Tax Policy Update

• EU finance ministers take stock of VAT in the digital age proposal 
• Commission issues proposal for a pan-EU withholding tax framework 
• European Parliament adopts Pandora Papers draft report with recommendations 
• Commissioner Gentiloni confirms fate of SAFE is tied to the Unshell proposal 

ECOFIN discusses VIDA

European finance ministers discussed the initiative on VAT in the digital age (ViDA) at the Ecofin Council on 16 June. The Swedish Presidency had published a progress note on the file ahead of the discussion. 

As reported by Agence Europe, there is consensus on the text in principle. Still, specific details, such as the implementation date and the deemed supplier mechanism, are open to debate. 

Poland has indicated it would like to see further discussions on the scope of the agreement, particularly on the data, to be communicated. Slovakia has asked that “the scope of these measures be precisely defined and that the risk of tax fraud be examined”. 

Regarding the implementation date, Italy, the Netherlands, the Czech Republic, Poland, Slovakia, Luxembourg and Hungary felt the planned date was too soon. 

The so-called ‘deemed supplier’ mechanism caused problems for several ministers, mainly from Poland, Slovakia, Romania, Ireland and Greece. While the latter two countries expressed reservations pending an in-depth examination, the others were more hostile. 

The negative effect of introducing VAT on short-term rental accommodation on certain tourist activities also raised questions. Some Member States, such as Denmark, “asked to be able to decide which accommodation should be defined as similar to hotels and therefore subject to VAT”. 

Moreover, not everyone agrees to the arrangements for electronic invoicing. All the countries have come out in favour of a single, coherent framework for intra-European transactions, but a majority refuses to harmonise national invoicing and is calling for flexibility. 

Work on the file will continue under the Spanish Presidency, beginning in July.

Read more

Commission

Commission consults on CBAM reporting obligations in its transitional phase

European Commission (EC) published on 13 June a first call for feedback on the rules governing the implementation of the Carbon Border Adjustment Mechanism (CBAM) during its transitional phase, starting on 1 October 2023 and running until the end of 2025. The draft Implementing Regulation on which feedback is sought details the reporting obligations and information sought from EU importers of CBAM goods, and the provisional methodology for calculating embedded emissions released during the production process of CBAM goods. Stakeholders can provide feedback until 11 July.

Read more

Commission proposes new pan-EU rules for withholding taxation

EC’s proposal was published on 19 June. Stakeholders have until 23 August to submit their feedback. The withholding tax procedures applied in each Member State are very different. Investors have to deal with more than 450 forms across the EU, most of which are only available in national languages. The Cum/Ex and Cum/Cum scandals have shown how refund procedures can be abused: the tax losses from these practices have been estimated at €150 billion for 2000-2020. 

EC, therefore, proposes several measures to address these problems, including: 

• a common EU digital tax residence certificate 
• 2 new fast-track procedures complementing the existing standard refund procedure: a “relief at source” procedure, plus a “quick refund” system 
• standardised reporting obligations 

Read more

Commission proposes a new statistical EU own resource

EC completed its proposal for the next generation of own resources on 20 June. The package includes a new temporary statistical own resource based on company profits. EC proposed to adjust the own resources proposals based on the Emissions Trading System (ETS) and Carbon Border Adjustment Mechanism (CBAM) compared to the original proposals from December 2021. 

The new statistical own resource is supposed to be a temporary measure. It will be calculated as 0.5% of the notional EU company profit base, an indicator calculated by Eurostat based on the national accounts statistics. 

It is not a tax on companies, nor does it increase companies’ compliance costs. It will be a national contribution paid by Member States based on the gross operating surplus for the sectors of financial and non-financial corporations. 

It would eventually be replaced by a permanent own resource based on the upcoming Business in Europe: a framework for income taxation (BEFIT), scheduled for 12 September.

Read more

Commission cautions Member States against gold plating public CBCR

EC has sent a note to EU Member States cautioning against ‘gold plating’ the EU’s public tax transparency proposal. Gold plating means the practice of Member States adding additional requirements to ones required by an EU law in the national implementation of said law. 

EC’s note reminds Member States to avoid “unjustified” gold plating of EU legislation. It argues that since the public country-by-country reporting (CBCR) Directive affects multinationals operating across borders, “it is particularly important (…) to ensure a high degree of harmonisation of Member State measures”. 

EC lists for, example, the following as being gold plating of public CBCR: 

• modifying the EUR 750 million threshold set up in the Directive 
• supplementing the EU list of non-cooperative jurisdictions with additional non-cooperative jurisdictions 
• requiring an audit opinion on the CBC reports, either in the form of reasonable or limited assurance 
• requiring companies to provide additional CBC information to that required in the Directive

European Parliament

European Parliament adopts Pandora Papers draft report

European Parliament (EP) Plenary adopted a draft report on Pandora Papers: lessons learned with 465 votes in favour, 5 votes against and 36 abstentions on 15 June.  MEP Niels Fuglsang (S&D/Denmark) prepared the report. 

