Tax Policy

December 2020

  • FISC Committee discusses tax avoidance, EU list of non-cooperative jurisdictions and adopts resolution
  • Commission concludes Madeira Free Zone scheme not implemented in line with approved conditions
  • ECOFIN Council formalises DAC7 agreement and discusses international tax reform
  • Commission’s Benjamin Angel gives more details about Article 116, digital levy and minimum tax
  • Portuguese Council Presidency planning a vote on tax transparency, public CBCR

FISC Committee holds hearing on tax avoidance in and outside of the EU

On 1 December, FISC Committee discussed with experts different approaches on what can be done to stop tax policies that may harm competition between businesses in the EU.

The impressive line-up of speakers included:

  • Mario Monti, former EU Commissioner for Taxation,
  • Martjn Nouwen, Director of the Institute for Tax Transparency at the University of Amsterdam,
  • Liza Lovdahl-Gormsen, British Institute of International and Comparative Law and Senior Research Fellow in Competition Law,
  • Irma Mosquera Valderrama, Associate Professor of Tax Law at Leiden,
  • Petr Jansky Associate Professor of Economics at Charles University

During the meeting, MEPs quizzed these experts on what changes should be made to the Council’s Code of Conduct Group to ensure that the EU’s blacklist of harmful tax jurisdictions lived up to its intended purpose. They also discussed ways to tackle unfair tax practices through EU treaty provisions which enable action to be taken against a member state which is distorting competition.

Dr. Jansky hinted that in 2021 he will publish country-by-country research on which tax havens are responsible for revenue losses for EU countries. Dr. Valderrama highlighted that some third countries might lack the capacity to introduce certain measures, and that the needs of developing countries should be better taken into account.

Dr. Nouwen doubted whether Commission action to use Article 116 to go around unanimity in EU tax policies would work, as its scope would be limited and member states might reject it out of principle. Prof. Lovdahl-Gormsen questioned the effectiveness of state aid as a tool against member states’ tax practices. Mr Monti mostly focused on the growing sense of injustice and inequality among Europe’s citizens and the opportunity this offered for EU tax policy. Read more

European Commission

Benjamin Angel confirms Article 116 not to be used for digital and minimum tax

Speaking at the 7th tax symposium organised by the German Council Presidency, DG TAXUD’s Director Benjamin Angel stated that Article 116, which would allow using qualified majority rather than unanimity to decide on EU tax legislation if there is a threat to Single Market integrity, can only be used for targeted distortion cases.

It is not a tax harmonistation tool and “unfortunately” cannot be used for EU implementation of Pillar 1 (digital tax) and Pillar 2 (minimum tax) provisions, he lamented.

Mr. Angel also confirmed that the Commission is working on a first proposal making use of Article 116, but in an area related to tax evasion and tax avoidance. Read more

Benjamin Angel: digital levy to come by June 2021, OECD agreement or not

Mr. Angel also spoke at the symposium about the upcoming digital levy that would be a new EU source of income, saying that the Commission will need to reconcile EU calendar with the OECD’s work on digital tax. The Commission is committed to table a proposal “by June”, OECD agreement or not. The Commission is working on a proposal that ensures tax income for EU budget while leaving the door open for further OECD discussion beyond June – a difficult balance to strike, Mr. Angel underlined. A public consultation and impact assessment will also be published first.

Benjamin Angel gives further details about future EU initiative on minimum taxation

And finally, Mr. Angel also clarified the Commission’s current thinking for a possible EU implementation of minimum taxation (or Pillar 2 under the OECD). He confirmed that some existing legislation would have to be amended, specifically at least the anti-tax avoidance Directive (ATAD, and its CFC rules) and the interest and royalties Directive (IRD). However, in addition there could be a separate set of rules to transpose OECD Pillar 2’s income inclusion and taxpayment rules, while the switchover rule would be outside the scope of Commission’s action.

Mr. Angel also doubted EU member states approving (by unanimity) a stand-alone comprehensive proposal with a minimum effective tax rate, and insisted instead that any EU minimum tax law should be as close as possible to a prospective OECD agreement.

Commission issues Communication on EU-US relations, including on tax

The Communication is a part of the EU’s efforts to revamp bilateral relations with the US following four years of ambiguity and unpredictability. It outlines the Commission’s priority areas where it thinks such bilateral cooperation should take place in particular.

