Tax Policy Update

• European Commission confirms plans to regulate tax advice provision in the EU
• European Commission launches proposal on DEBRA
• OECD consults further on Pillar 1 work
• European Parliament’s ECON Committee adopts position on minimum tax Directive

EC confirms plans for EU regulation of tax advice

Directorate General Taxation and Customs Union’s (DG TAXUD) Jasna Voje confirmed on 25 April that the European Commission (EC) is working on a regulation of tax advice provision in the EU. Speaking at a hearing of the European Parliament’s (EP) Subcommittee on Tax Matters (FISC), she explained that this is a reaction to the Pandora Papers which emerged in October 2021.

EC is still mulling over the details of the plan, with a lot of internal decisions to be taken. However, Ms. Voje explained at the hearing that, for the moment, the intention is to regulate the activity of providing tax advice rather than tax advisory professions. The idea would be to set up a set of criteria for what constitutes ‘acceptable’ tax planning, and for tax advice providers to apply these criteria when devising tax arrangements or face penalties in case of non-compliance. In other words, this puts the responsibility over compliance on the advisor, rather than the taxpayer being advised.

One of the question marks for now remains the potential legal base. It is imaginable that EC could use either tax or non-tax legal base for its proposal depending on its chosen approach, although there has been no confirmation one way or the other for now. Naturally, should non-tax be chosen, this would mean equal legislative powers to the Council and the Parliament, and no need for Council unanimity for it to be approved. On the other hand, choosing non-tax could also provoke some Member States who are sensitive about EC legislating on what they see as tax proposals via non-tax legal base.

A public consultation was initially scheduled to run from 12 May until 20 July, but this is now reportedly scheduled for later. Read more

European Commission

EC publishes DEBRA proposal

As has been previously reported, EC proposed on 11 May its anticipated proposal on a debt-equity bias reduction allowance (DEBRA).

DEBRA’s aim is to foster the development of EU Capital Markets Union by granting companies incentives to use equity, rather than debt, to finance their activities. It stipulates that increases in a taxpayer’s equity from one tax year to the next should be deductible from its taxable base, similarly to what happens to debt. Moreover, SMEs would benefit from a higher notional interest rate under the proposed rules. On the debt end, the  proposal introduces a reduction of debt interest deductibility by 15%.

As a next step, EU Council needs to approve the proposal through unanimity, while the EP must provide its legally non-binding opinion. Read more

European Parliament

FISC discusses impact of new technologies on the tax system

EP’s FISC Committee met on 25 April to discuss an own-initiative report on the impact of new technologies on taxation: crypto and blockchain. All of the political Groups’ representatives that took the floor were of the view that the draft report presents a good basis for future work, giving a strong positive signal for the file.

The draft report was prepared by MEP Lidia Pereira (EPP/Portugal), and among other matters, it calls for an international approach for the taxation of crypto-assets. A vote in Committee is scheduled for 30 June, followed by a Plenary vote on 12 September.

Although legally non-binding, the Parliament’s draft report may influence EC’s thinking when drafting its legislative proposals on related topics. One such example is the expected Directive on administrative cooperation (DAC 8) addressing reporting and exchange of information on crypto-assets, expected for September.

EP adopts position on minimum taxation Directive

The EP’s Committee on Economic and Monetary Affairs (ECON)adopted on 28 April MEP Aurore Lalucq’s (S&D/France) draft report on the EU minimum tax Directive, by 46 votes in favour, 4 votes against and 7 abstentions.

It follows closely the key elements of the Commission proposal, notably the implementation timeline. It contains some differences too, such as the introduction of a review clause that provides for the revision of the annual revenue threshold above which a multinational corporation would be subject to the minimum tax rate. MEP Lalucq would have preferred a higher tax rate (21%) than the one in the Organisation for Economic Co-operation and Development (OECD) agreement (15%), but had to concede on this point.

The final vote in Plenary is currently scheduled for 6 June.

EP approves extension of optional RCM

The EP adopted, without amendments, its report on the Common system of value added tax (VAT): extension of the application period of the optional reverse charge mechanism (RCM) in relation to supplies of certain goods and services susceptible to fraud and of the Quick Reaction Mechanism against VAT fraud.

The report was adopted with 605 votes in favour, 2 against and 27 abstentions. It was led by MEP Markus Ferber (EPP/Germany). Read more

FISC hearing on use of EU tax regimes by Russian oligarchs

The hearing, which took place on 10 May, aimed to shed light on the features of special tax regimes in the EU and how high-net-worth Russian individuals and oligarchs use them.

Theresa Neef, a researcher from the EU Tax Observatory, called for a European register that would detail assets held throughout the EU and centralise the information. All types of assets should be covered, as well as all legal forms, such as trusts or foundations, and real estate, she argued.

Richard Murphy, Professor of Accounting at the University of Sheffield, argued that the EU still has secrecy jurisdictions and that too little attention is paid on the role of intermediaries.

Susana Peralta, Associate Professor at Nova University in Portugal, presented specificities of the Portuguese tax system such as golden visas, citizenship for Sephardic Jews and non-taxation of crypto-assets. Read more

OECD invites public input on the regulated financial services exclusion under Amount A of Pillar One

The OECD is seeking public comments on the Regulated Financial Services Exclusion under Amount A of Pillar 1.

The Regulated Financial Services Exclusion will exclude from the scope of Amount A the revenues and profits from Regulated Financial Institutions. The defining character of this sector is that it is subject to a unique form of regulation, in the form of capital adequacy requirements, that reflect the risks taken on and borne by the firm. The scope of the exclusion derives from that requirement, meaning that Entities that are subject to specific capital measures (and only those) are excluded from Amount A.

The deadline for submitting comments is 20 May. Read more