Tax Policy Update

• Commission publishes Roadmap on business taxation in the 21st Century
• European Parliament adopts position on DAC and publishes report assessing DAC’s effectiveness
• EU Member States break 5-year deadlock on public tax transparency
• New US administration drops demands for safe harbour on digital tax

Accountancy Europe calls for contributions on future sustainable tax systems

Dear readers, friends,

Our current tax systems are struggling to keep up with new business models, ageing demographics and mobile taxpayers. In parallel, the coronavirus crisis, climate emergency and social injustices have exacerbated these difficulties.

Accountancy Europe believes now is the time to consider how tax systems must be changed to deal with future funding challenges and help develop a sustainable economy.

We are calling for thought leaders in taxation to share their views on the changes necessary to make tax systems fit for the future.

Calls for contributions will be made on a thematic basis – the first topic to address is taxes and the environment. We invite experts in this field to submit their contributions by 30 June 2021 to [email protected] to help drive forward the policy debate in this area.

Please also join us at our 15 April webinar to discuss future-proof sustainable tax systems. We have an impressive speaker line-up including:

• Agustin Redonda, Council on Economic Policies
• Benjamin Angel, Director, DG TAXUD, European Commission
• Chiara Putaturo, EU Inequality and Tax Policy Advisor, Oxfam
• Maria Volanen, Head of Taxation Policy, Technology Industries of Finland
• Paul Tang, S&D/Netherlands, MEP & Chair of FISC Committee

Please submit your registration from this link.

European Commission

DG TAXUD publishes Management Plan for 2021

The Management Plan, published on 2 March, does not contain any new announcements per se and lists initiatives that are already public knowledge – such as proposals on digital taxation and revision of the Energy Tax Directive. However, it does give a handy one-stop-shop overview of all tax initiatives planned by DG TAXUD for 2021, including rough timelines.

Read more

Commission publishes Roadmap on business taxation in the 21st Century

The Roadmap, published on 4 March, gives further details as to what the Commission’s upcoming Communication will include. The Communication is for now scheduled for 27 April.

According to the Roadmap, the Commission:

• wants to set up a medium-long term vision for business taxation
• will consider progress in OECD negotiations and outstanding EU proposals such as CCCTB
• will aim to proactively adapt tax systems to megatrends like ageing population, digitalisation, and climate change

Although no legislative proposals will accompany the Communication, it will include a list and timeline of measures that the Commission plans to propose in the future.

Read more

Commission launches public consultation on DAC 8

The consultation was launched on 10 March, and stakeholders will be able to give feedback until 2 June.

It aims to collect evidence for new rules on reporting and exchange of information for tax purposes on e-money and crypto assets. It also gathers evidence for new rules on penalties and compliance measures for the various reporting obligations under the DAC framework.

Read more

European Parliament

FISC Committee holds hearing on cum-ex

The hearing took place on 24 February with a group of experts, including a representative from ESMA, to take stock of cum-ex tax fraud, and discuss solutions to address it.

ESMA presented its findings on cum-ex fraud in Europe. ESMA recommended, for example, legislative amendments to remove legal limitations on the exchange of information between national competent authorities and tax authorities. Several MEPs called on ESMA to conduct more in-depth investigation into what went wrong and to identify what improvements need to be made at both European and national level.

Read more

Parliament adopts position on DAC 7

The European Parliament Plenary adopted its opinion on directive on administrative cooperation for tax (DAC 7) by 568 votes in favour, 63 votes against, and 64 abstentions on 10 March.

The file in the Parliament was led by MEP Sven Giegold (Greens-EFA/Germany), and it aims to oblige digital platforms to report the income earned by those selling goods and services on their platforms. Tax authorities would also be obliged share this information with each other.

The Parliament’s opinion is legally non-binding, but it was needed for the Council to adopt the Commission proposal – which they did on the following week (see Council section below).

Read more

Plenary debates OpenLux revelations

The European Parliament Plenary discussed with the Council and Commission the need for reforming EU policy framework on tax avoidance, following the so-called OpenLux revelations on 10 March.

Many MEPs praised the work of journalists in exposing the OpenLux tax scandal, and nearly unanimously called for more tax transparency. The Commission and Council stressed that they were working towards ensuring greater tax justice, such as on public country by country reporting (CBCR) and possible changes to the scope of the mandate of the Code of Conduct group.

Commissioner Gentiloni announced that more details of the Commission’s anti-avoidance actions would be provided in its upcoming Communication on business taxation for 21st century.

Parliament draft report on sustainable taxation published with SME proposals

MEP Claude Gruffat (Greens-EFA/France) has prepared a draft report on sustainable taxation. The report aims to assess tax systems’ and incomes’ sustainability from various angles – environment, technology, and social justice.

The draft report also includes several recommendations to improve the tax system for SMEs, especially in the areas of tax compliance and reporting.

A vote in ECON Committee is currently scheduled for 27 May, and a vote in Plenary for 23 June. Its recommendations are legally non-binding.

Read more

Draft report reviewing effectiveness of Directive on administrative cooperation (DAC) published

The report, published by MEP Sven Giegold (Greens-EFA/Germany), argues that:

• tax-relevant data is now exchanged between EU Member States, but too little information is still being exchanged on certain types of assets and income
• too little use is made of the exchanged information and no quality controls for it
• the implementation of existing European and international standards has been unsatisfactory
• Member States have refused to collaborate and share data for the Parliament to conduct an assessment of DAC

A Plenary vote on the report is scheduled for 23 June, preceded by a Committee vote at a yet to be determined time.

Read more

FISC initiates periodic exchanges with national parliaments on tax matters

The European Parliament’s FISC subcommittee held an exchange of views on taxation with Members of the Committee on Budget and Finance from the Portuguese National Parliament on 17 March. This was the first of a series of hearings with representatives of national parliaments.

