Tax Policy Update

• Commission published Business taxation Communication with new policy measures ahead
• Accountancy Europe, with support from DG TAXUD, publishes factsheet for accountants on VAT e-commerce rules for SMEs
• OECD tax negotiations see big progress with new proposals by Biden administration

European Commission (EC) announces major corporate and direct tax policy measures for next 2 years

The key announced proposals contained in the EC Communication published on 18 May include:

• Directives to transpose into EU law both Pillars 1 and 2 of the OECD negotiations (timing not indicated but probably in 2022)
• 14 July EC proposal on a digital levy
• Q4 2021: revisions to the EU anti-tax avoidance Directive (ATAD 3) to reinforce measures against shell companies in the EU
• Q1 2022: proposal creating a Debt Equity Bias Reduction Allowance (DEBRA), formerly known as the allowance for corporate equity (ACE) as previously included in the C(C)CTB proposals
• 2022: proposal to oblige certain multinationals operating in the EU to disclose their effective tax rates (on a jurisdiction-by-jurisdiction basis), based on the methodology of OECD Pillar 2
• 2023: C(C)CTB withdrawn and replaced by a proposal called BEFIT (Business in Europe: Framework for Income Taxation). BEFIT would also be based on a common EU definition of the tax base and formulary apportionment (sales, capital, labour) of taxing rights between countries. But the tax base calculation would be changed to adjust to an eventual Pillar 2 methodology, and the formula would use elements from Pillar 1. In the formula, capital would also include intangibles.

Overall, the EC seeks a holistic vision for Europe’s tax mix, and wants to adapt the tax system to key megatrends such as climate change, technology and ageing population. It will consult with stakeholders and organise a major event to discuss solutions and approaches in 2022. This holistic thinking about the tax system and tax mix is in line with Accountancy Europe’s own views.

European Commission

Accountancy Europe and DG TAXUD urge accountants to help SMEs with VAT e-commerce rules

Accountancy Europe has published a new paper, based on advice from EC’s DG TAXUD, on the new VAT e-commerce rules that will enter into force in the EU from 1 July 2021. It is aimed especially for SME accountants.

The paper outlines the main upcoming changes, and describes how SMEs’ obligations under various e-commerce scenarios in the EU Single Market will change. It urges SMEs’ accountants to take action to inform their SME clients about these changes, and help them adapt their businesses accordingly. Read more

EU General Court delivers key verdicts in EC’s tax state aid cases

The EU General Court annulled an EC decision finding that Amazon owed EUR 250 million in illegal state aid in the form of unpaid taxes to Luxembourg on 12 May. The Court argues that the EC failed to demonstrate that a Luxembourg tax ruling supporting Amazon’s transfer pricing methodology created an unfair advantage to Amazon under EU state aid law.

In another case, the Court ruled in EC’s favour involving the French Engie Group in Luxembourg. It agreed with the EC that an unfair tax advantage had been granted to the company, in the form of Luxembourg’s non-application of national provisions relating to abuse of law.

Both rulings can be challenged by the parties concerned.

EC issues recommendation on the tax treatment of losses to support COVID recovery

The recommendation was issued together with the EC’s Business tax Communication on 18 May.

The EC recommends that Member States allow loss carry back for businesses to at least the previous fiscal year (2019). Member States may also extend that period to allow loss carry back up to the previous three years (2020 and 2021) against already taxed profits in the fiscal years 2019, 2018, and 2017. They should allow businesses to immediately claim the carry back of losses which they estimate to incur in fiscal year 2021, without the need for waiting until the end of the year. EUR 3 million per loss making fiscal year should be the maximum amount for the loss carry back.

The recommendation is a soft-law instrument and does not oblige Member States to act.

EC publishes Inception Impact Assessment (IIA) about its Q4 2021 initiative to address shell companies

Among the options under consideration is a Directive (probably amendment to ATAD) to define new tax related substance requirements and new mechanisms to control these requirements are met.

