Tax policy update

• EU Member States reach agreement on pan-EU withholding tax framework
• Results of European Parliament elections
• OECD/G20 Inclusive Framework aims to sign Multilateral Convention on international reform by end of June

EU Member States reach agreement on FASTER

On 14 May EU finance ministers agreed on the final text of the European Commission’s (EC) withholding taxation (WHT) Directive (FASTER). This directive aims to improve the efficiency and security of WHT procedures in the EU for cross-border investors, national tax authorities and financial intermediaries, such as banks or investment platforms.

After months of negotiations requiring unanimous Member State (MS) approval, the final agreement text differs significantly from the original EC proposal. Therefore, the European Parliament (EP) will need to be consulted on the amended text, despite having already reviewed the initial EC proposal.

The FASTER system’s final provisions are relatively complex, but here are some key points:

• all MSs need to introduce an automated process to issue digital tax residence certificates (eTRC) in a common format. The eTRC provides evidence to the MS of the source of the income subject to WHT of where the registered owner is deemed resident. It can also serve MSs for tax residence related information.
• Certain MSs – see specific conditions in the Directive – are required to establish a national register of certified financial intermediaries (CFIs). CFIs may submit claims to national tax authorities on behalf of the registered owner of the publicly traded share or bond
• Certain MSs – again with the conditions set in the text – are required to implement a system for relief at source and/or a system for quick repayment of tax withheld. A relief at source procedure means that the excess WHT would not be paid in the first place, negating the need for the registered owner of the equity to seek repayment. Access to relief at source and quick repayment can be withheld in specific circumstances, primarily due to an increased risk of abuse

MSs must transpose it into national laws by 31 December 2028, with provisions applying from 1 January 2030.

After FASTER, attention shifts to the VAT in the Digital Age (ViDA) proposal, on which finance ministers failed to agree on 14 May. The Belgian Presidency will attempt again at the 21 June ECOFIN meeting.

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European Commission released May infringements package

The EC published  its latest monthly infringements package, announcing infringement decisions taken against EU MSs for failing to abide by the duties laid in EU legislation, including several tax-related files.

For example, the EC calls on Germany, Hungary, Poland and Romania to cooperate with other MSs on tax transparency for income earned through digital platforms. Moreover, the EC issued reasoned opinions to Belgium, Italy, Cyprus, Slovenia, Austria and Finland for failing to transpose the public country by country reporting (CBCR) Directive. These MSs have two months to react and take the necessary measures, or risk being taken to the EU Court of Justice (CJEU).

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Results of European Parliament elections

EU citizens voted for the new European Parliament (EP) on 6-9 June, and initial results indicate a grand coalition of the EPP (Christian democrats), S&D (social-democrats) and Renew Europe (liberals) retaining a majority with over 400 MEPs. Ursula Von Der Leyen, the expected re-appointed EC President, will need the support of 361 MEPs for her approval and that of her EC by the EP.

Far-right parties made gains as predicted, though perhaps not to the extent forecasted by polls before the elections. Moreover, the likelihood of the very divided and fragmented far-right factions uniting into a new super-group appears unlikely.

The implications for the priorities of the next EP and EC, as well as MEP allocations to the key tax committees in the EP such as FISC and ECON, remains to be seen. French President Emmanuel Macron’s decision to call snap parliamentary elections in France for end-June to early-July, adds another layer of uncertainty.

Therefore, the most immediate strong impact of the EP elections may not necessarily be on the EP itself, but rather on the dynamics among the MSs within the Council. Read more

G7 finance ministers issue communiqué outlining shared priorities, including tax

G7 finance ministers met on 23-25 May to discuss economic and financial priorities. Following tradition, they published a so-called communiqué in the aftermath of the meeting presenting the ministers’ agreed priorities and ways forward.

Regarding tax matters, the communiqué reaffirms the G7 commitment for finalising work on the OECD’s 2 pilar solution. Additionally, ministers welcome progress made on tax transparency and will work to increase their efforts “aimed at progressive and fair taxation of individuals”.

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