Wishing you all a happy 2021!
This year will be another busy one for tax policy in the EU. The first few months promise a lot of action ahead, with the European Commission planning the following:
The Portuguese Council Presidency, for its part, will also keep busy on the tax agenda by trying to advance on public country by country reporting (CBCR) and financial transaction tax (FTT) files.
The European Parliament, with its permanent tax (FISC) and other relevant Committees, will also continue its work on tax. It has just approved a Motion for Resolution on the EU list of tax havens, and is scrutinising the EU-UK trade agreement for its tax provisions. Moreover, although the Parliament is usually only consulted on tax proposals, it appears that CBAM will most likely be proposed with ordinary legislative procedure (OLP), i.e. European Parliament having an equal say with the Council.
In summary, busy times ahead! See in this update for more details on some of the above, and my latest contribution to Tax Journal for an additional overview.
The EU and the UK reached a trade agreement for post-Brexit relations on 24 December 2020. The agreement mainly covers trade in goods, but leaves services out of its scope.
On tax, the agreement commits the UK to following existing international OECD standards on exchange of information on financial accounts, cross-border tax rulings, CBC reports between tax administrations, and potential cross-border tax planning arrangements, as well as rules on interest limitation, controlled foreign companies and hybrid mismatches.
The agreement also obliges the UK to maintain the public CBCR requirement for credit institutions and investment firms that exists in EU law (capital requirements Directive, CRD IV). Read more
The Commission proposal, published on 18 December, puts in place a new decision-making process for certain VAT rules. by changing the rules of the EU’s VAT Committee.
The VAT Committee consists of representatives of EU Member States and of the Commission, and examines the application of EU VAT provisions raised by the Commission or a Member State.
VAT Committee can currently only agree non-binding guidelines on the application of the VAT Directive. But the new proposed process would mean that certain VAT committee decisions would be taken under the so-called ‘comitology procedure’, allowing for the adoption of binding interpretations of certain concepts in the EU’s VAT rules. The decisions would also be taken via qualified majority, rather than unanimity. Read more
The European Commission’s long-awaited Communication on Business taxation in the 21st Century was initially re-scheduled for publication on 3 February. However, in the more recent Commission agenda the Communication is no longer visible. Reportedly, it can be expected still for publication later in February or in March, but as always this may change.
US Trade Representative (USTR) has concluded that the domestic digital taxes of several EU Member States (France already earlier, now also Italy, Spain, and Austria) are discriminatory towards US tech companies. This opens the doors for the US government to introduce retaliatory trade sanctions on the countries – although the US already decided to suspend its planned tariffs against France.
In response, DG TAXUD’s Benjamin Angel underlined that “the Commission will support all EU Member States targeted by the US procedure”.
USTR also updated the status of several other countries’ digital tax investigations that it is currently conducting. It remains to be seen whether the new Biden administration intends to change course on the US approach to digital taxation.
European Commission will launch in February a public consultation for the Directive on administrative cooperation (DAC 8), to bring into its scope e-money and crypto-assets related transactions. The Commission also seeks to further harmonise DAC’s provisions for example around sanctions for non-compliance. The actual legislative proposal is expected for the second half of 2021.
On 18 January, the Commission launched a public consultation on its future ‘digital levy’, which is due to be published in June 2021.
The consultation, to which stakeholders can provide feedback until 12 April, seeks input notably on the design of the tax, for example whether it should be a:
The Commission is also consulting on other aspects of the levy, including:
Stakeholders can additionally provide feedback until 11 February on a 4-page roadmap on the digital levy.
DG TAXUD’s Benjamin Angel provided further details on the upcoming (June) EU carbon border adjustment mechanism (CBAM), at a webinar organised by AFEP (French issuers’ association) to mark the launch of their new study on the topic.
Regarding the decision-making procedure for CBAM, Mr. Angel replied that this will depend on the chosen approach but that it is “very likely” that ordinary legislative procedure would apply. This means that EU Member States legislate via qualified majority rather than unanimity, and European Parliament has equal legislative powers.
On other aspects of CBAM, Mr. Angel ruled out using the yields to subsidise clean companies, and deems “feasible” the prospect of CBAM becoming applicable from 2023 – although this will depend on the speed of the legislators, he underlined.
