Update

Tax Policy

 Cannot read this email? Open in your browser.June 2021 
 

Tax Policy Update

June

 
 
 
 

New EU VAT e-commerce rules as of 1 July

 
 
 

Check out our high-level summary & discover how accountants can help SMEs adapt to the new VAT e-commerce rules in the EU!

 
 
 
 
 

EU Watch: Business taxation for the 21st century

 
 
 

My article for Tax Journal on the recent European Commission’s Communication gives an overview of the expected & new policies on Business taxation.

 
 
 
 

Highlights

 
 
 
 

  • EU Tax Observatory begins its work and publishes study on impact of minimum tax on EU
  • Commission launches public consultations on shell companies and cooperative compliance for SMEs
  • ECON Committee rejects draft report on sustainable taxation
  • Some progress but no breakthrough in the Council on VAT rates reform proposal
  • G7 leaders agree on global 15% minimum tax rate, some EU countries express scepticism

 
 
 
 
 

Feature story

 
 
 
 

Agreement on public CBCR reached

The European Parliament (EP) and the Council reached a political agreement on public country-by-country reporting (CBCR) on 1 June after a 5 year-long political deadlock.

The EP adopted its position on the proposal already in 2017, but the Council had failed to do so until February of this year.

The agreement differs from the original European Commission (EC) proposal, especially on:

  • Country-breakdown – information needs to be reported for: EU Member States, jurisdictions on the EU blacklist of non-cooperative jurisdictions, countries which have been on the grey EU list of tax havens for at least 2 years; for the rest of the world: an aggregate figure
  • Safeguard clause – this allows a business to omit certain information if business secrets are threatened; this information can be omitted for a maximum of 5 years
  • Review clause – after 4 years, the main provisions will be reviewed
  • Auditing – the statutory auditor must check whether the audited entity is obliged to publish CBCR, and if it has done so (existence check)

Both the EP and Council will now formally approve the reached agreement, after which it can become EU law. Read more

 
 
 
 
 

EU Developments

 
 
 
 

European Commission


EU Tax Observatory begins work…

The EC announced the launch of the European Tax Observatory, a new research laboratory to assist in the EU’s fight against tax abuse, on 1 June.

The EU-funded Tax Observatory will support EU policy-making through research, analysis and data-sharing. It will be fully independent in conducting its research, objectively informing policymakers and suggesting initiatives that could help to better tackle tax evasion, tax avoidance and aggressive tax planning.

The Observatory is headed by Professor Gabriel Zucman, and based at the Paris School of Economics. Read more

…and publishes a study on minimum tax rate yields in the EU

The Tax Observatory already published a study arguing that a 15% global corporate tax rate could reap the EU €50 billion a year. Should the tax rate be set higher at 25%, the lowest current rate within the G7 economies, the EU would earn nearly €170 billion extra a year. This would be more than 50% of current corporate tax revenue and 12% of total health spending in the bloc. Read more

EC launches public consultation on shell companies

The aim is to collect data and evidence needed to design new EU rules to fight the abuse of shell entities and arrangements for tax avoidance purposes. The deadline for responding is 27 August.

The consultation seeks input on the extent to which existing rules in the EU tackle the risk of tax avoidance through the abuse of shell entities and what kind of new rules should complement the existing framework. The information gathered should allow:

  • a delineation of the problem
  • the construction of a common definition of shell entities
  • an inventory recollection of existing rules in EU Member States
  • the merits of a possible new EU-wide initiative. Read more

EC publishes June infringements package with tax cases

The EC announced that it is taking action against Greece, Bulgaria, Sweden, Germany and Malta for their potential infringements of EU’s tax rules on 9 June.

For example, the EC urges Germany to communicate all measures implementing the rules against tax avoidance practices that directly affect the functioning of the Single Market and regarding hybrid mismatches with third countries in the EU. Read more

EC publishes Inception Impact Assessment on DEBRA

The Inception Impact Assessment (IIA), published on 9 June, provides further details on what to expect from the EC’s upcoming proposal on debt-equity bias reduction allowance (DEBRA), expected in Q1 2022.

DEBRA’s objective is to address the debt-equity bias on taxation, and the EC is looking at two options: disallowing interest deductions, or introducing an allowance for notional interest deduction. The EC is also considering a “special measure” for SMEs.

Stakeholders can give feedback on the IIA until 12 July, but a “full” public consultation on DEBRA is expected for July. Read more

EC launches public consultation on cooperative compliance

The EU initiative for so-called cooperative (tax) compliance will kick-start this autumn with a pilot project (possibly to be followed by an EU proposal later on).

This programme aims to facilitate and promote tax compliance by taxpayers based on greater cooperation, trust and transparency between taxpayers and tax administrations as well as amongst tax administrations.

One of these cooperative compliance initiatives is specifically directed at SMEs. This SME cooperative compliance scheme would consist in allowing tax administrations to solve together, in a preventive manner, cross-border tax issues faced by SMEs operating within the EU.

