Tax Policy Update

• OECD reaches major international tax reform agreement
• Commission’s Benjamin Angel elaborates on EU implementation plans for international tax reform
• New tax leak – Pandora Papers – emerges
• European Parliament adopts resolution on Pandora Papers, calling for EU tax reforms

DG TAXUD’s Benjamin Angel clarifies Commission’s plans for OECD agreement implementation

Speaking at various conferences in the past weeks, DG TAXUD’s Benjamin Angel has provided further details on how the European Commission (EC) would go about implementing the OECD agreement on Pillars 1 and 2.

On Pillar 2, if OECD finalises its model rules on time, EC would seek to propose a Directive on 22 December already. Mr. Angel says he is confident that an agreement will be found quickly, and implementation can start in 2023.

The Directive would be accompanied by another proposal on public disclosure of effective tax rates in the EU. The legal base (tax or non-tax) used for it has not yet been confirmed publicly (for a similar tax information disclosure measure, public CBCR, non-tax/Accounting Directive was used).

On Pillar 1, no EU Directive should be expected before Q3 2022, given that the OECD will only agree on multilateral instruments in summer 2022. The EC has not yet decided whether a Directive for Pillar 1 would be at all needed, as the OECD agreement might be directly binding for the signatory countries.

A lot of question marks remain about the EU digital levy. Mr. Angel re-iterated EC’s promise to the European Parliament (EP) to propose it in 2021 still, but EC will have to assess if this is feasible.

The OECD agreement does establish a ban on unilateral digital taxes, but OECD’s tax Director Pascal Saint-Amans appears to leave the door open for a sort of ‘VAT top-up’ for online services and goods.

European Commission

Commission publishes Work Programme for 2022

he Work Programme, published on 19 October, outlines the main areas of work for the Commission’s different priority areas for 2022. On tax, it mentions the following:

• Proposal on re-allocation of taxing rights. This will probably be published in Q3 2022, and aims to implement OECD Pillar 1 into EU law
• Proposal on VAT in the digital age, scheduled for Q3 2022. It will cover VAT reporting obligations and e-invoicing, VAT treatment of the platform economy and a single EU VAT registration

Read more

European Parliament

EP publishes draft report on fair and simple taxation

The draft report, prepared by MEP Ludek Niedermayer (EPP/Czech Republic), is a response to EC’s package on fair and simpler taxation published in July 2020.

The non-binding draft report welcomes EC’s initiative for cooperative compliance and includes strong calls for simplifying SMEs’ tax compliance burdens and costs. It also calls for “the formalisation” of the Charter of taxpayers’ rights. Other recommendations include a call for a single EU VAT registration procedure and number, a definition of tax residency and a harmonised EU e-invoicing standard.

An ECON Committee vote is currently scheduled for 13 January 2022, and the Plenary vote for 14 February.

FISC Committee hearing on technology in tax

On September 30, the EP’s FISC Committee held a workshop on a study on ‘The risks and benefits of technology in the tax area: from modernisation of tax systems to increased risks of fraud’.

During their presentations, the attending experts stressed that tax administrations stood to benefit on the whole from increased digitalisation of tax systems. An example was the use of blockchain technology to streamline systems and combatting fraud in areas such as withholding tax and VAT.

However, such a comprehensive change would also entail risks, with the guest speakers underlining the importance of ensuring high quality, interoperable data when it came to risk mitigation. This is in addition to the need for harmonisation of approaches to digitalisation of tax systems at the EU level. Recording

EP debates Pandora Papers

In light of the Pandora Papers (see article below), European P’s Plenary held a discussion on the efforts to combat money laundering, tax evasion and avoidance.

Many MEPs pointed out that yet another scandal shows that the efforts made so far haven’t been enough. They also heavily criticised the Council for removing three jurisdictions from the EU blacklist despite the most recent scandal. A number of MEPs also pointed to deficiencies in implementation of the current rules, regretted the lack of political will to put a stop to these practices, and some called for the end of the unanimity vote in the Council on tax matters.

Other issues discussed included the role of shell companies as well as of intermediaries. Read more

EP adopts position on reform of EU’s policy framework against harmful tax practices

EP Plenary adopted on 7 October a draft report on harmful tax practices and reform of the EU’s Code of Conduct Group, drafted by the MEP Aurore Lalucq (S&D/France). The resolution was adopted with 506 votes in favour, 81 votes against and 99 abstentions.