DG TAXUD’s Director, Benjamin Angel, clarified  the EC does not seek to ban shell companies at a 25 May webinar. Rather, it wants tax administrations to cease tax benefits linked to such entities, thereby rendering them useless.

A public consultation is to be launched most probably in June. Read more

European Parliament

FISC Committee discusses reform of EU Code of Conduct Group

FISC Committee held a hearing with Lyudmila Petkova, Chair of the Council’s Code of Conduct Group, on the reform of the Code of Conduct Group criteria and process on 19 April.

Petkova underlined the successes of the EU’s blacklisting process, with so far 95 jurisdictions having been reviewed and over 130 preferential tax regimes modified or removed as a result. About reforming the Group, Petkova simply stated that “technical” work is ongoing towards a 3-step assessment of EU countries’ tax systems. She did not answer questions on reforming the Group’s governance. Read more

European Parliament (EP) plenary adopts position on digital taxation

The resolution on digital taxation was adopted with 549 votes in favour, 70 against and 75 abstentions on 29 April. The draft report had been prepared by MEPs Martin Hlaváček (RE/Czech Republic) and Andreas Schwab (EPP/Germany).

The adopted position calls for an EU plan B in case there is no international agreement on tax reform. It also welcomes the new momentum brought by the Biden administration to international discussions.

Before the vote, Commissioner Gentiloni re-emphasised to the EP the EC’s efforts to work on a digital levy that would be separate from the OECD work. Read more

EP ‘fast tracks’ EC’s COVID VAT exemptions proposals

EP’s Plenary approved the EC’s proposed extended VAT waver for importations of supplies needed in the fight against the COVID pandemic on 18 May. Given the urgency of the topic, EP had decided to ‘fast track’ the file and adopt it without rounds of amendments and negotiations.

The EP has no legislative powers, as with all tax matters. However, the EP’s opinion is needed before the proposal can enter into effect.

Commissioner Gentiloni presents Business tax Communication to the EP

Commissioner Gentiloni explained the main features of the Communication on business taxation for the 21st Century during an EP Plenary on 18 May.

Many MEPs expressed support for the EC’s ambitious proposals, including BEFIT that would replace CCCTB. They also expressed doubts about Member States being able to find unanimous agreement on the proposals.

Commissioner responded citing three reasons for why he is optimistic this time: first, there is consensus that post-COVID public financing must be ensured. Second, a global agreement on re-allocation of taxing rights and minimum taxation are around the corner. Third, the EC and the EP will continue to work hand-in-hand for an ambitious EU tax agenda. Read more

FISC hearing on role of technology in the tax system

FISC Committee hosted a public hearing on “How can technology help in reducing fraud and making tax compliance simpler” on 25 May. The discussion came in a context of increased calls at an international level to clamp down on tax fraud and to reduce administrative burdens on taxpayers through technological advances.

FISC Subcommittee members heard the expert views of Vincent Drezet and Peter Green (Forum on Tax Administration, OECD) on the potential of technology to both facilitate taxpayer compliance and to fight against tax fraud and evasion. EC representatives from DG TAXUD also shared insights on how to better strengthen digital governance, and discussed the practical implementation of such measures for national tax administrations and the potential of data. Read more

ECON Committee adopts draft report on tax information exchange

The draft report was prepared by MEP Sven Giegold (Greens-EFA/Germany). It aims to assess and monitor the functioning of the EU’s Directive for administrative cooperation on taxation (DAC).

Giegold makes several concerning observations, including that the exchanged data appears to be of poor quality, not frequent and does not cover certain types of income and assets. He also deplores that EU Member States were reluctant to provide their DAC related data for the investigation, with the exception of Finland and Sweden.

