Tax Policy Update

• Commission wins court case on Belgian tax state aid support schemes
• Commissioner Gentiloni says DAC 8 proposal to come in Q1 2022
• Several EU countries continue to question legal base of public CBCR
• Ireland, Estonia and Hungary further explain what it takes for them to back global minimum tax deal

European Commission

Vestager wins first leg of Belgian tax case at EU court

EU Competition Commissioner Margrethe Vestager scored a preliminary win in her case against Belgian tax ruling practices at the EU’s highest court.

The European Court of Justice (CJEU) ruled on 16 September that the European Commission (EC) was right to regard Belgium’s practice of giving tax breaks to multinational companies as a system or “scheme.”

Vestager in 2016 ordered Belgium to claw back about EUR 700 million from 39 companies, including Atlas Copco, BP and AB InBev, which were granted tax rulings that allowed them to reduce their corporate tax base by between 50 percent and 90 percent.

The CJEU judges overruled the lower EU General Court, which in 2019 annulled the Commission’s decision, following Belgium’s argument that Brussels could not take a one-size-fits-all approach.

“The General Court made several errors of law,” the court said in a statement. “The sample of rulings examined by the Commission … is, by its nature, capable of representing a ‘systematic approach’ taken by the Belgian tax authorities.”

Commission publishes roadmap on its future withholding tax initiative

The roadmap, published on 28 September, gives an overview of what the Commission is planning, what problems and possible solutions it is considering, and its timeline.

The Commission sees the need for a pan-European withholding tax framework in order to fight tax abuse, foster capital market integration and support post-COVID recovery. It is considering three options:

• Improving withholding tax refund procedures to make them more efficient (e.g. through standard EU forms)
• Establishment of a fully-fledged common EU relief at source system
• Enhancing the existing administrative cooperation framework to verify entitlement to double tax convention benefits

A standard 3-month public consultation is currently scheduled for before year-end. The actual legislative proposal is scheduled for Q4 2022. Read more

European Parliament

FISC Committee discusses tax transparency

FISC Committee hosted a hearing with expert speakers on 9 September on Tax Transparency. The hearing focused on tax reporting standards, best practices and legislation.

Numerous MEPs asked the expert panelists about the recently approved EU legislation on public country by country reporting (CBCR) and how the rules should be followed up. Many also quizzed about a minimum global corporate tax rate. Some MEPs agreed that a more simple tax system was needed because this would automatically make it more difficult to dodge taxes. Others argued that tax compliance would best be served by establishing low rates.

Eelco van der Enden, Chair of Accountancy Europe’s tax working party but speaking in his capacity of Global Reporting Initiative’s (GRI) board member, argued that tax reporting is increasingly becoming a corporate social responsibility (CSR) and sustainability topic for companies and investors. Read more

Ursula Von Der Leyen presents the Commission’s yearly priorities to the Parliament

European Commission President Ursula Von Der Leyen delivered on 15 September to the European Parliament the annual State of the Union address. In her address, the Commission President touched upon a wide array of issues and EC’s priorities, including on taxation.

She re-iterated EC’s commitment to fight against tax fraud and avoidance, and to revamp Europe’s tax system. In an accompanying statement of intent, EC also confirmed its intention to propose Directives to implement a prospective OECD agreement on Pillars 1 (re-allocation of taxing rights) and 2 (minimum taxation). Read more

European Parliament publishes draft report on impact of national tax policies

The draft report was prepared by MEP Markus Ferber (EPP/Germany). It underlines challenges to the EU Single Market posed by various national tax policies and recommends several improvements. It also includes several recommendations for SMEs, laments SMEs’ higher tax compliance costs and warns against possible distortive effects from preferential tax regimes for smaller companies.

A vote on the report is scheduled in the ECON Committee on 6 December, followed by a final Plenary vote on 17 January 2022. The report and its recommendations are legally non-binding. Read more

European Parliament adopts resolution on exchange of tax information, Commissioner says DAC 8 in 2022

European Parliament Plenary adopted on 16 September its report on the implementation of EU’s tax information requirements. The report was prepared by MEP Sven Giegold (Greens-EFA/Germany), and adopted with 561 votes in favour, 12 votes against and 116 abstentions.

