Tax Policy Update

• EU finance ministers fail to reach agreement on minimum tax following Poland’s veto
• European Commission launches public consultation on withholding taxation
• OECD seeks further public input on Pillar 1 elements

EU finance ministers fail to agree on Pillar 2 Directive

EU finance ministers failed to agree unanimously on European Commission’s (EC) Pillar 2 Directive, despite visible progress. Sweden, Malta and Estonia supported the compromise, but Poland vetoed and reiterated the need for a legal link between Pillars 1 and 2.

Poland fears that progressing on minimum taxation only will slow the progress on digital taxation and OECD’s Pillar 1. Both EC and the Council’s own legal services have rejected a legal link between EU Pillar 2 Directive with OECD’s Pillar 1, arguing that it would undermine the primacy of EU law. Poland’s objection has also been seen as political and not linked to the Pillars, but rather aiming to get concessions in unrelated policy areas.

It is not immediately clear how the French Presidency can secure Poland’s support for the Directive. Finance minister Bruno Le Maire however vowed to bring the Directive back to the finance ministers’ agenda at their next ECOFIN meeting scheduled on 24 May.

European Commission

Accountancy Europe responds to public consultation on VAT in the digital age

The consultation aims to inform EC’s decision-making ahead of a proposal expected in autumn 2022. It seeks stakeholders’ views on whether the current VAT rules are adapted to the digital age, and how digital technology can be used to help Member States fight VAT fraud and benefit businesses.

Views are sought on VAT reporting obligations and e-invoicing, the VAT treatment of the platform economy, and the use of a single EU VAT registration.

Accountancy Europe’s response provides input on all these areas. Read more.

Commission proposes endorsement of changes to IAS 12 standard on deferred taxes

The Regulation proposes to adopt changes to the International Accounting Standard (IAS) 12, following a positive opinion by the European Financial Reporting Advisory Group (EFRAG) and EU Accounting Regulatory Committee (ARC). IAS 12 refers to accounting treatment of income taxes, and these changes apply to deferred taxes on assets and liabilities from a single transaction. They were proposed by the International Accounting Standards Board (IASB).

Both European Parliament and the Council now need to approve EC’s proposal.

Commission publishes study on tax compliance costs for SMEs

The study provides an estimation of the administrative burden for SMEs and large enterprises in the EU and UK stemming from the fiscal rules for tax filing. Tax legislation is often written in a way that addresses all types and sizes of enterprises similarly. SMEs face a comparative disadvantage to large-scaled enterprises (LSEs) as the burden of compliance falls disproportionately on them and because they often do not have sufficient financial and human resources to manage their regulatory obligations. The study argues even small improvements in the regulatory environment for SMEs may have a large positive impact on the EU economy.

Accountancy Europe has provided insight and experience for the study, drawing on the experience of our small practitioner members who service SME clients. Read more

EC publishes public consultation on withholding taxation

The EC is preparing an initiative to improve withholding tax procedures for non-resident investors. The initiative aims to provide Member States with the information to prevent tax abuse in withholding taxes and accommodate a swift and efficient processing of the requests for a refund and/or a relief at source procedures of the excess taxes withheld.

The EC is inviting stakeholders to express their views on the problems and on possible measures and their potential impacts. The input will support the impact assessment the EC is currently carrying out.

The consultation will run until 26 June. Read more

European Parliament

ECON Committee publishes draft position on minimum tax

The draft report was prepared by MEP Aurore Lalucq (S&D/France), and reacts to EC’s proposal for a Directive on minimum taxation. MEP Lalucq’s recommends setting an effective tax rate of 21%, instead of the 15% rate in the OECD agreement. The Parliament’s draft opinion is legally non-binding, but is needed before the Directive can enter into force.

A vote in ECON Committee is scheduled for 28 April, followed by a final vote in Plenary on 6 June. Read more

FISC hearing: expert calls for stronger regulation of tax advisers in the Netherlands

EP’s FISC Committee 28 March public hearing focused on Dutch national tax reforms to combat aggressive tax schemes. The hearing gathered experts’ insights and opinions on the corporate tax reforms implemented or envisaged in the Netherlands to address tax evasion and aggressive tax planning, as well as their interaction with other national tax systems.

Speaker Anna Gunn, partner at Gunn Tax Communication, called for a national regulation of tax advisors in the Netherlands. Jan van de Streek, professor of tax law at the University of Leiden also stated that such a regulation could be done through an oath or ethical rules. Read more.

