Tax Policy Update

• Commission work programme 2023 published 
• European Parliament publishes draft report on Pandora Papers 
• Germany and France intend national implementation of Pillar 2 if there is no EU agreement in 2022 

European Commission

Commission work programme 2023 published

The European Commission (EC) published its work programme 2023 on 18 October. It provides a non-comprehensive list of initiatives that EC plans to propose next year. 

Regarding taxation, the programme mentions the so-called Business in Europe: Framework for Income Taxation (BEFIT) initiative. BEFIT will be a successor to the previous Common Consolidated Corporate Tax Base (CCCTB) proposals that the Council never adopted. The work programme is most telling in what it leaves out. For example, there are no references to the upcoming tax enablers or EU Pillar 1 proposals, although EC is expected to propose both in 2023. Read more 

European Parliament

EP publishes Pandora Papers draft report

European Parliament’s (EP) draft report on Pandora Papers – lessons learned was finally published on 17 October. The report proposes recommendations for addressing issues identified in the leaks, including the role of intermediaries, harmful tax competition, shell entities and trusts, and more. It was drafted by MEP Niels Fuglsang (S&D/Denmark). 

FISC Subcommittee held a short debate on the draft report on 27 October. MEPs highlighted the protection of whistleblowers and journalists and the role of intermediaries in promoting ‘aggressive tax planning’. 

ECON is scheduled to vote on the draft report on 31 January 2023. 

ECON hearing with US congress representative

EP’s ECON Committee met to exchange views with US Congressman Don Beyer, Chairman of the US Joint Economic Committee, on 24 October. On Pillars 1 and 2, the Congressman hinted it would be challenging for the US to sign up for the OECD agreements unless the Democrats obtained a Congress majority in the November mid-terms.

Beyer noted that if Pillar 1 could not be advanced, he would be able to understand why ‘unilateral’ digital levies would be implemented. He argued Americans would have fewer arguments about why this could be unfair. Read more 

FISC hearing on the future of corporate taxation

EP’s FISC Subcommittee organised a public hearing titled “The Reform of Corporate Taxation: What’s Next?” on 27 October. The hearing focused on the pending work on Pillars 1 and 2 of the OECD agreement and the design of the future EU tax rulebook, the Business in Europe: Framework for Income Taxation’ (BEFIT). 

At the hearing, DG TAXUD’s Director-General Gerassimos Thomas explained that EC still aims for an agreement between all 27 EU member states on the Pillar 2 Directive. However, if one member state disagrees, other member states could possibly request an enhanced cooperation action from EC, Thomas said. He reminded that the Pillar 2 agreement “per se” already allows ‘unilateral’ implementation of the provisions. Read more

Council

Germany and France reiterate the possibility of unilaterally implementing Pillar 2

The French and German finance ministers reiterated on 19 October that the two countries would implement the OECD agreement nationally if an EU agreement on the Pillar 2 Directive was not reached. The ‘deadline’ for a pan-EU agreement is by the end of 2022. 

Hungary maintains its veto on the EU Directive. With no immediate way out of the impasse in sight, several EU countries are reflecting on alternative ways forward. Read more 

OECD tax chief warns of trade wars if a global deal is not implemented

OECD’s departing tax chief, who masterminded the most radical reforms to corporate taxation for almost a century, warns the US and Europe risk reviving trade wars and face hundreds of billions of dollars in lost revenue if they fail to implement last year’s global deal. 

Some 136 countries have backed a two-pronged deal to address public outrage over multinationals not paying their fair share of tax. But progress on both pillars of the reforms has stalled, despite OECD calculations that show governments could collect more than $150bn in additional taxes annually from the world’s largest corporates. 

Pascal Saint-Amans, the head of the tax department at the Paris-based organisation for the past decade, said for the Financial Times: “I see some serious risks of unilateral measures, and therefore trade sanctions, at a time when countries which are allies, in a difficult political context, may not want to trigger trade wars for a tax issue.” Read more