Tax Policy Update

• EU finance ministers fail to agree on Pillar 2 but adopt position on CBAM
• DG TAXUD publishes work plan for 2022
• EP adopts position on withholding tax reform

EU finance ministers fail to agree on Pillar 2 Directive on 15 March meeting

In an outcome that was to be anticipated, EU finance ministers did not reach an agreement at their 15 March Economic and Financial Affairs Council (ECOFIN) meeting on the Pillar 2 compromise text prepared by the French Council Presidency. 4 EU countries – Sweden, Poland, Malta and Estonia – raised their continued objections.

Bruno Le Maire, the French finance minister, indicated that more work will be done in the coming weeks and that the ministers would be invited to try to agree on the proposal at their 5 April meeting instead. He also outlined the key aspects of the latest compromise text, aiming to address concerns expressed by some finance ministers at the January ECOFIN:

• the transposition deadline has been extended to 31 December 2023
• for EU countries that have less than 10 entities affected by the rules, there is an option to opt out from the mandatory application of the income inclusion rule (IIR) for a period of 5 years
• on linking Pillars 1 and 2, the Council would issue a statement re-iterating their commitment to the OECD package as a whole

However, that was still insufficient to certain EU Member States which expressed their inability to support the text:

• Sweden welcomed the extended timeframe but insisted its parliament still needs more time to work on the proposal
• Poland continued to insist on linking the work and timetables of the two Pillars
• Malta called for an even longer extension for the non-mandatory application of IIR and wants a higher threshold for the number of entities affected in a country
• Estonia insisted more “technical work” is still needed but assured that the Council is “very close” to a compromise

Cyprus, for its part, stated that the IIR should be mandatory across the EU to preserve the Single Market’s functioning. This implies that they would not be happy with the 5-year extension compromise, but it was not immediately clear whether they objected the text.

Read more

European Commission

DG TAXUD publishes work plan for 2022

The European Commission’s (EC) Directorates-General (DGs) published their so-called Management Plans for 2022 on 7 March. These are documents that give details about each DG’s work plans for the year in question.

The DG TAXUD Management Plan contains little new, but the following points are to be noted:

• a proposal for multinationals to disclose their effective tax rates is listed for Q2. EC had referred to this proposal many times in 2021, but in past months it seemed to have disappeared from their public documents and comments
• Pillar 1 proposal is curiously listed for Q4, although in EC’s planning documents the indicative date of 27 July is mentioned
• value-added tax (VAT) in the digital age proposal is scheduled for Q3
• directive on administrative cooperation (DAC) 8 proposal is scheduled for Q2
• an initiative to address the VAT gap is scheduled for Q3
• an initiative for taxpayers’ rights is scheduled for Q1
• a pilot project for cooperative compliance is being launched in Q1

Read more

Deadline for VAT in the digital age consultation extended

EC has announced a generous extension to its ongoing public consultation on VAT in the digital age. The new deadline is 5 May. The consultation is meant to inform EC’s direction of thinking ahead of a proposal expected for Q3 2022. Read more

European Parliament

EP approves position on VAT rates reform via quick procedure

The European Parliament’s (EP) Plenary approved on 9 March its position, prepared by MEP Marek Belka (S&D/Poland), on EU VAT rates reform. The position was adopted by an impressive majority of 612 votes in favour, 14 against and 71 abstentions.

In December 2021, the Council reached an agreement on a proposal to update EU rules on VAT rates. Given fundamental differences between the original 2018 EC proposal on which the EP was initially consulted, and the text unanimously agreed in the Council, the latter decided to re-consult the EP.

MEP Belka felt that although not fully in line with the first Parliament opinion, the Council agreement does take some crucial elements proposed by the EP into account.

With the EP’s opinion adopted, the Council agreement can now be implemented into EU law.

See also an information document published by Accountancy Europe outlining the key features of the Council agreement.

EP drafts report on Energy Tax Directive published

The draft report was prepared by MEP Johan Van Overdveldt (ECR/Belgium). Its publication is the Parliament’s first step towards formulating its opinion on the Commission’s initial proposal from 15 July 2021. Although the EP’s opinion is needed for the revised energy taxation Directive (ETD) to eventually become EU law, the Member States in the Council have no obligation to take it into account. A vote in the Committee on Economic and Monetary Affairs (ECON) is scheduled for 20 June.