The EC has just now published a survey asking for SME stakeholders’, including SMEs advisors’, views and experiences on cross-border tax issues that SMEs are facing. Read more

 
 
 
 
 

European Parliament


ECON Committee rejects draft report on sustainable taxation

The draft report on Creating an economically, socially and environmentally sustainable European tax system in the post-COVID economy had been prepared by MEP Claude Gruffat (Greens-EFA/France).

The extremely tight vote result was 27 votes in favour, 27 votes against and 4 abstentions.

Objections to the draft report stemmed mainly from the Right-wing Groups, who criticised it for arguably calling for increased taxes. The report also suggested re-adjusting the tax system to support environmental objectives, and alleviating tax measures for SMEs.

The report’s rejection means that the file has been concluded and will no longer advance. Read more

ECON discusses tax with Cypriot finance minister

Constantinos Petrides, Minister of Finance of the Republic of Cyprus, said that his government would oppose any EU Directive that constrained national tax policymaking, during a hearing on 3 June. “We are in favour of retaining the policy of setting the tax rate as a national competency, maintaining a level of corporate tax rate suitable for the sustainable development of the economy and investments,” Petrides said.

Observers interpreted it as a direct challenge to the EC’s plans to enshrine a global minimum tax agreement into EU law. Read more

FISC Committee discusses international tax reform with French parliament

FISC Committee hosted members of the Finance Committee of the French national parliament to discuss the reform of the international tax system and the EU’s digital levy on 16 June.

A majority of the members of the two parliaments agreed that a tax rate of 15% is not sufficient, and instead, a tax rate of 21% as initially proposed by the Biden Administration would be preferable. They also clarified that a global approach to taxes is necessary to address the challenges of a globalised world.

The members also discussed different options for digital taxation that are currently being considered by the EC. MEPs expressed support for taxes on corporate profits (rather than turnover).

This hearing is a part of FISC’s regular meetings with representatives of national parliaments. Read more

ECON Committee holds structured dialogue with Commissioner Gentiloni

The 21 June meeting focused on taxation, and the Commissioner introduced the upcoming proposals on the review of the Energy Tax Directive (ETD), the carbon border adjustment mechanism (CBAM) and the digital levy. The debate also touched on the recent G7 corporate tax agreement.

The Commissioner reassured there would be no conflict between an international tax agreement and the EU digital levy, currently scheduled for 14 July. EC is still working on the base, rates and thresholds. Moreover, he acknowledged that achieving a Member State unanimity on the BEFIT proposal, expected for 2023, will be a challenge although politically time seems to be ripe for it. Read more

FISC discusses development of new tax practices

FISC Committee held a public hearing on “The development of new tax practices: what new schemes should the EU pay attention to?” on 22 June. Panellists from the OECD, EC and academia discussed institutional and academic perspectives on the topic. The first panel centred on global minimum corporation tax and upcoming EU legislation. The second focused on the impact of digitalisation on personal income taxation.

Ionna Mitroyanni from EC said that a review of the EU anti-tax avoidance Directive (ATAD) is under work. However, it is unlikely that Member States will have the data necessary to meet the January 2022 review deadline. Read more

 
 
 
 
 

MEPs Questions & Replies


EC outlines contents of upcoming DAC 8 proposal

  • Question by group of EPP MEPs
  •  Reply by Commissioner Gentiloni

EC explains VAT e-commerce reporting obligations

  • Question by MEP Sandro Gozi (RE/France)
  • Reply by Commissioner Gentiloni

EC elaborates on its impact assessment for upcoming CBAM

  • Question by MEP Dan-Ştefan Motreanu (EPP/Romania)
  • Reply by Commissioner Gentiloni

EC says third country listing criteria need improvement

  • Question by MEP Pietro Bartolo (S&D/Italy)
  • Reply by Commissioner Gentiloni

 
 
 
 
 

Council


ECOFIN publishes tax report for EU heads of governments

EU finance ministers (ECOFIN)’s report describes their tax legislation progress in the past 6 months. It gives a helpful and comprehensive overview of all the pending key tax files on the Council’s table, including on direct taxation and VAT. Read more

Code of Conduct Group reports on its work, Council indicates priority areas

The Council’s Code of Conduct Group (CoCG) has published a report of its work and activities to EU heads of governments. As with the ECOFIN report (see above), this report gives a helpful overview of all the key aspects of CoCG’s work, including on the revision of its mandate.

Draft Council Conclusions on CoCG have also been published. They re-iterate the Council’s commitment to continue work on revising the scope of CoCG’s mandate. They also call on CoCG to continue its work on defensive measures against non-cooperative third jurisdictions.

Slovenian Presidency to work on digital tax and CBAM

Slovenian ambassador for the EU elaborated on his country’s work priorities for the upcoming Slovenian Council Presidency during the European Policy Centre webinar on 10 June. The Presidency starts its 6-month mandate in July.

