Tax Policy Update

• Council agrees to changes to EU list of non-cooperative jurisdictions 
• G20 re-affirms commitment to Pillar 1 progress by summer 2023 
• Bruno Le Maire says EU digital tax is an option if Pillar 1 fails 
• IESBA consults on ethical code for tax advisors 

European Parliament

FISC Committee publishes study on tax compliance costs for SMEs

The study aims to quantify and compare tax compliance costs burdening private businesses in the EU by reviewing the available empirical literature and data on SMEs. It was published on 23 February. The study discusses data, methodological challenges, and attempts to identify best-practice tax systems in Europe. It highlights differences in compliance costs met by firms of differing sizes, engaging or not in cross-border trade and for different tax types. The authors suggest a comprehensive tax reform at the pan-EU level, akin to CCCTB or BEFIT, would be the best way to alleviate compliance burdens.

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European Parliament prepares work on its opinion of VAT in the digital age

MEP Olivier Chastel (RE/Belgium) has been appointed as the lead rapporteur, preparing a first draft of the Parliament’s opinion on the Commission proposal. The ‘supporting’ shadow rapporteurs include Lidia Pereira (EPP/Portugal), Aurore Lalucq (S&D/France) and Mikuláš Peksa (Greens-EFA/Czech Republic). An indicative ECON vote on the eventual draft opinion is currently set for 24 October. 

In support of the MEPs’ work, the Parliament’s internal services have prepared and published a briefing paper on the Commission proposals. It provides a handy overview of the key provisions.

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ECON’s work on debt-equity bias proposal advances

ECON Committee members exchanged views around the 109 amendments tabled on the debt-equity bias reduction allowance (DEBRA) file on 1 March. MEP Ludek Niedermayer (EPP/Czech Republic) leads Parliament’s work on the issue. The discussion revolved around the potential impact of narrowing the proposal’s scope to SMEs only or broadening it by giving more generous tax advantages. The Greens/EFA and the Left Groups believed the Council’s decision to put this file “on ice” was not unjustified, given the circumstances. The Committee vote is currently scheduled for 28 March, followed by a Plenary vote on 17 April. The Parliament only provides its non-binding opinion, which is needed for the file to become EU law.

Council

Finance ministers agree on changes to EU list of non-cooperative jurisdictions

The ECOFIN Council of finance ministers decided to add the British Virgin Islands, Costa Rica, Marshall Islands and Russia to the EU list of non-cooperative jurisdictions for tax purposes on 14 February. The EU list now consists of 16 jurisdictions. 

This revised EU list of non-cooperative tax jurisdictions (Annex I) includes countries that either have not engaged in a constructive dialogue with the EU on tax governance or have failed to deliver on their commitments to implement the necessary reforms. The reforms should aim to comply with objective tax good governance criteria, including tax transparency, fair taxation and implementation of international standards to prevent tax base erosion and profit shifting.

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IESBA consults on new ethical principles for professional tax advisors

The International Ethics Standards Board for Accountants (IESBA) released the Exposure Draft on Proposed Revisions to the Code Addressing Tax Planning and Related Services for public comments on 17 February. 

The proposed revisions respond to public interest concerns about tax avoidance, and the role played by consultants, including professional tax advisers, in light of revelations in recent years such as the Paradise and Pandora Papers. The proposals strengthen the ethical expectations for professional accountants in business and public practice when performing tax planning activities for employing organisations or providing tax planning services to clients, respectively. 

The deadline for providing comments is 18 May.

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G20 finance ministers re-iterate commitment to 2-Pillar solution

G20 finance ministers underlined the commitment in the final Communique of their 24-25 February meeting. Specifically, the Communique states: “We will continue our cooperation for a globally fair, sustainable and modern international tax system fit for purpose for the 21st century. We remain committed to the swift implementation of the OECD/G20 two-pillar international tax package. We urge the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (“Inclusive Framework”) to finalise Pillar One, including the remaining issues so that the Multilateral Convention can be signed in the first half of 2023.”

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ESMA sends letters to EFRAG and IASB on Pillar 2 accounting amendments

The European Securities and Markets Authority (ESMA) has sent letters to the International Accounting Standards Board (IASB) and the European Financial Reporting Advisory Group (EFRAG) regarding IASB’s Exposure Draft International Tax Reform – Pillar Two Model Rules. In its letter, ESMA provides high–level comments to the organisations to ensure that the IASB’s proposed changes fit the purpose of the EU. ESMA notes that convergence with the US GAAP is paramount for this standard.

See the letter to IASB here and to EFRAG here. 

Annual Report 2022: EPPO puts spotlight on revenue fraud, with VAT fraud on top

The Annual Report for the activities of the European Public Prosecutor’s Office (EPPO) in 2022 focuses on EU fraud affecting public revenue, particularly cross-border VAT fraud. By the end of 2022, the EPPO had 1117 active investigations with estimated damages of €14.1 billion, nearly half of which (47%) resulted from VAT fraud. 

In 2022, the EPPO received and processed 3318 crime reports and opened 865 investigations. Judges granted the freezing of €359.1 million in EPPO investigations (compared to €147.3 million in 2021), representing more than seven times the organisation’s 2022 budget.

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Bruno Le Maire hints at EU digital tax in case of Pillar 1 failure

French Economy and Finance Minister Bruno Le Maire said that the US, Saudi Arabia and India are blocking negotiations on taxing digital giants like Google, Apple, and Amazon, as reported by Euractiv on 20 February. 

“The chances of success are slim,” stated Le Maire at a press briefing, “Today, things are blocked, notably by the United States, Saudi Arabia and India”. 

Most notably, Le Maire re-iterated the French position that “if the G20 and OECD countries could not agree on the practical implementation of digital taxation, we would argue for its European implementation. I think we are there”. 

The ministry’s services specified that “today, we are still working on a multilateral convention”. But “if there is a failure at the international level, a European solution could be envisaged”.

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