The report puts forward EP’s recommendations for addressing issues identified in the October 2021 Pandora Papers scandal. The recommendations cover the role of tax intermediaries, harmful non-corporate tax regimes, misuse of shell entities, and more. 

The report’s recommendations are not legally binding. Still, EC will have to submit a response to EP within the next few months, explaining what action it intends to take.

Read more

FISC hearing on achieving EU policy goals through tax incentives

FISC Committee held a public hearing on the role of tax incentives in achieving EU policy goals on 27 June. Guest speakers highlighted that while tax incentives could be the right policy option, such as in the case of market failures, a holistic approach should look at their impact on society. Moreover, business investment responds to factors other than just tax rates alone, such as whether the necessary skills or infrastructure is in place. The speakers underlined any tax incentives in the EU should seek to increase equality between countries and within countries, in addition to fostering the green transition.

Read more 

FISC discusses draft report on further reform of corporate tax rules

MEP Isabel Benjumea (EPP/Spain) presented her own-initiative report on the reform of corporate taxation rules to her colleagues in the FISC Committee on 27 June. She stressed the importance of reducing the administrative burden and supporting the competitiveness of businesses, particularly SMEs. 

Her report focuses on four main measures. She wants to see a regulatory moratorium adopted, to not “legislate more, but to legislate more effectively”. She suggested that competitiveness checks be put in place to analyse the impact of tax measures on businesses. Benjumea proposed using tax exemptions and reductions, and tax incentives to support business competitiveness. She endorses a simplified tax system to reduce the administrative and bureaucratic burden. 

MEPs from other political Groups also underlined the need to fight against tax avoidance, evasion and fraud. 

MEPs have until 5 July to submit amendments to the draft report. The vote in Committee is scheduled for 24 October.

Read more

ECON discusses tax developments with Commissioner Gentiloni

ECON Committee held a structured dialogue with Commissioner Gentiloni to discuss the state of play of EU’s tax policies on 28 June. 

At the hearing, the Commissioner confirmed the tax enablers (SAFE) proposal should not be expected until there is an agreement on the Unshell Directive, which remains on the Council’s table. The Commissioner did not hide his frustration, saying that Unshell should be non-controversial and not understanding the Council’s delay. He regretted the Swedish Council Presidency did not achieve great results with the initiative. 

On Pillar 1, the Commissioner said the OECD should still be able to reach an agreement by 11-12 July – at least for now. He also reminded there is an agreement for jurisdictions to freeze plans for unilateral measures (presumably regarding digital services taxes). Still, this agreement cannot be prolonged forever. 

And finally, on Article 116, the Commissioner reminded that it could be used only to address severe distortions to the Single Market. The Commission has done work on this but is being prudent as they need to be 100% certain of their success, legally speaking. It would be the first time that Article 116 is used for such a purpose, and the Commissioner emphasised that “this is something that we cannot lose”.

ECON Committee adopts draft position on DAC 8

ECON Committee approved its draft report, as amended, on Amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC 8) with 43 votes in favour, 4 against and 5 abstentions on 28 June. MEP Rasmus Andresen (Greens-EFA/Germany) prepared the report. 

The Council has already agreed on DAC 8, and the Parliament’s opinion is non-binding. However, it is needed before the Council agreement becomes EU law. A final vote in EP Plenary is scheduled for 11 September.

Read more 

Council

Spanish Presidency publishes its priorities

Spain will take up the 6-month rotating Council Presidency from July. A website for the Presidency has been opened, including indications of Spain’s priorities. 

On tax, the Spanish Presidency will advocate for establishing minimum and common standards on corporate taxation in all Member States and will fight tax evasion by large multinationals. This implies the Presidency will aim to progress on the withholding tax proposal (see above) and the Unshell directive, which reportedly aims to reach a political agreement by November.

Read more

Presidency trio programme published

Related to the above, it is customary for 3 consecutive Council Presidency holders to coordinate their programmes and priorities to ensure consistency and continuity. Spain, Belgium and Hungary hold the Presidencies for the next 18 months (6 months each), and on 20 June, published their joint programme of priorities. 

On tax, the programme states that “the trio will take forward the transposition into EU law of the OECD framework on the reform of international taxation”. The trio will also prioritise efforts “to modernise and simplify the common VAT system by embracing digitalisation, and on work aimed at closing the VAT gap”.

Read more

EC to submit a report to the Council on emergency EU windfall levy by 15 October

• Question by a group of non-affiliated MEPs 
• Reply by Commissioner Gentiloni