Tax Policy Update

• Council reaches agreement on DAC 8 
• Timeline of upcoming EU tax proposals clarifying 
• MEPs urge the Council to adopt Unshell proposal 
• IASB publishes amendments on accounting for deferred taxes following OECD agreement 
• Belgian authority deems FATCA data transfers in breach of EU GDPR 

Commission

Indicative timeline for Commission’s pending tax proposals

At the time of writing, European Commission (EC) has indicated its intention to launch the withholding taxation (FASTER) proposal on 28 June. The Business in Europe: Framework for Income Taxation (BEFIT) is scheduled for 12 September. For its part, the tax enablers proposal (SAFE) has disappeared from EC’s indicative planning. However, the initiative is still ‘on track’ for the time being. 

Once these proposals are out, stakeholders will have a 1-month period to provide feedback. 

As always, these dates are indicative and subject to changes.

EU puts tax crusade on the line in Apple court challenge

EC’s lawyers fought to salvage a €13 billion back-tax order for Apple by telling the European Union’s (EU) top court that the legal challenge was critical to the future of sweetheart tax deals to lure investment on Tuesday, 23 May. 

The EU executive is trying to reverse a 2020 court defeat that struck down competition chief Margrethe Vestager’s finding that Ireland granted illegal state aid to Apple by not taxing more of the iPhone maker’s profits.

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European Parliament

Plenary adopts own resources resolution

European Parliament (EP) has proposed several new EU “own resources” in a resolution adopted on 10 May by 356 against 199 votes and 65 abstentions. MEPs José Manuel Fernandes (EPP/Portugal) and Valérie Hayer (RE/France) prepared the draft resolution. 

MEPs are calling for corporate tax-based own resources, financial transaction tax, a new fair border mechanism, a tax on crypto-assets, green own resources and national contributions based on statistics. 

This non-legislative EP resolution comes ahead of an EC proposal, expected later this year, on further EU sources of income.

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German Chancellor Olaf Scholz re-iterates call for qualified majority on tax

EP gathered in plenary for a debate titled This is Europe, with the attendance of Germany’s Olaf Scholz on 9 May. In his speech, the Chancellor focused on key challenges for the future of the EU, including the war in Ukraine and the need for strengthened defence cooperation, more openness to the world, more honest enlargement policy and treaties’ reform. Mr Scholz announced a push to extend qualified majority decision-making to more foreign policy and taxation decisions.

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VAT in the digital age draft reports published, first disagreements emerge

European Parliament’s draft reports on VAT in the digital age (VIDA) proposals have been published. MEP Olivier Chastel (RE/Belgium) prepared the draft reports. See here for the draft report on the directive and here for the regulation. 

Accountancy Europe supported EP’s work on the file, having joined a rapporteurs’ meeting in mid-April to share some insights on the impact on SMEs and what tax administrations need for the system to function well. 

EP’s ECON Committee held a first exchange of views on the draft reports on 25 May. Several MEPs underlined the new rules should not present additional burdens for companies. They called for an ambitious use of digital tools. However, a major disagreement is emerging over the deadline for e-invoicing, with the right insisting a 10-day period is needed, especially for SMEs. S&D Group, by contrast, maintains that longer periods would undermine the objective of real-time reporting. 

ECON vote is scheduled for 24 October.

Further reform of corporate tax rules draft report published

The draft report was prepared by MEP Isabel Benjumea Benjumea (EPP/Spain). It sets out EP’s opinion on how the tax system should further evolve to support economic recovery. 

The draft report calls for a regulatory moratorium and assessment of existing corporate tax provisions’ impacts before proposing new ones. Moreover, the rapporteur calls for using tax breaks and “other incentives”, and sequencing of new rules such as Pillar 2 and BEFIT to grant businesses “the necessary breathing space”. 

The Committee vote on this legally non-binding draft report is scheduled for 20 September.

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FISC hearing on tax policies in a time of inflation

FISC Subcommittee held a public hearing on the “role of tax policy in controlling inflation and promoting sustainable growth in the context of economic recovery” on 23 May. They discussed possibilities for new rules of VAT rates, inflation adjustments of tax brackets and other tax measures, such as tax incentives for renewable energy and taxes on environmentally harmful activities. 