Mr. Giegold’s report concludes that EU member states must increase their efforts on tax cooperation and implementation of the Directive on administrative cooperation (DAC). It laments, specifically, that there is still a lot of information about income and assets that is not systematically shared across borders, and the information that is shared is underused and of mixed quality. Mr. Giegold also criticises the Council and EC for not granting the Parliament access to the information needed to fully assess the effective implementation of the Directive.

In a 15 September hearing before the vote, Commissioner Gentiloni told MEPs that EC’s proposal on DAC 8 (crypto-assets and e-money, common EU sanctions) is scheduled for Q1 2022 (instead of initially planned Q4 2021).

MEP questions & answers

Commission explains EU Tax Observatory’s mandate and work scope

• Question by MEPs Lídia Pereira (EPP/Portugal) and Markus Ferber (EPP/Germany)
• Reply by Commissioner Gentiloni

Commission says VAT rates reform negotiations progressing “well”

• Question by MEP Chris MacManus (The Left/Ireland)
• Reply by Commissioner Gentiloni

Council

Ireland, Hungary and Estonia explain what they need to sign up to global deal

Three EU member states – Ireland, Hungary and Estonia – continue to withhold their support to an OECD minimum tax agreement. Ireland seeks predictability, namely, that the 15% minimum rate would be stable and not subject to increases. Hungary wants to exclude more of a company’s profits from the minimum tax base and for the rules to be the same for both the headquarters and the subsidiary of a group. And Estonia, for its part, wants a delay for including undistributed profits in the agreement’s scope. Read more

Several EU member states continue to question legal basis for public CBCR

Eight EU Member States have issued a statement criticizing the legal basis of the Directive to increase public country-by-country reporting (CBCR), which was agreed by EU co-legislators earlier this year and is in the process of being formally adopted.

At a 28 September vote in the EU Council, Cyprus and Sweden voted against the agreement. Czech Republic, Ireland, Luxembourg and Malta abstained. These objections were not enough to block the vote and prevent public CBCR from becoming EU law.

These objecting countries can now challenge public CBCR’s legal base in the EU Court of Justice (CJEU). Reinhard Biebel from EC’s DG TAXUD has confirmed that this is a possibility, but underlined that EC is confident that its chosen approach will prevail in court.

Have European banks left tax havens? Evidence from country-by-country data

EU’s Tax Observatory, an independent tax research institute, has published a new report on the use of “tax havens” by European banks on the basis of their CBC data.

The report documents the activity of European banks in tax havens and how this activity has evolved since 2014. The analysis covers 36 systemic European banks that have been required to publicly report country-by-country data on their activities since 2014. The study looked into the level and evolution of the profits booked by these banks in tax havens over the 2014-2020 period. It also computes their effective tax rates and their tax deficit—defined as the difference between what these banks currently pay in taxes and what they would pay if they were subject to a minimum effective tax rate in each country. Read more

OECD: Tax administrations continue to accelerate their digital transformation

Tax administrations are investing significant resources in the development of e-services and digital solutions, and are embracing opportunities for fast tracking digital transformation to improve their services, reduce burdens and improve tax compliance, according to a new OECD report.

The latest edition of Tax Administration 2021 sets out key performance indicators for 59 tax administrations from the OECD and other advanced and emerging economies which together collect EUR 12.3 trillion of revenue annually. The report highlights a further shift to digitalisation and the provision of digital services, something that has proven to be invaluable for tax administrations during the COVID-19 crisis as governments’ introduced thousands of emergency tax measures. Read more

Ireland seeks tax clarity from US before inking any deal on global minimum rate

Ireland’s position on a prospective international agreement on a 15% global minimum tax remains of high interest. On 21 September, Ireland’s Deputy Prime Minister Leo Varadkar said that Ireland doesn’t want to be seen as a tax haven and would prefer to be part of a new global agreement on corporate tax reform. Varadkar emphasized that if Ireland were to hike its tax rate on corporate profits to the OECD’s proposed global minimum rate of 15%, its existing 12.5% rate would still apply to most Irish firms. Irish Finance Minister Donohoe, for his part, has insisted that the proposed 15% minimum rate must be a ceiling, not the floor. Ireland also doesn’t want to accept any deal until it’s clear what the US Congress will authorize, according to Irish officials.