Tax Policy Update

• Commission gives more details on future tax plans
• European Parliament endorses public CBCR agreement, paving the way for introduction into EU law
• EU finance ministers on the verge (?) of agreeing on VAT rates reform, Code of Conduct revised mandate

European Commission outlines its tax plans in several FISC hearings

30 November was a busy day at the European Parliament’s FISC Committee, as it organised several hearings to discuss various tax topics (see items further below).

Two hearings in particular shed some light into European Commission’s (EC) plans around taxation.

The first of these was a hearing with Commissioner Paolo Gentiloni, during which he stated notably the following:

• Pillar 2: OECD should finish model rules “in coming days”. EC will then make a proposal (NB 22 Dec) that is “fully consistent” with the OECD, a first ECOFIN discussion would take place in January 2022, Council aims for agreement in the first half of 2022 and the rules would apply from 2023
• Pillar 1: multilateral convention to be signed in June 2022 and ratified before end-2022. Only then EC will have “more clarity” on EU’s way forward with implementation
• Digital levy: continues to be “on hold” but the Commissioner did not specify what new own resource EC would have instead
• Effective tax rates disclosure: proposal to come in 2022, not with Pillar 2 in December 2021. According to our intelligence, EC has not yet decided on the legal base to be used
• DAC 8 and DEBRA: both also to be expected for first half of 2022
• Pandora Papers: EC is reflecting on a “more robust approach” to 0-tax third jurisdictions

The second hearing, focusing specifically on Pandora Papers, hosted DG TAXUD’s Director Benjamin Angel. He outlined measures EC is planning in response, including the upcoming (22 December) shell entities proposal and making the EU list more effective. He also highlighted that under DAC 6 mandatory disclosure of tax arrangements, already 30,000 arrangements have been disclosed across the EU. It is up to Member States to ensure appropriate follow up on breaches, Mr. Angel reminded.

European Commission

October infringements package published

EC has published its latest monthly infringements package, again with several cases related to tax taken against Denmark, Lithuania, Croatia and Spain.

In these regular packages of infringement decisions, EC pursues legal action against Member States for failing to comply with their obligations under EU law. These decisions, covering various sectors and EU policy areas, aim to ensure the proper application of EU law for the benefit of citizens and businesses. Read more

Commission publishes latest VAT gap report

EU Member States lost an estimated EUR 134 billion in VAT in 2019, according to a new report released by EC on 2 December. This figure represents revenues lost to VAT fraud and evasion, VAT avoidance and optimisation practices, bankruptcies and financial insolvencies, as well as miscalculations and administrative errors.  While some revenue losses are impossible to avoid, decisive action and targeted policy responses could make a real difference, particularly when it comes to non-compliance, the report says. Read more

European Parliament

FISC discusses impact of technology on taxation

The FISC Committee held on 9 November a public hearing on “The impact of new technologies on taxation: crypto and blockchain”. It was a discussion with experts and institutional representatives about the fiscal challenges stemming from crypto assets, the impact of technologies such as blockchain on taxation and the use of technologies as an instrument to support tax fraud and evasion.

The panellists included Michelle Harding from the OECD, Andreas Thiemann from EC’s Joint Research Centre (JRC), Alberto García Valera from EY, and Robert Müller from Flick Gocke Schaumburg. Read more and watch the recording

European Parliament endorses public CBCR deal, finalizing the process

European Parliament Plenary discussed on 10 November the Directive on public country-by-country reporting (CBCR) by multinationals. Most political Groups showed significant support, particularly given the five years in which the Directive was inactive in the Council.

Several MEPs outlined how there have been a series of scandals related to tax evasion and avoidance. For the Commission and the Rapporteur Evelyn Regner (S&D/Austria), disclosure and transparency are the first steps in fighting tax shifting and evasion, describing this as a pioneering historical moment, with the EU being the first region in the world to adopt such legislation.

At its 11 November vote, the Parliament confirmed the agreement reached with the Council. The Council had already endorsed the agreement, meaning that public CBCR will now become EU law. Read more

FISC discusses amendments to draft report on fair and simpler taxation

At its 30 November hearing, FISC Committee discussed the amendments to the draft own-initiative report on “Fair and simpler taxation supporting the recovery strategy”, prepared by MEP Ludek Niedermayer (EPP/Czech Republic). It is European Parliament’s response to the July 2020 Commission’s Action Plan and its 25 initiatives in the area of VAT, business and individual taxation.

The draft report contains concrete recommendations for legislative proposals structured around the following three main topics: simplification and costs of compliance reduction for taxpayers, more certainty for taxpayers, and reduction of tax gap and compliance costs.

