Tax Policy Update

• Olaf Scholz elaborates on German Council Presidency’s tax priorities to the European Parliament
• OECD draft blueprint documents on Pillars 1 and 2 leaked
• Informal ECOFIN discusses hottest tax topics of the moment

ECON Committee hearing with Olaf Scholz on priorities of the German Presidency

On 2 September, Germany’s finance minister Olaf Scholz attended a hearing of the European Parliament’s ECON Committee to present the priorities of the German Presidency.

At the hearing, Mr. Scholz underlined the need for the EU to increase its own sources of income, further exacerbated by the COVID crisis and the July recovery package. He hinted that the Council will discuss as options the so-called carbon border adjustment mechanism (or ‘tax’ – CBT), a digital levy and the financial transaction tax (FTT). Mr. Scholz expressed explicit optimism on the prospect of reaching an agreement on FTT now in the COVID context, and also expressed optimism about reaching international agreement on minimum taxation and at least a blueprint of an agreement on digital taxation.

When asked by MEP Sven Giegold (Greens-EFA/Germany) about public country-by-country reporting (CBCR), Mr. Scholz appeared less hopeful. He contended that the German government coalition does not have a unified position on this. He hinted that Germany might seek ‘further clarity’ on current country positions on CBCR, but Mr. Scholz did not commit to bringing the file on ministerial agendas.

European Commission

Communication on business taxation for 21st century to be published 28 October

According to the latest time table information from the College of Commissioners, the much anticipated Commission Communication on Business taxation for the 21st century is scheduled to be published on 28 October. As a reminder, the Communication will set out the Commission’s thinking and possible timelines on digital taxation.

European Commission publishes new VAT gap report, EUR 164 billion in revenue could be lost in 2020 due to COVID

On 10 September, the European Commission published its latest VAT gap report. According to the report, EU countries lost an estimated EUR 140 billion in VAT revenues in 2018. The report also notes that although the VAT gap has “improved marginally” in past years, figures for 2020 forecast a reversal of this trend with a potential loss of EUR 164 billion in 2020 due to the effects of the COVID pandemic on the economy. Read more

Council

Informal ECOFIN on 11-12 September had tax high on its agenda

On 11-12 September, EU finance ministers gathered in Berlin for an informal ECOFIN chaired by the German Council Presidency.

According to preparatory documents for the meeting seen by Accountancy Europe, tax featured high on the agenda of the ministers. The dedicated tax session focused on the following:

• How the EU should deal with a prospective OECD agreement on Pillar 1
• How to reach a common EU approach to minimum taxation
• How to reform the EU Code of Conduct Group on business taxation
• Which VAT measures from the Commission’s 15 July tax package should be prioritised

More discussions on the financial transaction tax (FTT), “digital levy” and a Common Consolidated Tax Base as EU budget contributions by ” stakeholders who benefit most from the EU Single Market” (at a separate session)

Energy Tax Directive review to be completed by mid-2021

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

The Commission is assessing the Apple state aid judgment, its potential scope and impact on other state aid cases before deciding on possible next steps

• Question by MEP Gunnar Beck (ID/Germany)
• Reply by Commissioner

Commission will put forward proposals for potential additional own resources, for a digital levy, in first semester of 2021

• Question by MEP Helene Laporte (ID/France)
• Reply by Commissioner Gentiloni

Google to pass cost of digital services taxes on to advertisers

Google intends to pass on the cost of digital services taxes in Europe to advertisers, thus complicating the most recent attempts by governments to capture a bigger slice of the US tech group’s revenues.

It told customers that from November it will charge an additional fee for adverts served in the UK, Turkey and Austria, which explicitly covers the extra regulatory costs in those countries. Read more

OECD’s Global Forum reveals compliance ratings from new peer review assessments for 9 countries, Malta Partially Compliant

On 1 September, the Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum) published nine new peer review reports assessing compliance with the international standard on transparency and exchange of information on request (EOIR).

Interestingly, the Global Forum rates Malta as overall Partially Compliant, despite having been rated Largely Compliant in a past peer review round. The main concerns identified related to the effectiveness of enforcement and supervision activities to ensure the availability of ownership, accounting and banking information, particularly considering the filing compliance rates. Malta also had a large number of inactive companies registered during the review period, which caused delays or failures to provide information to its main EOI partners. Read more

OECD work on Pillars 1 and 2 taking shape

According to leaked blueprints on Pillar 1 and Pillar 2, the OECD’s work on international tax reform is taking shape, ahead of ambitions to reach some form of agreement in October.

Most interestingly, the documents disclose the areas where further political decisions are still needed. For Pillar 1, these include:

• Revenue thresholds, on which the Inclusive Framework will decide as part of an overall political agreement
• Scope, as some members “have advocated for a phased implementation with ADS (Automated Digital Services) coming first and CFB (Consumer Facing Business) following later”, whereas others are opposed to this

The US Safe Harbour proposal, which remains unresolved and will be addressed once the design of the new taxing right is agreed