Following a 27 May vote in ECON Committee, a final vote in Plenary is scheduled for 23 June. Read more

MEP Questions & Replies

EC argues post-Brexit agreement with UK has ambitious tax commitments

• Question by MEP Hélène Laporte (ID/France)
• Reply by Vice-President Šefčovič

EC says it is “not aware” of tax rulings by the Netherlands confirming Uber’s tax treatment in the country

• Question by MEP Paul Tang (S&D/Netherlands)
• Reply by Executive Vice-President Vestager

EC says it has no legal ground to investigate tax avoidance of entities in EU black list jurisdictions

• Question by MEP Ernest Urtasun (Greens-EFA/Spain)
• Reply by Commissioner Gentiloni

Council

EU finance ministers express support for revision of energy taxation rules

EU finance ministers discussed the EC’s planned revision of the Energy Taxation Directive (ETD), currently scheduled for 14 July, on 22 May.

According to EC Vice-President Dombrovskis, who was present at the meeting, all Member States agreed that green taxation can encourage a sustainable use of resources, produce economic, social and health benefits, broaden the tax base and foster the shift away from taxing labour. The Portuguese Presidency said there is “broad support” for including maritime and aviation sectors into the scope of ETD.

Member States will need to approve any proposed ETD revision with unanimity.

OECD agreement by October at latest, Pascal Saint-Amans says

Pascal Saint-Amans, Tax Director at the OECD, said that a July G20 finance ministers meeting would be a very important milestone towards international agreement on Pillars 1 and 2. He added that if some matters remain outstanding, there will be a deal before G20 leaders meet in October. Read more

US raises concerns over Europe’s planned carbon ‘border tax’

Implementing a border levy to price carbon-intensive imports and protect European industries will be “extremely complicated,” warned Jonathan Pershing, US climate envoy’s team member. He added: “I don’t disagree in principle that it has value, but I think that it’s got enormous complexity”.

The carbon border adjustment mechanism, due to be revealed on 14 July, aims to put a price on imports from countries where it is cheaper to pollute, to protect European manufacturers facing higher carbon costs. Read more

OECD: Inheritance, estate and gift taxes to address inequality and public finances

Inheritance taxation can be an important instrument to address inequality, particularly in the current context of persistently high wealth inequality and new pressures on public finances linked to the COVID-19 pandemic, according to a new OECD report.

The report provides a comparative assessment of inheritance, estate and gift taxes across the 37-member OECD, and explores the potential role of these taxes in raising revenues, addressing inequalities and improving the efficiency of tax systems in the future.

It highlights the high degree of wealth concentration in OECD countries and the unequal distribution of wealth transfers, which further reinforces inequality. The inheritances and gifts reported by the wealthiest households (top 20%) are on average close to 50 times higher than those reported by the poorest households (bottom 20%). Read more

US proposes global corporate tax rate of at least 15% in international talks

The Biden administration has signalled it will accept a 15% global minimum tax on large multinational companies, in international talks aimed at increasing revenues from corporations that operate across borders. The Biden administration had previously proposed 21%, according to the US Treasury.

Following new momentum brought about by the new US administration, G7 is reportedly close to a breakthrough.

Ireland strongly concerned as Biden tax plan throws doubt on economic model

Ireland’s finance minister Paschal Donohoe has signalled the country will resist attempts to rebalance the global tax system if they affect Dublin’s ability to undercut its rivals.

He stated Ireland could lose 20% of its tax revenues under new tax proposals led by the US. He said he would support a global agreement that allows “appropriate and acceptable tax competition” between States. Read more

New EU VAT rules to cost British SMEs £180m in extra red tape

UK e-commerce sellers are facing £180m in additional red tape costs as the EU imposes sweeping VAT reforms on e-commerce sales from outside the bloc, according to a consultancy.

The new rules, which will be introduced on 1 July, were originally designed to stop an estimated EUR 7 billion in annual VAT fraud by non-EU e-commerce sellers, many of which are located in China. After the UK’s departure from the EU, British companies will also need to comply.

SMEs exporting to EU customers are set to face the biggest upheaval because of the changes, which remove VAT exemptions for SMEs and shipments not exceeding EUR 22. Read more