On tax, the ambassador singled out the upcoming digital levy and carbon border adjustment mechanism (CBAM) as files that Slovenia would like to progress on during its mandate. Both proposals are expected for 14 July, including also revision of the Energy Tax Directive (ETD). Recording here

EU finance ministers discusses VAT rates reform

There was no meaningful progress on the proposed VAT rates reform at the 18 June meeting of EU finance ministers. The rates reform would grant EU Member States more freedom in setting their national VAT rates.

The Portuguese Presidency proposed to include a ‘standstill clause’ that would allow all Member States to continue to apply their current VAT derogations on reduced, zero and super-reduced rates, save those harmful to the environment.

Belgium, Estonia, Ireland, Greece, Spain, Croatia, Slovenia, Lithuania, Finland, Slovakia, Poland, the Czech Republic, Bulgaria, Romania and Luxembourg showed their support for this Presidency compromise. But notably France, Germany and Sweden objected, fearing it would open the door for new derogations.

Most Member States supported Portugal’s proposal of phasing out environmentally harmful goods from reduced rates, including pesticides, chemical fertilisers, firewood and natural gas. Read more

Finance ministers progress on COVID VAT alleviations file but no conclusion yet

At the same meeting, ECOFIN welcomed the Portuguese Presidency’s proposal to limit the EC’s proposal to exempt from VAT the goods and services that the EU makes available to Member States and citizens in times of crisis to the COVID crisis only. The EC regretted the Council’s limitation to COVID.

After the meeting, the Portuguese Presidency welcomed progress made but lamented that there was for now no unanimity. All Member States reportedly agreed that progress on this file should be swift but no timeline for progress was provided. Read more

 
 
 
 
 

International Developments

 
 
 
 

G7 makes strong commitments to tax reform and 15% minimum rate

G7 advanced economies have struck what they have termed a “historic agreement” on taxing multinationals in a bid to create unstoppable momentum for a global deal.

A communique issued on 5 June showed that the US, Japan, Germany, France, UK, Italy and Canada had found enough compromise both to stop companies shifting profits to low tax jurisdictions and ensure the largest multinationals pay more tax where they operate. This also includes a commitment to a global minimum tax rate of “at least” 15%.

This commitment to a 15% minimum rate “on a country-by-country basis” was later re-iterated in a Communique of G7 leaders following their mid-June summit.

 
 
 
 
 

National Developments

 
 
 
 

Microsoft’s Irish subsidiary reported $315 billion in profits in single year

The profit generated by Microsoft Round Island One is equal to nearly three-quarters of Ireland’s gross domestic product – even though the company has no employees.

The subsidiary, which is resident for tax purposes in Bermuda and collects licence fees for the use of copyrighted Microsoft software around the world, recorded an annual profit of $314.7bn in the year to the end of June 2020, according to accounts filed at the Irish Companies Registration Office. Read more

G7 tax deal faces opposition in US Congress

Joe Biden’s plan to overhaul the international tax system will face a difficult passage through the US Congress. Republicans threaten to vote down a prospective deal in a Senate where a two-thirds majority is necessary for approval.

The Biden administration’s efforts to break a diplomatic impasse on how global companies are taxed was endorsed by the G7 (see article above). The G7 backed a global minimum rate of at least 15% and agreed that countries should have the right to tax a portion of the world’s largest businesses’ profits where they are generated. Read more

Irish consensus on 12.5% corporate tax shifts after G7 global deal

Ireland’s second biggest opposition party has backed a “small increase” in the country’s corporate tax rate. This is a sign that Dublin’s longstanding political consensus on multinationals is cracking after the G7 agreed a plan for global taxation reform (see article above).

Ireland’s 12.5% headline tax rate has been central to its success in attracting multinational companies for many years. Dublin now faces a significant challenge after the G7 endorsed a 15% global minimum rate. Read more

Poland and Hungary call for domestic business opt-out from G7 tax deal

Poland and Hungary will not support the plan to introduce a global minimum corporate tax level agreed by G7 finance ministers (see article above) unless there is a carve-out to protect substantive business activities in their countries, according to their finance ministries.

The two Member States’ stand suggests resistance to a deal within the EU could stretch well beyond Ireland and other destinations favoured by multinationals seeking to minimise their tax burdens. Read more

 
 
 
 
 

Other news

 
 
European Parliament
 
Parliament publishes study with recommendations on harmful tax practices in the EU
 
OECD
 
New report highlights crucial role of tax transparency and exchange of information in helping African governments stem illicit financial flows and increase domestic resource mobilisation
 
Agence Europe
 
US suspends trade sanctions against three EU countries to allow more time for tax negotiations at OECD
 
Politico
 
5 things that could stop a global tax deal
 
EurActiv
 
Estonian finance minister: Global corporate tax hurts small economies
 
Council
 
Code of Conduct Group publishes updated overview of reviewed Member States’ tax regimes
 
European Commission
 
Commission publishes Detailed implementing rules for the VAT e-commerce trade
 

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.

 
Subscribe / Unsubscribe / Manage your subscriptions



Sign up for our newsletter

* indicates required
Would you like to subscribe to our newsletter?
On which topics would you like to receive news?