A Committee vote is currently scheduled for 24 January 2022, followed by a Plenary vote on 14 February.

FISC discusses amendments to draft report on impact of national tax reforms

At another 30 November hearing, FISC Committee discussed amendments to the draft own-initiative report on “The impact of national tax reforms on the EU economy”. The draft report, which was prepared by MEP Markus Ferber (EPP/Germany), contains concrete recommendations for legislative proposals structured around the following main topics: Debt-Equity bias, Effective marginal tax rate competition, Tax incentives for research and Development and An EU taxation scoreboard. The report is due to be voted on in Committee on 6 December, followed by a Plenary vote on 17 January 2022.

FISC discusses draft report on a pan-EU withholding tax system

A third FISC discussion on November 30 focused on amendments submitted to a draft report on a European withholding tax framework, prepared by the MEP Pedro Marques (S&D/Portugal). MEPs are hoping to influence EC’s work on its proposal expected for late 2022.

Mr. Marques underlined that there is broad consensus in the Committee about using technologies such as blockchain to link national databases and crosscheck information in real time. Moreover, there are amendments calling for the development of a registry for entities entitled to Treaty relief.

Both are recommendations made, notably, by Accountancy Europe’s Paul Gisby at a FISC hearing last month.

ECON is currently expected to vote on the draft report on the last week of January 2022, followed by a Plenary vote possibly in February or March.

MEP questions & replies

Commission says DPAs found no occasions where they had to block data transfers under FATCA

• Question by MEP Valérie Hayer (Renew Europe/France)
• Reply by Commissioner McGuinness

Commission not considering abolishing VAT and replacing it with turnover taxes

• Question by MEP Tomáš Zdechovský (EPP/Czech Republic)
• Reply by Commissioner Gentiloni

Company establishment or share capital in offshore jurisdictions not grounds for exclusion in public procurement

• Question by MEP Niels Fuglsang (S&D/Denmark)
• Reply by Commissioner Breton

Council

Council aiming for agreement on VAT rates reform and Code of Conduct Group in December

At its 7 December ECOFIN meeting, EU finance ministers will discuss – and possibly agree on – EC’s proposed VAT rates reform. This would be a major achievement for the ongoing Slovenian Council Presidency.

Moreover, the finance ministers are aiming for an agreement on a new mandate for the EU Code of Conduct Group. The draft new Code would, for example, consider the following tax measures as “potentially harmful”:

• preferential tax measures which provide a significantly lower effective tax level than those generally applying in the Member State in question
• tax features of general application of a Member State which create opportunities for double non-taxation or that can lead to the double or multiple use of tax benefits

in assessing whether a tax feature of general application is harmful, two criteria apply: there is no adequate anti-abuse provisions, and it affects “in a significant way” the location of business activity in the EU

Latest finance ministers’ report to heads of governments on tax file progress

EU finance ministers are also going to approve a report on recent tax activities to EU heads of governments. This report, as always, is a handy one-stop-shop overview of work on direct and indirect tax files conducted by the Council and its working groups in the past six months.

The Council’s Code of Conduct Group has also issued a similar report to EU heads of governments, focusing specifically on its own work.

EU Tax Observatory publishes new report on tax competition in the EU

The report, published on 22 November, provides an empirical analysis of personal and corporate tax competition in the EU. It argues that tax competition increasingly takes the form of preferential or narrowly-targeted tax regimes on top of general rate cuts. The report also provides a ranking of the most harmful regimes targeting foreign, mostly high-income or high-wealth individuals, and discusses several options to address these trends. Read more

Irish Finance Minister outlines reasoning in joining global tax deal

The benefits to Ireland of joining the OECD/G20 global tax deal “far outweigh” the downsides of remaining outside the deal, which would carry “very real risks”, Irish Finance Minister Paschal Donohoe explained in a November 10 address to the Irish legislature’s Committee on Finance, Public Expenditure and Reform, and Taoiseach. Read more

German coalition agreement contains several tax measures

The new social-democratic green liberal coalition government in Germany is taking shape. In late-November, the coalition outlined its government programme. It includes several points of relevance to pan-EU tax policy, for example:

• Introduce, from 2023, an “aviation levy” at pan-EU level to ensure airline tickets cannot be sold at a price below taxes, surcharges, fees and charges
• Support for ongoing EU’s Energy Taxation Directive (ETD) revision
• Drive forward digitalisation and de-bureaucratisation of tax administration
• Extend existing reporting obligation (DAC 6) for cross-border tax arrangements to national tax arrangements of companies with a turnover of more than EUR 10 million
• Campaign at EU level for definitive VAT regime

Prevent abusive dividend arbitrage transactions, notably by making greater use of new technological possibilities e.g. blockchain