The document highlights tax measures as among the “first steps” in the cooperation. Thus for example the EU’s upcoming carbon border adjustment mechanism (CBAM) is presented as an opportunity to work together. Unsurprisingly, the document also highlights that “the EU and the US should strongly commit to the timely conclusion of discussions on a global solution within the context of OECD and G20” and to address “market distortions in the digital economy”. Read more

Commission concludes that the Madeira Free Zone scheme not implemented in line with approved conditions

The European Commission has found that the implementation of the Madeira Free Zone aid scheme in Portugal is not in line with the Commission’s State aid decisions from 2007 and 2013.

The objective of the approved measure was to contribute to the economic development of the outermost region of Madeira through tax incentives. It made the granting of tax reductions conditional to only benefitting companies that create jobs in Madeira and on applying the tax reductions to activities effectively and materially performed in Madeira.

However, the Commission has now found that the tax reductions were applied to companies that have made no real contribution to the development of the region, including on jobs created outside Madeira (and even the EU). Portugal must now recover the incompatible aid, plus interest, from companies that did not meet the conditions. Read more

European Parliament

Green MEPs calls on the Council to agree on tax transparency

The joint-letter, co-signed by 21 MEPs from the European Parliament’s Greens-EFA Group, is addressed to the Portuguese Council Presidency, starting in January 2021. The MEPs call on Portugal to bring the public country by country reporting (CBCR) proposal, which has been blocked since 2016, to the ministers’ discussion and approval. They argue that there is now a sufficient qualified majority in the Council for the proposal to go through. Read more

FISC Committee debates reform of EU list of non-cooperative jurisdictions

On 7 December and ahead of an ECON Committee vote on a draft resolution (see article below), MEPs of the European Parliament’s FISC Committee (working under ECON) discussed ways for reform.

FISC Chair MEP Paul Tang (S&D/Netherlands) opened the session by lamenting that the currently EU listed third countries amount to a mere 2% of the worldwide profits shifted to tax havens. In addition, the EU just delisted the Cayman Islands representing 16% of the profits shifted, Mr. Tang underlined. He emphasised the need for more transparency and clear criteria in the listing process.

MEP Lídia Pereira (EPP/Portugal) for her part highlighted that the EU has other tools than the list of non-cooperative jurisdictions to influence third countries. These include trade agreements and development aid.

Gilles Boyer (RE/France), for his part, called for the automatic inclusion of any jurisdiction with a 0% corporate tax rate.

ECON adopts resolution on reform of EU’s list of tax non-cooperative jurisdictions

On 10 December, ECON Committee adopted a non-binding resolution calling for reforms to the EU list of tax havens, with 43 votes in favour, 6 against and 5 abstentions. The draft text is available here, but does not yet contain the amendments adopted in the Committee vote.

Some of the changes demanded in this resolution include:

  • Widen criteria to judge if a country’s tax system is fair or not
  • Removal from the blacklist should not be the result of only superficial tweaks
  • List has to be formalised through a legally binding instrument

The resolution will be voted on in the Parliament’s Plenary in January 2021. The MEPs also approved an oral question on the topic, to be addressed by the Council in due course. Read more

Draft report on DAC7 published

The European Parliament’s draft opinion, prepared by MEP Sven Giegold (Greens-EFA/Germany), relates to the Commission’s proposed revision to the Directive on Administrative Cooperation (DAC7) to include in it digital platforms.

Mr. Giegold proposes a number of amendments to DAC7, including:

  • Member States should be free to use DAC information for other purposes than tax
  • Enlarge the scope to informal and domestic tax rulings
  • Include a definition of excluded Relevant Activities and Reporting Platform Operators in order to reduce bureaucratic burden on small platforms

ECON Committee will vote on the draft report in early-2021, and it is only a non-binding opinion on the Commission proposal. EU member states already approved the proposal a few week before (see below). Read more


Portugal Wants Council Vote On Corporate Tax Transparency

Portugal wants to bring public country-by-country reporting (CBCR) to a vote in the Council after it takes over the group’s rotating presidency at the start of 2021. Catarina Faria, spokesperson for Portugal’s diplomatic representation in Brussels, confirmed to Law360 that Portugal plans to bring the measure to a vote at the EU Council but declined to provide further details on the timing or otherwise. Read more

ECOFIN meeting formalises deal on DAC7, discusses international tax agenda

On 1 December, EU countries’ finance ministers gave a final seal of approval to Commission’s Directive on Administrative Cooperation (DAC7) amendment that would bring under its scope online platforms. The ministers were satisfied with the amended text, and look forward to the upcoming DAC8 (covering crypto-assets and e-currencies). “We have a new DAC almost every year”, the Luxembourgish minister touted at the meeting.

