Tax Policy Update

• European Commission publishes major tax package
• European Commission launches two public consultations on green taxation
• EU General Court rules against Commission Apple Ireland state aid case

ECON hearing on digital taxation sheds light on OECD and EU thinking

On 13 July, ECON Committee held a hearing on digital taxation with OECD’s Pascal Saint Amans and Benjamin Angel, Director of DG TAXUD. The purpose of the hearing was to discuss and take stock of digital tax developments in the EU and beyond.

At the hearing, Mr. Saint-Amans said that the aim is to reach an OECD agreement in October on both Pillars 1 and 2. He hinted at the possibility of at least reaching an agreement on Pillar 2 this year, followed by an agreement on Pillar 1 in 2021. He also warned the EU against thinking that US would be any more cooperative under a Democrat president.

Mr. Angel for his part stated that France, Italy and Austria all have a digital services tax, and Spain and Czechia are looking at one. These national taxes have delivered on their targets and the GAFAs are paying some tax, Mr. Angel said.

Mr. Angel also confirmed that the EU is working on Plan Bs for both pillars, but the main question is when they should be launched. He said that going for a EU solution if there is no agreement this year may be premature if there is a possibility of a global solution later. He also stressed that the EU would prefer to keep both Pillars combined, as this is the best way to keep EU member states aligned.

Answering a question from MEP Paul Tang (S&D/Netherlands), Mr. Angel also said that in the absence of an OECD agreement the Commission would not resume the digital services tax (DST), which was only a temporary solution, and would rather opt for something more permanent and based on OECD progress.

European Commission

Commission recommends EU member states to not grant COVID state aid to companies with tax haven links

On 14 July, the European Commission issued a legally non-binding recommendation, suggesting member states to bar from COVID state aid companies with links to third countries that feature on the EU’s tax blacklist.

The recommendation includes a couple of exceptions: when the company’s tax liability in the member state granting the support is deemed adequate, or if the company makes a “legally binding” activities to cease its links to the third country. Read more

European Commission 15 July tax package: DAC 7

On 15 July, the European Commission published its anticipated package on fair and simple taxation. The package contains a mix of legislative proposals and non-legislative roadmaps for future tax measures, and consists of three overarching elements:

• DAC 7 proposal
• Communication on tax good governance in the EU and beyond
• Action Plan on fair and simple taxation

The proposed DAC 7 revision (and annex with definitions) extends EU tax info exchange rules to digital platforms. It aims to:

• Ensure that MS automatically exchange information on the revenues generated by sellers on online platforms

Clarify the rules in other areas in which Member States work together to fight tax abuse, e.g. with explicit inclusion of joint tax audits and group requests.

European Commission 15 July tax package: tax good governance Communication

The Communication on tax good governance promotes fair tax and fighting “unfair tax competition” in the EU and internationally. Some elements of interest include, for example:

• The Code’s scope should be widened to cover more types of regimes, general aspects of the national corporate tax systems and relevant taxes other than corporate tax, including Golden Visas
• Require EU countries to implement strict economic substance and transparency standards
• By end-2020 EC will review scope of the non-cooperative jurisdictions scoreboard to include additional countries into the screening process

In 2022 if EU MS’ defensive measures against listed non-cooperative jurisdictions are not sufficiently coordinated, EC will issue a proposal on coordinated defensive measures.

European Commission 15 July tax package: Action Plan on fair and simple taxation

The Action Plan presents 25 actions (listed in an annex) to make tax simpler, fairer and better adjusted to the modern economy that EC will take between 2020-2024.

The actions aim to remove obstacles ranging from registration to reporting, payment, verification and dispute resolution. The actions also aim to help Member States to harness the potential of data and new technologies to better fight tax fraud, improve compliance and reduce administrative burdens.

See here to find out more about what the Action Plan, and the other two elements of the tax package, entail.

Commission to table digital tax proposal in first semester of 2021

Benjamin Angel, Director for direct taxation at DG TAXUD, has confirmed that the Commission will table a proposal for a digital tax by “end of first semester 2021”. It will aim to introduce the digital tax at latest from 1 January 2023 as a new own resource of the EU. Read more

Commission prolongs VAT and customs duties relief for medical equipment imports

On 23 July, the European Commission decided to prolong the temporary relief for customs duties and VAT on the import of medical devices and protective equipment from third countries in order to help in the fight against coronavirus.