Representatives of political groups from both the Portuguese Parliament and the European Parliament shared their positions on taxation in a digitalised economy, and fight against tax evasion and aggressive tax planning. Another meeting, this time with MPs from the German Bundestag, is scheduled for April.

Read more (recording of the hearing)

FISC discusses digital taxation and other tax matters with Portuguese Presidency

The FISC subcommittee of the European Parliament organised an exchange views on digital taxation and other tax matters with Mr João Leão, Portuguese Minister of State for Finance on 22 March. He was accompanied by the Deputy Minister for Finance and Tax Affairs, Mr António Mendonça Mendes.

Mendes stated that the Portuguese Presidency is ready to proceed with discussions launched by the Commission, including on the use of the “passarelle clause” which would enable to use regular decision-making procedure – i.e. no Council unanimity, Parliament legislating on an equal footing – for tax files. The ministers also expressed confidence that an international agreement on tax reform is possible this year.

Read more (recording of the hearing)

ECON Committee adopts draft report on digital taxation

The draft report, prepared by MEPs Martin Hlaváček (Renew Europe/Czech Republic) and Andreas Schwab (EPP/Germany), was adopted by 48 votes in favour, 4 against and 6 abstentions.

The adopted text supports an OECD agreement on both pillars of international tax reform, but also calls on the Commission to have a plan B if international agreement is not possible.

The Parliament’s opinion is non-binding. A final Plenary vote is currently scheduled for 26 April.

Read more (pre-vote version)

FISC discusses tax state aid and digital tax reforms with Commission’s Executive Vice-President Vestager

The hearing took place on 23 March. On digital taxation, MEPs underlined their support for the OECD process to reach a global solution by July 2021 but were open to a temporary in-between solution until a global one is found.

On state aid, MEPs noted that the Commission has encountered legal challenges from the Court of Justice of the EU. The discussion thus focused on measures the Commission is exploring to overcome these legal difficulties.

Commissioner Vestager underlined that Article 116 cannot be used to circumvent the principle of unanimity, but only to solve a very specific problem. Specifically, where one Member State’s tax system becomes a burden on neighbouring countries within the EU, and only after an attempt to solve the matter with the Member State in question first.

Read more (recording of the hearing)

MEP Questions & Replies

Commission says it cannot yet estimate the amount of revenues from digital levy

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

Commission to assess Energy Tax Directive revision’s impact on outermost regions

• Question by MEP Sara Cerdas (S&D/Portugal)
• Reply by Commissioner Ferreira

Commission elaborates on the costs of its tax state aid appeal cases

• Question by MEP Markus Buchheit (ID/Germany)
• Reply by Executive Vice-President Vestager

Commission outlines how it is tackling harmful tax practices by EU countries

• Question by MEP Kosma Złotowski (ECR/Poland)
• Reply by Commissioner Gentiloni

Council

EU Member States agree to advance on public CBCR

A sufficient majority of EU Member States broke a 5-year deadlock in the Council and decided to open negotiations with the EuroP on public country by country reporting (CBCR) on 25 February.

Finland, Greece, Denmark, Estonia, Austria, Romania, Poland, Netherlands, Italy, Slovenia, Spain, France, Bulgaria and Belgium supported to proceed. Germany, Ireland, Luxembourg, Malta, Sweden, Czech Republic, Hungary and Cyprus either voted against or abstained.

It is now for the Council and the Parliament to find a mutually acceptable compromise, which may prove to be a challenge. For example, the Parliament wants CBC break-down to be for the whole world, whereas the Council wants to keep the break-down for EU countries and jurisdictions on EU’s tax haven list only.

Read more

Council adopts DAC 7

The Council adopted the latest revisions to the DAC 7 on 22 March, following the European Parliament’s adoption of its opinion (see European Parliament section above).

DAC 7 will require digital platforms to report the income earned by sellers on their platforms to EU tax authorities, who then share this data with other EU tax authorities that need it.

The new rules also specify a framework for the competent authorities of two or more Member States to conduct joint audits. The new joint audit framework will become operational in all Member States from 2024 at the latest.

Read more

EU heads of governments underline need to progress on international tax reform

EU heads of governments met to discuss strategic challenges ahead for Europe on 25-26 March. As part of Conclusions published after the summit, the EU leaders reiterate their “strong preference” and commitment to a global solution on international digital taxation, striving for a consensus-based solution by mid-2021. The leaders also confirm that the EU will be ready to move forward if the prospect of a global solution is not forthcoming.

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OECD calls on countries to crack down on the professionals enabling tax and white-collar crimes

Countries should increase efforts to better deter, detect and disrupt the activities of professionals who enable tax evasion and other financial crimes, according to a new OECD report.

The report explores the different strategies and actions that countries can take against professional service providers who play a key role in the planning and pursuit of criminal activity, referred to in the report as “professional enablers”.

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New US administration lifts safe harbour demand in international tax negotiations

US Treasury secretary Janet Yellen has told G20 finance ministers that Washington will drop a contentious part of its proposal for reform of global digital taxation rules that had been the main stumbling block to an agreement.

The move has unlocked long-stalled multilateral negotiations at the OECD, which struggled to make progress after the Trump administration first insisted on the “safe harbour” measure in late 2019. The provision would have allowed technology companies to abide by any agreement on a voluntary basis and was strongly opposed by several European countries.

Read more

G20 re-iterates commitment to international tax agreement in mid-2021

G20 finance ministers discussed and emphasised the need to work towards a global solution on international taxation by mid-2021 on 26 February. Ahead of the meeting, OECD also published a report on its recent tax work, which gives a handy one-stop-shop overview of recent progress and outstanding obstacles.