The expert speakers explained that taxation is not the best tool for inflation. Still, it can be used to mitigate its negative impacts. On promoting sustainability, there was a general feeling that tax policy has a role in changing behaviour. One speaker noted that, at the moment, the majority of public support is for carbon-intensive industries and comes in the form of tax credits. She called for more transparency and a radical shift in support for the transition. Another speaker discussed carbon pricing, noting that the carbon border adjustment mechanism (CBAM) could positively reduce carbon leakage.

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ECON hearing on DAC 8

ECON Committee discussed its draft opinion on EC’s proposal to expand the directive of administrative cooperation to cover crypto-assets and e-money (DAC 8) on 25 May. MEP Rasmus Andresen (Greens-EFA/Germany) prepared EP’s draft report. 

Several MEPs deplored that the Council did not wait for EP’s opinion before reaching a final agreement (see article below). EP intends to send a letter to the Council and EC to remind them that member states should wait for EP’s opinion before finalising a file. 

The ECON Committee vote is scheduled for 26 June, followed by a final Plenary vote on 11 September.

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MEPs issue strong call on the Council to adopt Unshell Directive

In an article published in Euractiv, MEPs Paul Tang (S&D/Netherlands), Gilles Boyer (RE/France), and Ernest Urtasun (Greens-EFA/Spain) deplore the Council’s continued lack of progress on the Unshell directive. The MEPs notably call for a public Council session on the proposal, where each member state would have to explain one by one why they support or object to the proposal.

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Council

EU finance ministers reach agreement on DAC 8

The Council reached an agreement on its position regarding amendments to the directive on administrative cooperation in the area of taxation (DAC 8) on 16 May. The amendments mainly concern the reporting and automatic exchange of information on revenues from transactions in crypto-assets and information on advance tax rulings for the wealthiest (high-net-worth) individuals. 

With the new rules, reporting crypto-asset service providers must provide a mandatory automatic exchange between tax authorities of information. The directive covers a broad scope of crypto-assets, building on the definitions set out in the regulation on markets in crypto-assets (MiCA) which the Council adopted on the same day. Those crypto-assets that have been issued in a decentralised manner, as well as stablecoins, including e-money tokens and specific non-fungible tokens (NFTs), are included in the scope.

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Legal challenge filed to EU minimum tax shipping income provision

The EU’s lower court will be asked to rule in a challenge to provisions in the bloc’s implementation of the global minimum tax exempting some international shipping income from effective tax rate calculations. 

A provision allowing the exemption only for companies managing shipping activities from their home jurisdictions “infringes the general principle of equal treatment of comparable enterprises,” according to the case filing, published in the EU Official Journal on 8 May. 

The filing said applying the rule to “purely domestic situations infringes the principle of proportionality.”

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OECD sees global tax convention on Pillar 1 completed by end of July

Governments are on track to complete a multilateral treaty by the end of July. The organization’s new tax head said it would implement a large remaining piece of the OECD-led global tax deal. 

Subsequently, countries would sign and then ratify the document known as the multilateral convention to bring into force the portion of the deal known as Amount A of Pillar One, the part of the 2021 global tax deal reallocating a portion of the largest multinationals’ profits to market jurisdictions.

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IASB publishes amendments on accounting for deferred taxes following OECD agreement

The International Accounting Standards Board (IASB) published amendments to the accounting standard ‘IAS 12’, in accordance with the Pillar 2 model rules issued by the OECD on 23 May. In April, the IASB confirmed its intention to amend this standard to avoid companies having to recognise deferred taxes resulting from implementing the Pillar 2 model rules. 

This temporary exception is intended to ensure consistency in the financial statements while easing into implementing the rules. Some targeted disclosure requirements are designed to help investors better understand a company’s exposure to income taxes arising from the reform, particularly before legislation implementing the rules.

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Belgian authority deems transfer of data on double nationals under FATCA illegal

The Belgian Data Protection Authority (APD) has declared transferring personal fiscal information of accidental American-Belgian citizens to the US, as outlined in the Foreign Account Tax Compliance Act (FATCA) intergovernmental agreement, illegal. According to the APD, the data processing activities conducted under this agreement do not fully comply with the EU General Data Protection Regulation (GDPR) principles, including rules regarding data transfers outside the EU. 

APD argues the generalised and undifferentiated transfer of fiscal data, as outlined in the agreement, violates both the principle of purpose (as the agreement lacks precise objectives for data transfer) and the principles of proportionality and data minimisation (only strictly necessary data for the intended purposes, in this case, combating tax fraud, may be processed). The Contentious Chamber also finds that the “stand-still” effect of Article 96 of the GDPR has limited scope.

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