Tax Policy Update

• Commission opens consultation on BEFIT initiative
• EU adopts windfall levy on energy companies
• Pascal Saint-Amans steps down as OECD tax Director
• Commissioner Gentiloni tells ECON Committee US minimum tax incompatible with Pillar 2
• Accountancy Europe responds to Commission consultation on tax enablers
• No Pillar 2 Directive agreement – not even discussion – at October ECOFIN

European Commission

Commission launches public consultation on BEFIT

The much-awaited consultation was published on 13 October. Stakeholders have until 5 January 2023 to provide feedback.

As part of this initiative, EC proposes a new, comprehensive, structural reform of the EU business tax framework. Reform is consistent with and partially based on the principles that underpin the OECD/G20 Inclusive Framework’s 2-pillar approach.

BEFIT is not a new tax. It is a new set of rules to replace 27 different corporate tax systems for the businesses and companies affected. Read more

Commission President Von Der Leyen delivers State of the EU speech

The Commission (EC) President provided an overview of the state of the economy and society of the EU in her 14 September speech to the European Parliament Plenary. She referred to the several crises currently plaguing Europe, and outlined measures that EC will undertake to support European citizens and businesses. 

From a tax perspective, the main interest of her speech was a reference to the Business in Europe: Framework for Income Taxation (BEFIT). This initiative is still on EC’s schedule for 2023, with possible public consultation expected in the coming weeks or months. In her speech, Von Der Leyen framed BEFIT as an SME support measure, which would make cross-border economic activities easier for SMEs in the Single Market. Read more

Accountancy Europe re-appointed to the Commission’s VAT Expert Group

Accountancy Europe has been re-appointed to EC’s VAT Expert Group (VEG). Our representatives are Christine Weinzierl, the Chair of Accountancy Europe’s VAT task force, and Paul Gisby, Senior Manager. Read more 

European Parliament

ECON structured dialogue with Commissioner Gentiloni on taxation

MEPs discussed tax policy with Commissioner Gentiloni on Monday 26, September. The hearing focused on a windfall profits tax, and the implementation of the global minimum corporate tax rate, among other topics. The meeting allowed MEPs to ask the Commissioner about Russia’s aggression, the ensuing energy price hikes, and resulting inflation. 

On core tax topics, the Commissioner acknowledged that the US minimum tax, introduced as part of the Inflation Reduction Act (IRA), has incompatibilities with the OECD Pillar 2. The Commissioner promised that “all legal and political means” would be taken to overcome Hungary’s continuing veto on the Pillar 2 Directive. Read more 

European Parliament adopts report on the impact of new technologies on taxation

The own-initiative report by Lídia Pereira (EPP/Portugal) that covers crypto and blockchain technologies’ impact on taxation was adopted with 566 votes in favour, 7 against and 47 abstentions on 4 October. The day before, MEPs debated the text. Pereira insisted that “we have a duty to make European legislation more innovation-friendly”. 

Commissioner Adina-Ioana Vălean (Transport) told the Plenary that the upcoming 16 November) proposal to revise the administrative cooperation directive (DAC 8) would reflect the new reality of crypto-assets. EC aims to place crypto-assets service providers in a similar position to traditional financial service providers.  

FISC Committee discusses shell entities initiative

ECON Committee met for consideration of amendments tabled to MEP Lidia Pereira’s (EPP/Portugal) Draft report on EC’s shell companies Directive on 10 October. 

The EC proposal targets companies set up in the EU that do not conduct any economic activities but are established to solely benefit from certain tax advantages. The Directive would lay down a “substance test” to help Member States identify such entities. The proposal further envisages automatic exchange of information via a central directory and potential requests by one Member State to another for tax audits. 

ECON Committee vote is currently scheduled for 17 November, followed by a final Plenary vote on 12 December. 

FISC hearings on the Dutch and Luxembourgish tax systems

The hearings took place on Thursday 13 October. The first one hosted the Dutch State Secretary for Finance, Marnix van Rij. He told MEPs that he had hoped for EU agreement on the Pillar 2 Directive in the first half of 2022 already and called for a reform of the EU Code of Conduct. He indicated to being open to discuss the unanimity rule on taxation. 

The second hearing hosted visiting experts to discuss Luxembourg’s tax system. They noted that, while Luxembourg was fully compliant in implementing EU and international legislation, the country often chose to apply minimum standards. While this was not in contravention of the rules, it did leave Luxembourg open to attracting companies that engaged in aggressive tax planning. It was noted that Luxembourg had the third highest foreign direct investment (FDI). 

MEP questions & answers

EC believes BEFIT initiative will greatly benefit Europe’s SMEs

• Question by MEP Eva Kaili (S&D/Greece) 
• Reply by Commissioner Gentiloni 

Council

Five EU states vow to introduce minimum corporate tax

Germany, France, Italy, Spain and the Netherlands have vowed to implement a global minimum corporate tax despite Hungarian opposition. Hungary has refused to back the bloc’s proposals for the levy. 

