Tax Policy Update

• European Commission launches public consultation on tax advice regulation
• Council finance ministers fail again to finalise Pillar 2 Directive, this time due to Hungary
• European Parliament condemns Hungary’s veto on Pillar 2 Directive

European Commission

Commission launches public consultation on regulating tax advice

The consultation was launched on 6 July with a 12 October deadline. It gathers stakeholder input to inform a proposal, currently scheduled for early 2023, to limit the provision of ‘aggressive tax planning’ advice by ‘enablers’.

The consultation’s questions ask, notably:

• what criteria could be used to determine whether a company structure might result in aggressive tax planning
• views on possible policy options, including whether a soft or hard law instrument would be in order
• whether to introduce an EU database, code of conduct or self-assessment due diligence on enablers
• how to enforce the possible rules

Earlier in June, European Commission’s (EC) Benjamin Angel said that the proposal would focus on tax advice with 3rd country elements, rather than purely intra-EU advice. However, the consultation document itself has not been designed accordingly and could equally well apply for an intra-EU scope.

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VAT in the digital age and DAC 8 scheduled for November

According to the EC’s internal planning, both the Directive on administrative cooperation (DAC 8 covering crypto-assets and e-money) as well as the Value-Added Tax (VAT) in the digital proposal are scheduled for 16 November. The former will further expand the existing exchange of tax information between EU tax administrations. The latter, for its part, will propose measures to adapt the EU VAT rules to the realities of e-commerce and digitalisation.

European Parliament

FISC discusses Irish tax system

The hearing took place on 16 June and was a part of the Subcommittee on tax matters’ (FISC) hearing series on “Case studies on member states national tax”. The purpose of the hearing was to gather insights from experts on the corporate tax reforms implemented or planned in Ireland to address tax evasion and aggressive tax planning. It also assessed Ireland’s interaction with other national tax systems primarily in the EU but also with main economic partners outside the EU.The hearing provided an opportunity to examine the remaining challenges and lessons to be learned for the EU and the other member states in the combat against aggressive tax systems. A recording of the hearing is available.

FISC hold hearing on 2 new studies prepared for the Committee

The hearing took place on 27 June, and hosted professors Emer Mulligan (National University of Ireland Galway) and Jost Heckemeyer (Kiel University) as expert speakers.

Professor Heckmeyer described main tax distortions and obstacles in the EU Internal Market, as documented in his study. Professor Mulligan, for her part, provided a comparative analysis of the regulatory framework of tax intermediaries in a group of five countries (Ireland, Netherlands, Germany, Italy and UK). On that basis, she assessed whether and which best practices could be promoted at EU level and, if relevant, whether EU regulation, in the form of legislation or soft law, could be recommended. She highlighted the need to better address ethical dimensions of taxation in tax planning.

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FISC Committee discusses tax policies with Commissioner Gentiloni

At a later hearing on the same day (27 June), the FISC Committee hosted Commissioner Gentiloni to discuss the EC’s tax work.

MEPs focused their questions on how to resolve the impasse on the EU’s Pillar 2 Directive (see article below). Gentiloni did not appear keen to try to avoid the Council unanimity rule to get over EU Member States’ national vetoes for Pillar 2, insisting instead on the need to build a strong consensus. However, he did say that it is high time to use Article 116 of the EU Treaties to address specific tax related distortions in the EU Single Market. Moreover, Gentiloni said that the Commission would take stock in June 2023 about international progress on Pillar 1.

Moreover, MEP Paul Tang (S&D/Netherlands), Chair of the FISC Committee, expressed his support for the Commission’s upcoming initiative to address ‘enablers’ of tax planning.

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ECON adopts position on taxation of cryptoassets

MEPs adopted on 30 June a non-binding resolution calling for a better use of blockchain to fight tax evasion and for Member States to coordinate more on the taxing of crypto assets.

The resolution, drafted by MEP Lídia Pereira (EPP/Portugal), was adopted by the Committee on Economic and Monetary Affairs (ECON) with 40 votes in favour and 1 abstention.  It sets out a framework through which both goals of using blockchain in taxation and better taxing crypto assets can be achieved.

It calls on the Commission to assess how different Member States tax crypto assets and identify different national policies to fight against tax evasion in crypto assets. The resolution also calls for a clear definition of crypto assets and what constitutes a taxable event. It also calls on the Commission to better integrate the use of blockchain into different fora and programmes dealing with taxation and cooperation, and for Member States to modernise their tax administrations.

A final vote in Plenary is currently scheduled for 12 September.

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Parliament adopts resolution condemning Council veto undermining Pillar 2

MEPs condemned certain EU Member States for abusing their veto power on taxation in a resolution adopted on 6 July by 450 votes in favour, 132 against and 55 abstentions. The resolution calls for a new debate on moving to qualified majority voting on tax proposals and condemns Hungary’s veto of the Pillar 2 Directive (see article below). In this regard, the resolution also calls on the EC and Member States not to engage in political bargaining and refrain from approving Hungary’s national recovery plan unless all criteria are met.

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MEP questions & replies

Commission says regional state aid does not conflict with substance carve-out rules in Pillar 2 Directive

• question by MEP Juan Fernando López Aguilar (S&D/Spain)
• reply by Commissioner Gentiloni

Nor with support for EU’s outermost regions

• question by MEP Juan Fernando López Aguilar (S&D/Spain)
• reply by Commissioner Gentiloni

Council

Hungary vetoes minimum tax Directive despite Polish endorsement

At the 17 June Economic and Financial Affairs Council (ECOFIN) meeting, Hungary used its veto to block the adoption of the EU’s Pillar 2 Directive. The last-minute move came as Poland, which had blocked the file since spring, lifted its own veto to support the compromise agreement. The new compromise text includes a clause calling on the Commission to assess by 30 June the state of play with Pillar 1, and to introduce a legislative proposal to address digital taxation in the absence of an international agreement.

Hungary argued that economic uncertainty caused by the war in Ukraine made it change its mind about minimum taxation. However, several observers suspect that this is a mere excuse and Hungary is in fact holding the proposal hostage for other political goals in the EU.

In reaction, French finance minister Bruno Lemaire said that “alternative solutions” could be used to circumvent Hungary’s veto. One of these could be to use enhanced cooperation.

Either way, with the French Council Presidency now over, it will be up to Czech Republic to continue negotiations on the file.

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June ECOFIN: other outcomes

The same 17 June ECOFIN saw other tax relevant developments as well. Firstly, the finance ministers adopted conclusions on the work of the EU’s Code of Conduct Group, pinpointing what they see as the priorities going forward. Moreover, the ministers took note of progress on the revision of the Energy Taxation Directive, on the basis of a note prepared by the French Council Presidency.