The European Parliament’s ECON Committee is preparing a position on the Commission’s July 2020 tax Action Plan, and its announced 25 measures for the next few years to come.
The leading MEP is Ludek Niedermayer (EPP/Czech Republic), and the shadow rapporteurs will be Marek Belka (S&D/Poland), Dragos Pislaru (RE/Romania) and Sven Giegold (Greens-EFA/Germany). There is for now no confirmed timeline for when the draft report could be expected.
ECON Committee held a hearing with representatives of the European Commission’s Task Force for Relations with the UK (UKTF) On 11 January, following the EU-UK Agreement of 24th December 2020.
Some MEPs expressed concerns that despite the tax provisions in the agreement (see article above), the UK still has room to engage in aggressive tax competition with the EU and asked the Commission how this can be prevented.
According to the European Commission, if the UK engages in a model that is ‘very aggressive in terms of tax competition’, the EU can retaliate by restricting its access to the single market. The Commission representative highlighted that UK crown dependencies can be subjected to the EU’s screening of non-cooperative third jurisdictions.
The resolution was adopted on 21 January in Plenary with an impressive margin of 587 votes in favour, 50 against and 46 abstentions. It was prepared by the FISC Committee Chair Paul Tang (S&D/Netherlands), and ECON Chair Irene Tinagli (S&D/Italy). Read more
Ahead of the vote, MEPs exchanged views with the Commissioner Gentiloni and a representative of the Council. MEP Paul Tang (S&D/Netherlands) lamented that the countries on the list are responsible for only 2% of global tax avoidance, whilst the Netherlands alone is responsible for 8.5%, and Cayman Islands (not on the EU list) the highest with 16.5%.
The Council representative confirmed that the list will be next updated in February. Work will also continue on reforming EU’s Code of Conduct Group and coordination on ‘defensive measures’ against listed jurisdictions. Commissioner Gentiloni said the Commission is working on a revision of the listing scoreboard and may come up with legislation on defensive measures in the future if deemed necessary.
Commission clarifies implementation of joint liability for distance sales of goods imported from 3rd countries & future plans on VAT for e-commerce
Commission says European Data Protection Board looking into possible GDPR-FATCA incompatibilities
The Council requested a meeting to discuss FATCA’s impacts on double US-EU citizens with Commissioner Charles Rettig from the US Internal Revenue Service (IRS). The Council also refers to a number of double citizens willing to relinquish their US citizenship to resolve the issue, but laments that the fees and procedure for the citizenship renunciation remain burdensome. The Council thus asks Mr. Rettig to transmit these concerns to the relevant US authorities. Read more
In January 2021, Portugal took over the 6-month rotating Council Presidency from Germany. In its work programme, Portugal announced its intention to “seek to create the conditions for reaching a political agreement” on public country by country reporting (CBCR), a file that has been blocked in the Council since 2016.
The Portuguese Presidency is holding a first meeting with EU Company Law attaches on the file on 22 January, and shared a consolidated latest compromise version of the text ahead of that meeting. This will probably be followed by a COREPER meeting (ambassador level) in February.
The Portuguese Presidency has also separately announced that they will seek to progress on the financial transaction tax (FTT) file.
The OECD hosted a public consultation webinar to gather further stakeholder feedback on its work on Pillars 1 and 2 on 14 and 15 January. The meeting focused on the key questions identified in the consultation document whose deadline ran until last December, and topics raised in the written submissions received as part of the consultation process. The webinar recording is available here.
Ahead of the webinar, the OECD also published the public comments received to its December consultation. In total, over 3500 pages were received from over 200 contributors.
The Netherlands has introduced a new tax on international flights starting on 1 January 2021. The measure was included in a recently approved government’s package of tax changes for 2021.
The tax will be charged at EUR 7.845 per passenger departing from a Dutch airport. The rate will be indexed for inflation each year.
The Netherlands will also introduce a new additional tax on carbon dioxide emissions, which will apply alongside the EU Emissions Trading Scheme, in a bid to raise the tax burden progressively until 2030. It will be focused on industrial production and waste incineration activities. Read more
Facebook has decided to close its Irish divisions and return its intellectual property to the US. The decision came shortly after the US Internal Revenue Service (IRS) took the company to court claiming it owed more than $9 billion linked to its 2010 decision to shift its profits to Ireland. Read moreThis 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.