FISC hearing: role of jurisdictions featuring in Pandora Papers

The hearing on 28 March focused on exchange of information with jurisdictions appearing prominently in the Pandora Papers. Speakers underlined the critical role of good information exchange between jurisdictions to tackle tax fraud and evasion. MEPs heard about the importance of transparent and public beneficial ownership registries in all jurisdictions. Increased transparency for trusts, interoperable datasets and working towards a global asset registry in the long-term was also discussed. Read more

European Parliament to adopt position on optional RCM via simplified procedure

At its 20 April hearing, ECON Committee discussed the draft report on the proposal amending the VAT Directive as regards the extension of the application period of the optional reverse charge mechanism (RCM) in relation to supplies of certain goods and services susceptible to fraud. MEPs agreed on a simplified procedure without amendments and the report will be tabled for the May plenary session for immediate adoption. The report was prepared by MEP Markus Ferber (EPP/Germany).

EP’s opinion is legally non-binding but needed for the EC proposal to become EU law. Read more

MEP questions & replies

EC explains why it will not withhold development aid from blacklisted jurisdictions

• Question by a group of ID MEPs
• Reply by Commissioner Gentiloni

EC says there is ambiguity on distributional and efficiency effects of flat taxes

• Question by MEP Francisco Guerreiro (Greens-EFA/Portugal)
• Reply by Commissioner Gentiloni

Council

EU finance ministers give final approval for VAT rates reform proposal

EU finance ministers managed to formally adopt the compromise reached earlier on EU VAT rates reform at their 5 April ECOFIN meeting, despite the setback on the Pillar 2 Directive. The reforms will grant EU Member States greater flexibility in setting up their national VAT rates, whilst trying to align the VAT system with EU’s climate ambitions. Accountancy Europe provided a comprehensive overview of how the EU VAT rates system will change as a result. Read more

OECD seeks input on new tax transparency framework for crypto-assets and amendments to the Common Reporting Standard

The document focuses on a new global tax transparency framework to provide for the reporting and exchange of information on crypto-assets, as well as proposed amendments to the Common Reporting Standard (CRS) for the automatic exchange of financial account information between countries. The consultation aims to inform policy makers decisions on the possible adoption of any such framework and its related design components. The deadline for responding is 29 April. OECD will also organise an event on the topic at the end of May. Read more

Tax challenges of digitalisation: OECD invites public input on the draft rules for scope under Amount A of Pillar One

The OECD also sought public comments on the Draft Model Rules for Domestic Legislation on Scope under Amount A of Pillar One.

The purpose of the scope rules is to determine whether a Group will be in scope of Amount A. The rules are designed to ensure Amount A only applies to large and highly profitable Groups and have been drafted to apply in a quantitative manner, such that they are readily administrable and provide certainty as to whether a taxpayer is within scope.

The consultation was launched on 4 April, and the deadline for responding was 20 April. Read more

OECD invites public input on extractives exclusion under Amount A of Pillar One

The OECD is seeking public comments on the Extractives Exclusion under Amount A of Pillar One.

The Extractives Exclusion will exclude from the scope of Amount A the profits from Extractive Activities. The exclusion applies where a Group derives revenue from the exploitation of Extractive Products and the Group has carried out the relevant Exploration, Development or Extraction. This approach reflects the policy goal to exclude the economic rents generated from location-specific extractive resources that should only be taxed in the source jurisdiction, while not undermining the comprehensive scope by limiting the exclusion in respect of profits generated from activities taking place beyond the source jurisdiction, or later in the production and manufacturing chain.

The deadline to respond is 29 April. Read more

Joe Biden to propose new minimum tax on wealthiest Americans

The US President will call on Congress to introduce a minimum tax targeting the investment income of the wealthiest Americans as part of a new budget proposal.

The plan would require US households worth more than $100mn to pay a minimum 20% tax on all income, including unrealised income from investments such as stocks and bonds. Read more

Italy makes recent changes to cooperative compliance tax regime

Two significant developments were made in March to the Italian cooperative compliance regime (adempimento collaborativo), which first went into effect in Italy in 2016 (legislative decree n. 128 of August 5, 2015).

The regime aimed to replace the antagonistic relationship between taxpayers and tax administration officials with a dialogue based on mutual trust and transparency. The admission to the cooperative compliance regime entitles the taxpayer to prevent tax audits and to agree in advance with the Italian Revenue Agency on the tax treatment of specific uncertain transactions. In addition, it is a procedure aimed at managing tax risks inside business processes. Many multinational groups have already requested and received admittance into the regime. Read more