The 5 countries’ finance ministers pledged to introduce a minimum 15 % effective corporate tax rate in their own countries “swiftly” in a joint statement on 9 September. They added that they wanted the new regime in place by 2023. Read more 

Member States want to go beyond soft law on direct taxation in the EU 

“No one strictly said we want soft law only, no one ruled it out either”, said Czech Finance Minister Zbyněk Stanjura at a press conference on 10 September. The informal ECOFIN meeting followed the conference in Prague. “Member States thought that there could be more effective taxation if we went beyond soft law”, added Stanjura. 

The Czech Council Presidency had brought onto the finance ministers’ table a discussion on to what degree the EU should continue to make ‘hard law’ legislation on taxation, as opposed to using more ‘soft law’ measures. These include recommendations and guidance. After the meeting, it was clear that most EU countries supported continuing legislation and soft law measures. Read more 

EU adopts windfall levy

EU energy ministers adopted measures to ease an energy crisis, including a levy on windfall profits of fossil fuel companies, on 30 September. The deal reached on the EC’s proposals is estimated to help raise $140 billion in relief for people and businesses hit by the crunch. 

Ministers backed a levy of at least 33% on the surplus profits of companies producing or refining oil, natural gas and coal. Main measures also include temporary cap on the revenue of low-cost electricity generators such as wind, solar and nuclear companies, and an obligation for EU countries to reduce electricity consumption by at least 5% during peak price hours. Read more 

New jurisdictions added to the EU list of non-cooperative jurisdictions

EU finance ministers agreed to add Anguilla, The Bahamas and Turks and Caicos Islands to the EU list of non-cooperative jurisdictions for tax purposes at the 4 October ECOFIN meeting. With these additions, the EU list now consists of 12 jurisdictions. 

The finance ministers also approved the Code of Conduct Group’s new work programme for the Czech Council Presidency and the Code of Conduct Group’s report to the Council. 

A big elephant in the room continued to be the EU’s Pillar 2 Directive. In the summer, Czech Presidency indicated its aim to reach an agreement on the Directive in October, but this was not the case due to Hungary’s continued veto of the file. Thus, it did not feature on the ECOFIN agenda.. This may renew pressure on EC to legislate on the file using the so-called enhanced cooperation mechanism. However, the Czech Presidency insists there is time until the end of this year for the EU to find a unanimous agreement. 

Pascal Saint-Amans to step down as OECD tax Director

Pascal Saint-Amans, the Director for taxation at OECD, is stepping down from his role and will be replaced by Grace Perez-Navarro from 1 November until 31 March 2023. Pascal will join Brunswick Group as a Partner. 

During his OECD mandate, Pascal played a key role in leading and pushing through the BEPS reforms, kick-starting, and significantly progressing on the OECD’s 2 Pillar solution. We will miss his leadership, but he will leave behind a competent and strong team. 

Accountancy Europe wishes him all the best in his next endeavours!

Business Europe raises concerns over windfall taxes

Business Europe has sent a letter to the Czech Council Presidency expressing concerns about EU-wide plans for introducing windfall taxes in light of the ongoing energy crisis. “Windfall taxes on energy companies’ profits (…) might impact the ability of some electricity generators to make necessary investments”, Business Europe warns. The organisation argues it will be challenging to identify excess profits. Read more 

OECD: Countries making substantial progress towards implementation of the two-pillar international tax reform

Delegates agreed to release a new Progress Report of the Administration and Tax Certainty Aspects for public consultation during the 14th Plenary meeting of the OECD/G20 Inclusive Framework on BEPS. The conference drew more than 500 delegates from over 135 countries and jurisdictions. 

This Progress Report includes the rules on the administration of the new taxing right under Pillar One, including the tax-certainty related provisions. It follows the release of the first progress report for public consultation in July. These two reports and a series of rolling public consultations earlier this year, provide a clear overview of the proposed overall design of the rules and how the rules will operate in practice. 

“A year has passed since countries agreed a ground-breaking deal to address the tax challenges arising from the digitalisation and globalisation of the economy, and it has been marked by hard work to ensure swift implementation of this essential international reform package,” stated OECD Secretary-General Mathias Cormann.

Accountancy Europe publishes response to tax enablers consultation

Accountancy Europe has published its response to EC’s public consultation on regulating the activities of “tax enablers”. In its response, Accountancy Europe proposes improvements to the consultation format and questionnaire. It suggests aggressive tax planning indicators and how to make the new rules practicable. An EC legislative proposal is currently expected for the first half of 2023. Read more 

Portugal to Tax Crypto Gains in Next Year’s Budget Plan

Portugal is planning to start taxing digital-currency gains on purchases held for less than a year in a major policy shift for one of Europe’s most crypto-friendly nations. 

Portugal does not tax crypto gains unless they come from professional or business activities, but that’s about to change. A provision in the country’s proposed 2023 budget would tax gains on crypto holdings held for less than one year at a rate of 28%, according to the plan submitted to parliament on Monday. Crypto assets held for longer than 365 days will continue to be exempt from the rules. Read more