OECD negotiations for international tax reform have heated somewhat in past months.
The events started with a 3 December letter from US Treasury Secretary Steven Mnuchin to the OECD, in which he expressed concerns about the mandatory nature of Pillar 1 and its deviation from established international tax rules. He suggested instead to make Pillar 1 a safe-harbour regime – effectively voluntary for countries and companies.
In his 4 December reply to Mnuchin, OECD’s Secretary-General Angel Gurría expressed concern that the US proposal might risk delaying the current deadline for finding an international agreement.
At a tax conference later in December, another US official stated that the US would decide on the optionality only once Pillar 1’s design is clearer. OECD’s Pascal Saint-Amans also hinted at the possibility of looking at the optionality once Pillar 1 architecture is agreed on.
Overall, the mood ahead of an Inclusive Framework meeting on 29-30 January is gloomier. The participants now hope to simply agree to continue discussions beyond January on the way forward, and an agreement by June 2020 looks less likely according to officials.
France and the US try to find solutions
On 7 January, the French finance minister Bruno Lemaire announced that France and the US have given themselves 15 days to find a compromise to OECD digital tax negotiations.
France has expressed its support for the OECD secretariat’s Pillar 1 proposal, whilst the US appears to be backtracking.
Tax is also part of the plans. In June 2021, the Commission intends to revise the Energy Tax Directive, to align Europe’s energy tax incentives to favour green options over fossil fuels, and presumably to remove exemptions for kerosene.
Moreover in 2021 the Commission will launch a proposal on “carbon border adjustment”, possibly including a carbon border tax (CBT). Vice-President Frans Timmermans recently re-iterated the Commission’s commitment to consider a CBT, whose purpose is notably to ensure that European businesses are not at a competitive disadvantage compared to their global competitors.
On 17 December, the European Parliament approved its positions on two proposals: to improve administrative cooperation in the fight against VAT fraud and to introduce new requirements for payment service providers. Both files were led in the Parliament by the MEP Lídia Pereira (EPP/Portugal).
The report on administrative cooperation was adopted by 590 votes to 19 with 81 abstentions and the report on the requirements for payment service providers by 591 votes to 18 with 86 abstentions.
The Parliaments positions are non-binding, but its opinion is needed in order for the Member States to be able to adopt the files.
On 18 December, the European Parliament adopted a resolution on international OECD-level tax reform. The resolution passed with 479 votes in favour, 141 votes and 69 abstentions.
The resolution highlights that the international corporate tax reform should fit the EU single market, and safeguard a level playing field for all firms, especially SMEs.
The resolution welcomes developing a new nexus that goes beyond physical presence, suggests for this nexus to include all firms that interact with customers and users in a country, proposes country‑specific revenue thresholds and highlights the benefits of CCCTB.
The resolution does not, however, propose a minimum tax rate linked to Pillar 2, despite earlier efforts by some political Groups such as S&D to include one in the text
Prior to the vote (see above), MEPs discussed international tax reform with Commissioner Gentiloni.
According to the Commissioner, the Commission’s initial impact assessment shows that the EU “as a whole” would benefit from Pillar 1, and all EU member states from Pillar 2. The Commission also requested EU member states to give their CBCR information in order to help refine its impact assessment.
The Commissioner the EU will consider Europe-only measures if no international agreement emerges in 2020.
MEP Markus Ferber (EPP/Germany) emphasised the need for international solutions and urged the EU to put an end to its own “tax havens”. Irene Tinagli (S&D/Italy) criticised the existing international tax system for increasing inequalities, whilst Luis Garicano (RE/Spain) said it is unfair that multinationals pay less taxes than SMEs.
On 9 December, Germany proposed a new financial transaction tax (FTT) compromise, in an attempt to unlock the stalling negotiations.
The text remains close to the French model, with a 0,2% tax rate and limited to buying or selling of shares of listed companies with a market capitalisation of over EUR 1 billion.
Newer elements include excluding IPOs and leaving it to each country to decide whether to tax private pension products – a key demand of Belgium.
The German proposal was criticised from the left for not going far enough whilst the right fears that the FTT would hamper investment.
The ten EU countries negotiating on FTT have yet to agree on how the tax yields would be divided between them. Read more
The text as agreed by EU member states introduces no significant changes to the Commission proposal. The text only makes clarifications and specifies that the exemptions should not cover civilian missions under the CSDP.
Before ending its term in December 2019, the Finnish Presidency of the Council proposed changes to the public country by country reporting (CBCR) proposal in an attempt to address concerns on the text’s legal basis. In practice, this means removing as many references to the provision’s tax impacts.
The changes include, notably, removing references to the potential of CBCR data in transfer pricing risk assessments, and additional wording to emphasise that the measure aims to increase corporate transparency towards investors, creditors and the general public.
Croatia, which started its six-month Council Presidency in January 2020, has shown no intentions to advance the file during its term. Read more
Croatia began its six-month rotating Council Presidency in January 2020, and published its work priorities.
For tax, there are very few concrete commitments. The Presidency will work towards a “modern tax system” that is “based on transparent, efficient and sustainable taxation procedures” and legal certainty.
It will also “continue discussions on priorities and further steps to be taken in the area of direct and indirect taxation”.
According to a provisional timetable, Croatia plans a debate between EU finance ministers on VAT definitive regime and VAT rates reform at the 17 March ECOFIN. A progress report or policy debate on CCCTB is planned for the 19 May ECOFIN. Read more
C‑707/18: Taxing transactions for the transfer of ownership of immovable property
C‑389/18: Deduction of dividend distributed from a parent company’s tax base
C‑715/18: Reduced VAT rate to the letting of places on camping or caravan sites
On 17 December, Shell published voluntarily its country-by-country reporting (CBCR) data for 2018. The CBC report includes information such as corporate taxes paid and revenue earned in 98 countries where the company has a taxable presence.
The report shows that Shell paid approximately $10.1 billion in corporate taxes in 2018. It received the most revenues from the US, with $191 billion. Its second highest revenue came from Singapore, earning $143 billion there. Read more
On 17 December, the UK Financial Reporting Council (FRC) published updated ethical standards for audit firms. In its updated standards, FRC prohibits audit firms from providing a number of advisory services to listed companies and financial institutions, in an effort to strengthen auditor independence. This also includes further prohibitions to give tax advice to such clients. Read more
France and the US are in an escalating disagreement concerning France’s recently adopted new tax applicable to large digitalised businesses. The US argues that the French tax unfairly targets US businesses, and is considering trade sanctions in retaliation.
The situation is threatening to evolve into a full-fledged trade war between the US and Europe. Both France and the EU have warned the US that any retaliatory trade sanctions on French products could be met by EU-wide counter-sanctions.This curated content was brought to you by Johan Barros, Accountancy Europe policy manager since 2015. You can send him tips by email, follow him on Twitter and connect with him on LinkedIn.