The day before, the EP debated the draft report. Many MEPs called for the imposition of a harmonised corporate tax rate in Europe, ambitious reform of the Code of Conduct working group and more transparency on the criteria used to assess which countries should be included on the EU’s blacklist of tax havens.

Commissioner Gentiloni lamented that the Code of Conduct Group reform was not proceeding fast enough. This is, according to him, due to a minority of EU member states dragging their heels. Read more

FISC hearing on the implementation of the 6th VAT Directive

FISC Committee discussed on 11 October the draft report on the implementation of the 6th VAT Directive, prepared by the MEP Olivier Chastel (Renew Europe/Belgium).

During his introductory remarks, Mr. Chastel remarked that the study on which his report was based held that the current VAT system across Europe is complex, costly, and allowed for a great deal of fraud to take place. In this regard, a definitive and simplified VAT system was needed which tended towards the implementation of one standard VAT rate. He also noted that compliance costs were around 2.5% of company turnover and thus were a heavy burden on taxpayers.

ECON Committee is scheduled to vote on this non-binding report on 1 December, followed by a Plenary vote on 17 January 2022.

FISC Committee holds 2 hearings on impact of national tax regimes on the EU

Both hearings took place on 11 October. The first hearing was organised with a panel of experts for information gathering purposes. The second hearing was to discuss a draft report prepared by MEP Markus Ferber (EPP/Germany) on the same topic (see last TPU edition).

During the first hearing, MEPs heard from guest speakers – including a Commission representative – that countries should implement changes to taxation policy which would support growth and investment, and thus foster a sustainable economic model with broader social support systems. They emphasised that EU member states do not make their tax policies in a vacuum and there are spill-over effects cross-border. There should be as much coordination as possible between countries on taxation, the speakers underlined.

At the second hearing, Mr. Ferber stated that, while tax remained a national competence, Member States should be encouraged to better coordinate tax matters for the benefit of the EU as a whole, a stance that was echoed by several members who took the floor. A Committee vote on the non-binding report is scheduled for 6 December, followed by a Plenary vote on 17 January.

Draft report on withholding taxes published, hearing on 27 October

The draft report was prepared by the MEP Pedro Marques (S&D/Portugal). The report, most interestingly, calls on EC to propose a “harmonised EU procedure for withholding tax refunds”. It also emphasises that “digitalising these procedures and improving cooperation between national tax administrations could reduce the administrative burden and uncertainty in cross-border investments”.

On 27 October, FISC Committee held a public hearing on the same topic, to help inform the EP’s work. Paul Gisby represented Accountancy Europe in the expert panel.

EP debates OECD reforms

EP Plenary debated on 20 October the global tax reform agreements reached by the OECD Inclusive Framework.

At the hearing, Commissioner McGuinness confirmed that the Commission’s DG TAXUD is already working on a Pillar 2 Directive (which, depending on OECD’s progress on the model rules, might be proposed by the Commission on 22 December this year, Ed.). For Pillar 1, the EC will aim to “ensure a consistent and comprehensive implementation” at EU level.

Several MEPs expressed enthusiasm for the historic agreement and called on Member States to cooperate in its implementation. Others, like MEP Ludek Niedermayer (EPP/Czech Republic), underlined that while the agreement is a great demonstration of international cooperation, other challenges in the tax system also remain. He mentioned, for example, the big VAT gap, compliance costs for SMEs and complications for businesses that want to operate in the EU Single Market. Recording

EP adopts Resolution calling for changes in light of Pandora Papers

The resolution was adopted in Plenary on 21 October with a large majority of 578 in favour, 28 against and 79 abstentions.

Although legally non-binding, the resolution gives a strong indication of the current ‘mood’ inside the Parliament on the topics that it covers. Some of its key tax provisions include:

• Denouncing the EU list of non-cooperative jurisdictions for being ineffective, for it to become more transparent and the criteria to be reinforced
• Calling on the Commission to expand the scope of DAC 6
• Calling on the Commission to ensure UK alignment with standards on taxation and money laundering
• Calling on the US to join the Common Reporting Standard (CRS) and for its role to be considered in the EU list

Read more

FISC hearing with Slovenian Parliament’s representatives

Members of the EP’s FISC Committee exchanged views with Members of the Finance Committee of the Slovenian Parliament. Two sessions provided the opportunity for representatives from both the Slovenian and the European Parliament to present their views on the two-pillar reform driven by OECD, and the expectations regarding the introduction of an EU digital levy.