This measure covers masks and protective equipment, as well as testing kits, ventilators and other medical equipment. It will prolong the initial period of six months by another three months. Read more

Gerassimos Thomas to become new Director-General of DG TAXUD

Gerassimos Thomas, the former Greek Deputy Minister of Environment & Energy, has been appointed as the new Director-General of DG TAXUD. He takes over from Stephen Quest, who moved to become the Director-General of the Commission’s Joint Research Centre earlier in spring.

Prior to his post in the Greek government, Mr. Thomas worked within the European Commission as Director at DG ECFIN (2009-2014) and Deputy Director-General at DG ENER (2014-2019).

With background in energy and environment, Mr. Thomas is a reflection of the Commission’s tax agenda’s green focus. Read more

Commission launches two public consultations on green taxation

On 22 July, the Commission launched two anticipated public consultations on taxation and the Green Deal.

The consultations concern:

• The revision of the Energy Taxation Directive (ETD) with a deadline of 14 October
• The so-called Carbon Border Adjustment Mechanism (or tax – CBT) with a deadline of 28 October

The ETD revision aims to overhaul the taxation of energy products (electricity, natural gas, coal etc.) to better reflect the EU’s climate ambitions. This includes revising minimum rates for fuels, re-thinking current tax exemptions, and reducing implicit subsidies for fossil fuels and certain economic sectors.

With the CBT, the Commission seeks to set up a WTO-compliant tool to reduce the risk of carbon leakage and deter companies from shifting production out of the EU to countries with less stringent green regulations.

Commission proposes to amend VAT rules to accommodate trade with Northern Ireland after the transition period

On 7 August, the Commission proposed changes to the EU’s VAT rules, in preparation for the end of the transition period with the UK.

The amendment to the VAT Directive introduces a special identification number for businesses in Northern Ireland, so that EU VAT provisions can be properly applied to goods in line with the Protocol on Ireland / Northern Ireland. Under the Protocol, goods sold and transported from Northern Ireland to the EU (and vice-versa) will be treated the same as cross-border supplies of goods within the EU, including for VAT exemptions and deductions. Supplies of services in Northern Ireland will be subject to UK VAT rules after the transition period. Read more

Commission publishes first implementation report of ATAD

On 19 August, the Commission published a report evaluating the implementation of the EU’s anti-tax avoidance Directive (ATAD). It provides an overview of the implementation of the early applicable ATAD measures (interest limitation, GAAR, CFC) across Member States.

The report shows that several EU Member States have still not implemented some of ATAD’s provisions. The Commission has launched infringement procedures against these countries.

Another more comprehensive ATAD evaluation is to be published at latest in January 2022. Read more

Commission may make a proposal on defensive measures against ‘tax havens’ if member state coordination insufficient

• Question by MEP Aurore Lalucq (S&D/France)
• Reply by Commissioner Gentiloni

Commission confirms Austrian digital tax does not breach data protection rules and processing of personal data for tax audits is permissible

• Question by MEPs Roman Haider and Georg Mayer (ID/Austria)
• Reply by Commissioner Gentiloni

Commission says tax conditionality to receive COVID support is not against EU law

• Question by MEP Nikolaj Villumsen (GUE-NGL/Denmark)
• Reply by EVP Vestager

Commission says limited application of withholding tax on royalty and dividend payments and rules on intangible assets in Ireland facilitate aggressive tax planning

• Question by MEP Chris MacManus (GUE-NGL/Ireland)
• Reply by Commissioner Gentiloni

Commission insists a Carbon Border Adjustment Mechanism (tax) would be a climate measure, not a protectionist one

• Question by MEP Catherine Griset (ID/France)
• Reply by Commissioner Gentiloni

Commission to examine the feasibility of making the use of the Import One-Stop Shop obligatory

• Question by MEP Pascal Arimont (EPP/Belgium)
• Reply by Commissioner Gentiloni

Commission says that first own-resource tax proposals in 2021 and Article 116 cannot be used for harmonisation purposes

