Find out more about his participation and the topics discussed during the public hearing in this newsletter
Dive into the 3 new legislative proposals from the latest package: all the details await in this update (see below)
• Commission publishes major package of tax reforms
• European Parliament adopts DAC 8 opinion, paving the way for it becoming EU law
• OECD Inclusive Framework progresses towards Pillar 1 agreement
The FISC Subcommittee hosted a public hearing on 17 July, on Tackling the Role of Enablers Involved in Facilitating Tax Evasion and Aggressive Tax Planning in the European Union (SAFE). The purpose was to discuss the role of enablers in facilitating tax evasion and aggressive tax planning with a view to an expected proposal by the European Commission. In this hearing, experts were invited to present their views on the upcoming proposal.
Accountancy Europe’s CEO, Olivier Boutellis-Taft, underlined that aggressive tax planning (ATP) and evasion are substantial problems in the EU, but are essentially different issues that require different solutions. The evasion has to be dealt with by criminal law, he added. The ATP is a tax law issue, requiring better regulation as well as significantly higher sense of ethics and responsibility.
Olivier stressed that a common EU definition of ATP would be useful for taxpayers and authorities alike, provided it is implemented consistently. But the member states tend to go their own way sometimes. On the ground, the EU is not as united as they like to think, he lamented.
Finally, he reminded that Accountancy Europe has consistently supported increase in transparency in taxation as well as cooperation with tax administration through the so-called cooperative compliance. Resources for tax administration need to be increased to ensure that enacted tax legislation is also effectively enforced.
In 2022, Member States collected more than €17 billion via the expanded One Stop Shop (OSS) portal which covers online sales within the EU. In addition to this, €2.5 billion in VAT revenues was collected on imports of e-commerce goods. This figure includes the new VAT revenues generated by the abolition of the VAT exemption that previously applied to imports of low value goods not exceeding €22 and which was highly susceptible to fraud.
Overall, VAT revenues collected via the new systems saw a 26% increase on 2021 figures. Almost 130,000 companies have registered to account for their VAT on online sales through the new framework, showcasing traders’ keen adoption of simplifications, as noted by the Commission.
European Commission’s (EC) expected tax package was launched on 12 September as previously announced in the Insider. The package consists of 3 legislative proposals: Framework for income taxation (BEFIT) Directive, a transfer pricing Directive (TPD) as well as a proposal establishing a ‘head office tax system’ for SMEs (HOT).
All three files are subject to unanimity adoption in the Council, whilst the European Parliament (EP) only provides its non-binding opinion.
Under BEFIT, companies that are members of the same group will calculate their tax base in accordance with a common set of rules. The tax bases of all members of the group will then be aggregated into one single tax base, and each member of that ‘BEFIT group’ will have a percentage of the aggregated tax base calculated on the basis of the average of the taxable results in the previous three fiscal years.
TPD aims to harmonise transfer pricing rules within the EU and ensure a common approach to transfer pricing problems. It incorporates the arm’s length principle and key transfer pricing rules into EU law, clarifies the role and status of the OECD Transfer Pricing Guidelines and creates the possibility to establish common binding rules on specific aspects of the rules within the EU.
The HOT proposal would give SMEs operating cross-border through permanent establishments the option to interact with only one tax administration – that of the head office – instead of having to comply with multiple tax systems. SMEs would calculate their taxes based only on the tax rules of the member state of their Head Office. SMEs would file one single tax return with the tax administration of their head office, which would then share this return with the other member states where the SME is operating. The member state of the head office would subsequently transfer any resulting tax revenues to the countries where the permanent establishments are located.
European Parliament held a Plenary session on taxation of wealth on 12 July, as requested by The Left. The debate caused a split among elected representatives: right-wing groups against and left-wing groups in favour.
The Left group’s chair, MEP Manon Aubry (France), argued that “one person in six does not have enough to eat in the richest continent in the world; this is the result of inflation, which is hitting European households hard” On the other hand, Markus Ferber (EPP/Germany) felt that the Member States did not have a tax revenue problem: “the problem is spending, which has increased”, he retorted.