The ministers also discussed international tax reform. At the meeting, the Commission reportedly expressed hopes that a new Biden administration in the US would bring new momentum to work at the OECD. The Commission was also optimistic about the upcoming Italian G20 presidency, which it hoped would give the EU a stronger voice in the international arena. Read more

OECD instructs tax administrations on Supporting SMEs to Get Tax Right

The OECD has published a new report intended to assist tax administrations in the development and implementation of strategic approaches to support SMEs with tax compliance, as well as to identify opportunities for burden reductions. It also provides some country examples as to the development and implementation of such strategies, including two case studies. Read more

OECD publishes report on The Digital Transformation of Tax Administration

The OECD also published a discussion document prepared by the Forum on Tax Administration (FTA) that sets out a vision for the digital transformation of tax administration, under which taxation becomes more of a seamless and frictionless process over time. The intention of this discussion paper is to stimulate debate and conversation, both on the vision and its component building blocks. Read more

Heads of tax administration agree global actions to meet the current economic and administrative challenges

At the Forum on Tax Administration (FTA) meeting held on 7-8 December 2020, representatives discussed a variety of tax administration issues including responses to the global pandemic, emerging risks, digital transformation and tax certainty. FTA brings together tax commissioners from across the globe and representatives from international organisations and regional tax administration bodies.

FTA members notably agreed to:

  • Improve the resilience and agility of tax administrations to respond to crises, through collaboration on new ways of working and development of new IT tools
  • Develop a roadmap in early 2021 for the digital service transformation of tax administrations. The roadmap will aim to identify priority work on core elements such as digital identity, e-invoicing and secure mechanisms for real-time sharing of information across borders
  • Ramp up work on tax certainty, including through moving the International Compliance Assurance Programme (ICAP) from a pilot phase to an established programme

Read more

International community reaches important milestone in fight against tax evasion

On 9 December, OECD published the first Peer Review of the Automatic Exchange of Financial Account Information (AEOI). It shows that 88% of jurisdictions that engaged in automatic exchange since 2017-18 were deemed to have satisfactory legal frameworks in place.

The peer review includes a visualisation map showing the results of the assessment of the covered jurisdictions’ legal frameworks for the implementation of the AEOI Standard. Strikingly, the map shows that jurisdictions such as Jersey, Guernsey and Bermuda are more advanced in their legal frameworks than some EU member states. Read more

Transparency on tax rulings now the global norm, according to new peer review assessments for over 120 jurisdictions

The OECD/G20 Inclusive Framework on BEPS has reviewed progress made by 124 jurisdictions in spontaneously exchanging information on tax rulings, in accordance with the BEPS Action 5 minimum standard. The conclusions show that transparency on tax rulings is now a fully-entrenched part of the international tax framework, with 20 000 tax rulings having been identified and 36 000 exchanges between jurisdictions having taken place.

According to the 2019 Peer Review Reports on the Exchange of Information on Tax Rulings released today, 81 jurisdictions are now fully in line with the BEPS Action 5 minimum standard, with the remaining 43 jurisdictions receiving recommendations to improve their legal or operational framework. Read more


France seeks EU backing in US tech tax fight

France will seek an EU-wide reaction if the US imposes tariffs on French exports in January, as planned, in response to a new French digital tax. “If there are American sanctions against the French decision, which … is the application of French law, we will immediately seek a riposte at the European level,” French finance minister Bruno Le Maire said on 1 December. Read more

Canada to propose digital tax

The Canadian government has announced that it will propose a new tax on multinationals that provide digital services to Canadian residents that will take effect in 2022 if global efforts to reach an agreement on a coordinated approach fail. The proposed new tax on digital services would be enacted on a provisional basis, ceasing to apply once an acceptable common global approach comes into effect. Read more

Commission is exploring how to make use of Article 116 to address competition distortions from differences in Member States’ legislations

  • Question by MEP Carmen Avram (S&D/Romania)
  • Reply by Commissioner Gentiloni

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.