Check out our overview of the legislation that aims to fight carbon leakage
Stay informed by following our series of publications on tax policy.
Later this year the European Commission (EC) intends to publish delegated acts to implement specific provisions of the EU’s carbon border adjustment mechanism (CBAM).
This includes the rules and criteria governing the role of accredited verifiers, who among other things will need to verify the CBAM declarations submitted by declarant entities.
In the fourth quarter of 2024, the EC will publish a delegated regulation that sets out the conditions that national accreditation bodies must observe when granting accreditation to carry out verification activities for CBAM purposes. This initiative will also set out rules on:
Moreover, an implementing regulation is likewise planned for the fourth quarter of 2024 that will set out more details on:
Additional delegated acts are expected on additional aspects of CBAM, such as for example the sale and repurchase of CBAM certificates, and rules for customs procedures and communication requirements.
EC published the consultation on 12 March, and stakeholders may provide feedback until 10 May.
According to Article 21 of the EU’s tax dispute resolution mechanism Directive (DRM), the EC must conduct a review and issue a report on the functioning of the DRM. The DRM has been operational since 1 July 2019; therefore the first review will focus on implementation aspects of the DRM. The Consultation seeks to obtain stakeholders’ views of the DRMto assess the functioning of the DRM in its first years.
Interested stakeholders need an EU login account to access the consultation document.
European Parliament’s (EP) FISC Subcommittee hosted on 13 February a public hearing on “Tackling Tax Obstacles in the Internal Market and the Role of Tax Policies in Promoting Economic Growth”. A panel of experts presented their views and discussed with FISC Members on how to address remaining tax-related obstacles and distortions in the Single Market.
Mr Enrico Letta, President of the Jacques Delors Institute, mandated by the EU Council to prepare a high-level report on the future of the EU’s internal market and to present it at the 20-21 March 2024 European Summit, also participated in the hearing to comment on tax-related aspects of his work. He highlighted the importance of removing tax obstacles especially to benefit SMEs’ cross border operations. One of the ideas he flaunted at the hearing was to experiment with a so-called “28th regime for SMEs”, both on corporate law and taxation.
During the debate, MEPs focused their questions on which tax barriers to the Single Market legislators should focus on tackling, on how enforcement could be improved, on the best way to get member states to agree to a significant EU tax reform, and on the need to simplify the rules.
The Policy Department for Economic, Scientific and Quality of Life Policies organised a workshop with FISC Members to present a study on “Good tax practices in the fight against tax avoidance – The signalling role of FDI data”.
Prof. Dr. Arjan Lejour presented the report, which examines the role of Foreign Direct Investment (FDI) in tax havens. About 40-45% of the global FDI stock is hosted in tax havens, while their share in the world economy is only around 41/2%. These abnormal FDI patterns, according to professor Lejour, suggest that FDI and international corporate tax avoidance are closely related. Traditional tax havens are attractive because of zero tax rates and uncooperative behaviour. For European tax havens it is rather a mix of policies related to improving the investment climate and this mix differs by country, he explained.
EP’s ECON Committee adopted its opinions on the EC proposals on transfer pricing and setting up a Head Office Tax system for SMEs (HOT).
The transfer pricing opinion, led by MEP Kira Marie Peter-Hansen (Greens-EFA/Denmark), was adopted with 28 votes in favour, 3 votes against and 2 abstentions. The HOT opinion, prepared by MEP Lidia Pereira (EPP/Portugal), was voted through with 30 votes in favour and 3 votes against.
Both draft opinions are scheduled to be adopted by EP Plenary on 10 April.
EP adopted its opinion on the proposal for a directive on Faster and Safer Relief of Excess Withholding Taxes (FASTER). The opinion was prepared by MEP Herbert Dofrmann (EPP/Italy).
Although the EP has only a non-binding opinion role in the FASTER legislative process, this opinion is nonetheless needed for the proposal to become EU law. Thus, with its vote, the EP paved the way for the Member States in the Council to find eventual final agreement on the file.
Reportedly, negotiations on the Energy Taxation Directive (ETD) in EP collapsed on 14 March. This means that the EP will not be able to deliver its non-binding opinion on the ETD until after the EU elections in June.
This puts the future of ETD in further doubt. The EC launched a revision of the ETD in July 2021 with the aim of aligning it with the EU’s climate ambitions. EU Member States, who need to approve the revision by unanimity, have so far failed to reach an agreement but the ongoing Belgian Council Presidency has made a new push to break the deadlock.
EP’s failure to find an agreement puts these fresh efforts in further doubt, however. Although the EP only issues a non-binding opinion as with other tax files, this opinion is nonetheless needed for the file to become EU law. This means that even if the Council finds agreement on the ETD in the coming weeks and months, it cannot become EU law until the new post-elections EP adopts an opinion. The file in the EP is being led by MEP Johan Van Overtveldt (ECR/Belgium).
EU Member States’ finance ministers removed four jurisdictions – the Bahamas, Belize, Seychelles, and Turks and Caicos Islands – from the EU list of non-cooperative jurisdictions for tax purposes (Annex I). The Bahamas and Turks and Caicos Islands were fully delisted because they addressed deficiencies in their enforcement of economic substance requirements. Belize and Seychelles were moved to Annex II pending the results of a supplementary review by the Global Forum on Tax Transparency and Exchange of Information.
Based on this update, Annex I of the EU list is now made up of 12 jurisdictions that have not improved their tax good governance standards or made insufficient progress in delivering on their previous commitments. Those countries are American Samoa, Anguilla, Antigua and Barbuda, Fiji, Guam, Palau, Panama, the Russian Federation, Samoa, Trinidad and Tobago, US Virgin Islands, and Vanuatu. Additionally, 10 jurisdictions now feature in Annex II based on commitments they have taken to improve their tax good governance.
Previous reports suggested that the Belgian Council Presidency sought to secure an agreement on the FASTER initiative during the April 12 ECOFIN meeting. However, based on recent developments it now appears that an agreement is in the aims for the June ECOFIN, preceded by a finance ministers’ orientation debate on the initiative at the 14 May ECOFIN. This is due to continued outstanding disagreements on the file, including on self-assessment, and carve outs.
The OECD/G20 Inclusive Framework on BEPS released on 19 February a report on Amount B of Pillar One, which provides a simplified and streamlined approach to the application of the arm’s length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries. The approach set out in this report answers the call of low-capacity countries for what the African Tax Administration Forum (ATAF) has described as “vital” changes to the OECD Transfer Pricing Guidelines, providing what “could be a game changer for the African transfer pricing landscape”. Content from the report has now been incorporated into the OECD Transfer Pricing Guidelines.
Several low-capacity countries report that between 30-70% of their transfer pricing disputes relate to baseline marketing and distribution activities. The changes to the OECD Transfer Pricing Guidelines agreed in this report will provide jurisdictions with the option of applying straightforward bright-line rules to these activities, allowing them to secure revenue and preserve valuable tax administration resources while providing additional certainty to multinational enterprises.
The finance ministers of the G20 countries discussed the issue of taxing the super-rich at a meeting in São Paulo. The Brazilian minister, Fernando Haddad, and the French minister, Bruno Le Maire, in particular, advocated for the idea of a third pillar of the OECD agreement.
“Despite recent progress, it is undeniable that the world’s billionaires continue to evade our tax systems through a variety of strategies”, deplored Mr Haddad in his speech. He referred to the European Tax Observatory’s latest report on tax evasion, which shows that billionaires pay an effective tax rate equivalent to 0 to 0.5% of their wealth.