Commissioner Paolo Gentiloni underlined that “it is clear that the public expects us all to show determination, despite the limitations that the common jurisdiction has in this area”. Incidentally, on 11 July, the Commission decided to register a European citizens’ initiative for a European tax on large fortunes to benefit the ecological and social transition.
The European Parliament, at its plenary 12 July sitting, heard the Council’s and the European Commission’s statements regarding the need to adopt the “Unshell” Directive. Speakers stressed the need to ensure fair taxation and a good functioning of the single market.
Several MEPs criticised the Council for delaying the file, despite the overwhelming support that the directive got from the Parliament. In response, Pascual Navarro Ríos, representing the Spanish Council Presidency, as well as MEP Martin Hlaváček (RE/Czech Republic) pointed to concerns about red tape and administrative burdens for tax authorities and law-abiding businesses. MEPs also urged for live-streaming of Council sessions concerning this matter to identify Member States opposing the proposal. Lastly, Mr Navarro Ríos emphasised that this file holds a top spot on their priority list. They plan to actively pursue an agreement during the ECOFIN Council in November.
The European Parliament hosted on 13 July the European Commission who provided a statement on the recommendations of the Commission on public country by country reporting (CBCR) transposition. This was in response to an oral question asked by MEPs.
Mairead McGuinness, European Commissioner for Financial Stability, Financial Services and the Capital Markets Union emphasised Commission’s full support for the CBCR directive. The Commissioner stressed precise directive implementation for optimal effectiveness. In this context, she addressed the concerns expressed about the Commission’s information note on Gold Plating. She pointed that the Commission’s role as the guardian of the treaties is to ensure that EU law is accurately transposed into national law and correctly applied in practice. To achieve this, the Commission collaborates with Member States. The Commissioner noted 17 EU Member States have yet to implement the directive.
FISC Subcommittee met on 17 July for a consideration of the draft report on the role of tax policy in times of crisis. Kira Marie Peter-Hansen (S&D/Denmark) presented her draft report, focusing on the current crises, inflation, and how to prepare for future challenges. Lídia Pereira (EPP/Portugal) criticised calls for new taxes. Instead she emphasised evaluating the effectiveness of current ones, cutting the red tape and offering special support to SMEs. Evelyn Regner (S&D/Austria) welcomed the focus on gender and environmental aspects and suggested exploring the potential for a wealth tax.
ECON Committee vote is scheduled for 24 October, followed by a Plenary vote on 11 December.
FISC Subcommittee met on 17 July for a consideration of amendments tabled to the draft report on further reform of corporate taxation rules. A total of 292 amendments have been tabled to the draft report. The rapporteur, Isabel Benjumea (EPP/Spain), saw a lot of room for compromise. She only argued against naming specific companies in the report, which would go against their goal of setting up a framework for corporate tax. MEPs also highlighted some other aspects such as the BEFIT and DEBRA proposals, and the issue of tax incentives, to name a few.
ECON is currently projected to vote on the file on 24 October, followed by a Plenary vote on 11 December.
Members of the FISC Subcommittee travelled to Singapore on 25-27 July to discuss developments in international taxation and the fight against tax avoidance and evasion.
The mission was led by FISC Chair MEP Paul Tang (S&D/Netherlands), and met with Singapore government ministers and members of parliament. Meetings also took place with the Chief Executives of the Accounting and Corporate Regulatory Authority (ACRA) and Inland Revenue Authority (IRA), as well as stakeholders from professional associations and academia.
The discussions focused on the implementation of the OECD/G20 Inclusive Framework agreement on an international tax reform and Singapore’s efforts to combat tax evasion and avoidance. The attractiveness of Singapore for MNEs or very rich individuals were also discussed, together with Singapore’s readiness to implement or improve standards on good tax governance.
European Parliament (EP) Plenary adopted on 13 September its opinion on the proposal amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC 8). The report, prepared by MEP Rasmus Andresen (Greens/Germany), passed with 535 votes in favour, 57 votes against and 60 abstentions.
The Council already reached agreement on this file back in May. EP provided its opinion but has no legislative power to make changes to the proposal. Its opinion is nonetheless necessary in order for DAC 8 to become EU law.
