line with EU law or constitutional law.

Collaboration between various jurisdictions within the OECD/G20, which would have been essential for global business models, tax policy (effective level of taxation, tax benefits and tax advantages in the absence of any real economic activity), the lack of transparency and many situations that create harmful tax competition in terms of competitiveness was rare and even non-existent. In fact, the opportunities to act efficiently in such cases have decreased due to globalization: the lifeline “state sovereignty” and the possibility to take unilateral measures have not always brought the desired results.

In response to all those challenges, the OECD released a BEPS Action Plan on strengthening CFC rules (Action 3) with a series of recommend...