EP adopts position on withholding tax reform

EP’s Plenary voted on the withholding taxation draft report on 10 March, with 625 votes in favour, 38 against and 28 abstentions. The report was prepared by MEP Pedro Marques (S&D/Portugal). It constitutes the Parliament’s formal position ahead of an EC proposal expected for Q4 2022. A public consultation is also expected in the coming days.

Accountancy Europe was delighted to contribute to the EP’s work, with Paul Gisby having provided input both during a public hearing as well as in writing. Read more

And a resolution on a fairer and simpler tax system

On the same day, Plenary also adopted MEP Ludek Niedermayer’s (EPP/Czech Republic) draft report on Fair and simple taxation supporting the recovery strategy. It passed with 476 votes in favour, 78 votes against and 129 abstentions. Read more

EP FISC exchanges views with EU Code of Conduct Group’s Chair

EP Subcommittee on Tax Matters (FISC) held a hearing on 17 March with Lyudmila Petkova, Chair of the Code of Conduct Group (CoCG) on Business Taxation. The debate touched on issues such as the reform of the Group, the list of non-cooperative jurisdictions, taxation of high-net worth individuals and the impact of the Pillar 2 agreement on the work of the Group.

Ms. Petkova highlighted the achievements of the EU list of non-cooperative jurisdictions so far. More than 140 preferential tax regimes have been abolished, 27 additional countries singed up for OECD cooperation and 13 countries have signed up to the OECD’s base erosion and profit shifting (BEPS) framework, she noted.

Speaking about EP’s non-binding tax resolutions, Ms. Petkova said that EU Member States do read them as a lot of what is in them is very useful.

On Pillar 2, she emphasized that work to monitor harmful tax practices will continue even after the Directive’s addition, especially with regard to companies that do not fall under its scope. Ms. Petkova also said that discussions are ongoing to potentially alter the third country listing rules on the basis of Pillar 2. Read more

MEP questions & replies

EC says it currently has no ‘tools’ to ensure Member States’ tax policies do not breach state aid rules

• question by MEP Emmanouil Fragkos (ECR/Greece)
• reply by Commissioner Gentiloni

EC confirms investigation into Netherlands’ tax treatment of IKEA still ongoing

• question by MEP Virginie Joron (ID/France)
• reply by Vice-President Vestage

Council

Council revises EU list of non-cooperative jurisdictions

The Council adopted on 24 February a revised EU list of non-cooperative jurisdictions for tax purposes. It decided to maintain the following countries on the list: American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu.

As previously predicted, 10 new jurisdictions were added into the so-called grey list: Bahamas, Belize, Bermuda, British Virgin Islands, Israel, Montserrat, Russia, Tunisia, Turks and Caicos Islands and Vietnam. Read more

Council discussion reaches position on CBAM and adopts conclusions on VAT e-commerce

On top of discussing the Pillar 2 Directive (see feature story), EU finance ministers also adopted conclusions on VAT for e-commerce at their 15 March meeting. They provide instructions to the EC’s upcoming VAT proposals, including on VAT for the digital age expected for Q3 2022.

More crucially, the finance ministers agreed on its position (including a statement) to EC’s proposed carbon border adjustment mechanism (CBAM), with relatively few changes to the original proposal.

As a next step for CBAM, the Council will need to find a compromise with the EP. The Parliament is currently working on its own position, with a vote in the Committee on Environment, Public Health and Food Safety (ENVI) to take place in the coming weeks.

OECD invited further public input on Pillar 1

The OECD launched on 18 February another public consultation on Pillar 1, this time focusing on the rules for determining the tax base under Amount A. The deadline for providing input was 4 March. Read more

US says it opposes Canada’s digital services tax proposal

The United States Trade Representative’s (USTR) office said on 22 February it opposed Canada’s plan to enact a digital services tax and urged Canada to abandon plans for such a step.

“The United States urges Canada to abandon any plans for a unilateral measure and instead redouble its commitment to the rapid implementation of Pillar One of the October 8 OECD/G20 agreement and the negotiation of a multilateral convention,” the USTR office said in a statement. The US has been long opposing countries’ unilateral plans for national digital taxes, this being only the latest example. Read more

UK Ministers raise plans for digital tax to cut business rates

UK ministers are sounding out industry views on an online sales tax designed to boost England’s struggling high streets and shopping malls by funding a reduction in business rates.

A three-month consultation into the new levy will look at issues such as which products and services could be targeted and whether it would be a flat rate per transactions or per delivery, or a revenue-based tax.

“We want to see thriving high streets and a fair economy as we move forward from the pandemic,” said Lucy Frazer, financial secretary to the Treasury. Read more