• Question by MEPs Marek Belka (S&D/Poland) and Jonás Fernández (S&D/Spain)
• Reply by Commissioner Gentiloni

The Commission to prepare an initiative to ensure a more consistent determination of tax residence rules in the single market

• Question by MEPs Jeroen Lenaers (EPP/Netherlands), Kris Peeters (EPP/Belgium)
• Reply by Commissioner Gentiloni

EU General Court rules in favour of Apple in Ireland tax state aid case

On 15 July, the EU General Court ruled that the European Commission was wrong to order Ireland to claw back EUR 13 billion in unpaid taxes plus interest from Apple.

The judges therefore overruled the 2016 decision by EU Competition Commissioner Margrethe Vestager that by not taxing the bulk of Apple’s global profits which were funnelled through the country, Ireland had granted Apple illegal state aid.

The Commission can appeal the General Court ruling to the Court of Justice of the EU. Until a final judgment is issued, the total sum of EUR 14.3 billion will remain blocked on an escrow account. Read more

Pandemic has left Europeans thirsty for change, poll finds

According to a new poll by the NGO More in Common, a majority of respondents in six European countries – France, Germany, Italy, the Netherlands, Poland and the UK – want to clamp down on tax evaders and polluters after COVID. According to the poll, for example 91% of Italians would support asking companies to stop using “tax havens and pay their taxes at home”. Read more

OECD publishes report to G20 finance ministers with the latest developments in international tax agenda

On 18 July, G20 finance ministers issued a communique re-iterating their commitment to finding an international solution to digital and minimum taxation by the end of the year.

Ahead of the meeting, the OECD published a report on its tax progress from past months. The progress report includes a state of play of Pillar 1 and 2 negotiations, as well as impact assessment results on both.

Finally, the OECD also delivered a separate progress report that describes the progress made to deliver on the mandate of the OECD/G20 Inclusive Framework, covering the period from July 2019 to July 2020.

EESC adopts new positions on EU tax policies

The European Economic and Social Committee (EESC) has issued its opinion on a number of major tax areas.

The first one concerns reporting requirements for the collaborative economy. The second opinion is on taxation of CO2, and the third one on COVID tax deferrals.

OECD report: Reassessing the regressivity of the VAT

The OECD has published a new study that re-assesses the often-made conclusion that VAT is regressive.

Drawing on tax microsimulation models constructed for 27 OECD countries and measuring VAT burdens relative to expenditure, the report argues that VAT is either roughly proportional or slightly progressive. However, for a small number of countries a broad-based VAT system with few reduced VAT rates or exemptions can produce a small degree of regressivity. Read more

UN committee proposes new model treaty provision altering taxation of automated digital services

On 6 August, the UN Committee of Experts on International Cooperation in Tax Matters released a proposed optional UN model tax treaty article that would grant additional taxing rights to countries where an automated digital services provider’s customers are located.

The drafting committee I comprised of members from developing countries acting in their personal capacity. The drafting group was asked to consider a proposal offered by Rajat Bansal from Indian Revenue but was not bound by it.

According to MNE Tax, the proposed article and its commentary depart significantly from the OECD-led Inclusive Framework’s unified approach to Pillar 1, which also seeks to grant greater taxing rights to source countries. Read more

Airbnb backs OECD approach to digital tax

On 12 August, Airbnb said that it supports the development of a digital tax regime being discussed by the OECD. “The almost century-old system we still use today was not designed with today’s increasingly digital economy in mind and it should be improved,” Airbnb said in a statement. Read more

US senators warn UK about its digital services tax

Top cross-party members of the US Senate finance committee have warned the UK over its hopes of a fast US-UK trade agreement due to the country’s new digital services tax.

Chuck Grassley, the Republican chairman of the finance committee and Ron Wyden, the committee’s top Democrat, argued that the British tax “unnecessarily complicates the path forward for a US-UK trade deal”.

Rumours have already emerged that the UK finance minister Rishi Sunak plans to drop the digital tax because it does not raise much money and could hurt the prospect of a US trade deal. For the time being, the British government has denied these reports.