The meeting took place in the context of the FISC Subcommittee’s willingness to enhance the cooperation and interaction between the European Parliament and national Parliaments. Read more

EP discusses LuxLeaks scandal

The hearing, in FISC Committee, took place on 28 October and brought together a panel of experts including EC representatives, as well speakers from Le Monde and PwC.

EC commented on the so-called tacit approval letters at the heard of LuxLeaks and said that it is currently analysing explanations provided by Luxembourgish authorities. At this stage, it is not clear to EC that the tacit approval letters could provide the level of legal certainty that ‘standard’ tax rulings do.

EC also confirmed that it is currently reflecting on further changes to the Directive on administrative cooperation (DAC) in light of the more recent Pandora Papers. Read more

Council

ECOFIN: EU finance ministers update list of non-cooperative jurisdictions

At their 5 October meeting, EU finance ministers agreed to remove Anguilla, Dominica and Seychelles from the EU list of non-cooperative jurisdictions for tax purposes.

All three are now included in the state of play document (Annex II), which covers jurisdictions that do not yet comply with all international tax standards but that have committed to implementing tax good governance principles.

Nine jurisdictions remain on the EU list of non-cooperative jurisdictions (Annex I): American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, US Virgin Islands and Vanuatu. Read more

New tax leak – Pandora Papers – emerges

A new international tax leak has emerged, based on nearly 12 million leaked files from 14 companies that provide corporate services in offshore jurisdictions. The documents offer a comprehensive look to how the rich and famous are hiding money in financial secrecy jurisdictions.

The International Consortium of Investigative Journalists (ICIJ) received the leaked files and coordinated a worldwide investigation into their contents. The project involves more than 600 journalists from 117 countries.

In the EU, reflections are already ongoing in EC, EP and the Council on how to address the issues identified in the revelations. Further details on this will emerge in the coming weeks. Read more

International agreement reached on tax overhaul

Major reform of the international tax system was reached on 8 October at the OECD that will introduce a minimum 15% effective tax rate on multinational companies from 2023.

The deal was agreed between 136 countries and jurisdictions representing more than 90% of global GDP. It will  reallocate more than USD 125 billion of profits from around 100 of the world’s largest and most profitable multinationals to countries worldwide.

The agreement follows years of intensive negotiations to reform the international tax system.

With Estonia, Hungary and Ireland having joined the agreement, it is now supported by all OECD and G20 countries. Four countries – Kenya, Nigeria, Pakistan and Sri Lanka – have not yet joined the agreement.

The two-pillar solution was endorsed by G20 Finance Ministers at their 13 October meeting, and the G20 Leaders confirmed the agreement at their end-of-October meeting.

National digital taxes and US sanctions to be withdrawn after OECD tax deal

A group of European countries agreed with the US on 21 October to withdraw their digital taxes. The move by Austria, France, Italy, Spain, and the UK follows an international tax deal agreed in October that aims to allocate parts of the profits from highly profitable, big corporations to countries in which revenue is generated.

The national digital taxes should be phased out as soon as the OECD tax deal is put into practice, the US and European states agreed. In return, the US promised to drop the sanctions it had imposed in response. Read more

Yellen hopeful US Congress will pass global corporate tax deal

Janet Yellen has said she is confident that US Congress would approve a key pillar of the global corporate tax deal signed by 136 nations on 8 October (see article above), as part of multitrillion dollar economic legislation being negotiated by the White House and Democratic lawmakers.

“I am confident that what we need to do to come into compliance with the minimum tax will be included in a reconciliation package,” the US Treasury secretary told ABC. “I hope . . . that it will be passed and we will be able to reassure the world that the United States will do its part”. Read more

Will Ireland’s corporation tax rise see tech companies leave Dublin?

Earlier this month Ireland signed up to landmark reforms for a global minimum corporate tax rate of 15%, up from the current level of 12.5% set by Dublin, in the biggest shifts for the country’s tax system in almost 20 years.

Some analysts argued the nation’s economic model could be badly undermined, while the Irish finance minister, Paschal Donohoe, said earlier this year that up to EUR 2bn a year in tax revenue could be lost by 2025. However, there are hopes the changes might not prove as existential as they first seem. Read more