European Parliament’s (EP) FISC Committee had a busy day on 19 September. First, the Committee hosted Commissioner Gentiloni for an exchange of views on taxation. The Commissioner presented the Commission’s package of tax proposals (see articles above) and responded to MEPs’ concerns about progress – or lack thereof – on the Unshell directive. The Commissioner is confident that the Spanish Presidency will do its utmost to find an agreeable compromise.
Following on the withholding tax proposal (FASTER), FISC Committee hosted a panel of experts to discuss with MEPs. The experts shared their views on the proposal and exchanged on the potential effect of the initiative on cum-cum and cum-ex scandals, the definition of beneficial ownership, interaction with third countries and the cost of registers, among other topics.
FISC Committee discussed the own initiative report on the “Role of tax policy in times of crisis” prepared by MEP Kira Marie Peter-Hansen (Greens/Denmark).
Ms Peter-Hansen expressed optimism about the initial meetings between political groups regarding the file and remained confident that groups could reach an agreement, despite some political and ideological differences.
Currently, a vote in ECON Committee is scheduled for 24 October, followed by a final Plenary vote on 11 December.
At the 14 July finance ministers’ meeting (ECOFIN), the Spanish Presidency of the Council gave an update on the negotiations taking place in the OECD/G20 Inclusive Framework on Pillar 1. The aim remains to have a multilateral convention signed before the end of 2023.
138 member countries of the OECD/G20 Inclusive Framework agreed on 11 July on an Outcome Statement recognising the significant progress made on Pillar 1 and allowing countries and jurisdictions to move forward with the reform.
For many observers, this fell short of an anticipated agreement on an actual multilateral convention. The risk remains that in the absence of an international Pillar 1 agreement, jurisdictions across the world will implement national digital services taxes (DSTs). Consequently, the Inclusive Framework also agreed to postpone a “ban” on such DSTs until 2025, in order to grant more time for Pillar 1 progress.
European governments are increasingly turning to windfall taxes to balance their books and tackle public uproar over companies making high profits during the worst cost of living crisis in decades. The Italian government’s surprise levy on banks on 8 August is the latest example of a trend started when power prices surged in the wake of Russia’s invasion of Ukraine, delivering bumper revenues to energy companies.
The taxes were originally imposed on the energy industry. But they are increasingly spreading to other sectors as politicians, hit by the rise in interest rates and higher government spending, seek to plug budget deficits.
OECD newly published working paper provides an analysis, comparing the tax treatment of labour and capital income across OECD countries, utilising stylised effective tax rates (ETRs). It shows that dividend income and capital gains are generally subject to lower ETRs than wage income at the personal level. In many countries, capital income is also tax-favoured even when considering taxes paid by both firms and individuals, although the gap between labour and capital income taxation tends to be smaller than when considering only personal-level taxes. The gap between ETRs on labour and capital income varies between countries and grows with income levels in some. The paper highlights that differential tax treatment of labour and capital income can affect the efficiency and equity of tax systems.
A war of words has broken out between the OECD and the UN ahead of a meeting in September on how the UN could play a larger role in international tax affairs. OECD has led discussions for decades, but it has increasingly faced criticism from developing countries, such as Nigeria and India, which argue its global tax policies favour the richer economies that make up its membership.
Accountancy Europe
Accountancy Europe responds to FASTER proposal
Council
European Data Protection Supervisor issues opinion on FASTER proposal
European Commission
Commission publishes progress report on Pillar 1
European Commission
Commission publishes annual tax trends report
European Commission
Commission issued stakeholder consultation on VAT administrative cooperation
European Commission
Commission publishes July infringements package
European Commission
Commission proposes to endorse IAS 12 adjustments in light of Pillar 2
European Commission
New Commission proposal on treatment of non-collected VAT in gross national income
European Commission
Commission adopts detailed reporting rules for the CBAM transitional phase
European Parliament
Study: National tax measures in response to the COVID-19 crisis
Financial Times
Italy backtracks with cap on windfall tax after bank shares slide
International
Millionaires, economists and international political leaders call on G20 countries to tax extreme wealth
OECD
OECD reports strong progress to G20 on international tax reforms
OECD
Progress continues in strengthening tax transparency through Country-by-Country reporting
