Tax Policy Update

• European Parliament and Council confirm CBAM agreement 
• BUDG Committee proposes new tax measures as EU’s own resources 
• Council aiming for DAC 8 agreement in May 
• Swedish tax attache gives update on state of discussions on VAT in the digital age 

Commission

Commission refers Belgium EU Court for failing to transpose ATAD correctly

European Commission (EC) has referred Belgium to the EU Court of Justice (CJEU) for failing to properly transpose the anti-tax avoidance Directive (ATAD), according to the April infringements package published on 19 April. 

ATAD allows a Member State where a parent company of a multinational is located to tax profits made by a ‘controlled foreign company’ (CFC) in another Member State. This is allowed when the tax paid by the controlled foreign company is less than half of what would be paid in the Member State of the parent company. The company should be granted a tax credit for all taxes it has paid abroad. However, contrary to ATAD, Belgian law does not allow a taxpayer to deduct from its tax liability the tax already paid by a CFC in the state of tax residence. 

Belgium has failed to address EC’s concerns in the previous infringement steps, hence the ‘escalation’ of the case to the CJEU level.

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European Commission proposes to allow Hungary to apply a derogation to VAT Directive

EC proposed to allow Hungary to apply a derogation to the VAT directive on 20 April. Currently, companies with an annual turnover not exceeding the forint equivalent of €48,000 are exempt from VAT until 31 December 2024. Hungary requested to raise the threshold to €71 500 in a letter dated December 2022. The new threshold would simplify compliance with a Hungarian income tax for small companies. This valuation would also be justified by inflation and increased tax revenues created by economic growth. This measure could affect around 35,000 companies.

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European Parliament

European Parliament draft report on DAC 8 published

MEP Rasmus Andresen (Greens-EFA/Germany) published his draft report on the Directive on administrative cooperation concerning crypto assets (DAC 8) on 29 March. Among his recommendations, MEP Andresen proposes expanding DAC’s scope to include exchanging information on capital gains from immovable property, financial and luxurious assets stored in free ports, customs warehouses or safe deposit boxes. He also calls for introducing a European Tax Identification Number (TIN) that would allow any authority to identify and register taxpayers quickly, efficiently and correctly. 

European Parliament’s (EP) opinion is legally non-binding, but it is needed for DAC 8 to become EU law eventually. The vote in ECON Committee is currently scheduled for 30 May.

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European Parliament adopts final agreement on CBAM

With 487 votes to 81 and 75 abstentions, EP adopted the interinstitutional agreement with the Council on the new EU Carbon Border Adjustment Mechanism (CBAM) on 18 April. It aims to incentivise non-EU countries to increase their climate ambition and to ensure that EU and global climate efforts are not undermined by production relocated from the EU to countries with less ambitious policies. 

The goods covered by CBAM are iron, steel, cement, aluminium, fertilisers, electricity, hydrogen, and indirect emissions under certain conditions. Importers of these goods would have to pay any difference between the carbon price paid in the country of production and carbon allowances in the EU Emissions Trading Scheme (ETS). 

Following EP’s vote and Council’s adoption (see below), CBAM can become EU law. The system will be phased in from 2026 until 2034 at the same speed as the free allowances in the EU ETS are being phased out.

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BUDG adopts draft report on new EU own resources

EP’s budgetary affairs (BUDG) Committee adopted its draft opinion on new EU own resources on 17 April. MEPs José Manuel Fernandes (EPP/Portugal) and Valérie Hayer (RE/France) prepared the opinion. The non-binding report aims to influence EC’s thinking ahead of its package of proposals in September regarding the new EU’s own resources. 

The draft report proposes new taxes for the EU’s new own resources. These include a BEFIT-based resource, a Financial Transaction Tax (FTT), a cryptocurrency tax, and an EU “fair border mechanism”. 

A final vote in Plenary is currently scheduled for 9 May.

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FISC hearing on the work of national tax administrations

EP’s FISC Subcommittee hosted a public hearing on “The Work of National Tax Authorities: Resources, Strategies, Cooperation” on 25 April. The purpose of the hearing was to discuss with experts how to support tax authorities to enhance the functioning of the internal market and foster its competitiveness. The hearing also focused on protecting the financial and economic interests of the EU and its Member States, including protecting national and EU budgets from tax fraud, tax evasion and tax avoidance, and how to improve tax collection. 

MEPs who took the floor wanted to know how tax administrations have adapted their recruitment profiles to consider digitalisation, what legislation legislators should focus on other than DAC, and whether a stronger role for the Commission and the EU in tax administration cooperation would be helpful. MEPs had questions on specific areas of tax policy, notably VAT and withholding tax.

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Council

Some EU Member States sceptical about certain elements of VAT in the digital age

Businesses and the tax attache from the Swedish Permanent Representation, Johan Lundqvist, shared concerns about the consequences of the ‘VAT in the Digital Age’ (‘ViDA’) initiative at an event organised by Business Europe on 18 April. 

Discussions in the Council mainly revolve around technical details, including digital reporting requirements. There is a consensus e-invoicing is the way forward, although it is challenging for Member States. They have their national reporting systems, and harmonisation could change these systems, which they want to keep the same. “They spent money and time to create them,” Mr. Lundqvist justified. 

For SMEs, some Member States reportedly argue VAT is an everyday tax that should be easy to apply. “Real-time or near-real-time reporting puts extreme pressure on this,” Mr. Lundqvist explained.  

For him, ensuring that SMEs are guided and the system encourages voluntary compliance is vital. This involves transparent local legislation, harmonisation of the treatment of dates and places of taxation, and guidance when doubts arise in a declaration.

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Council nearing agreement on DAC 8

EU finance ministers aim to finalise a tax information-sharing rule that is crucial in the bloc’s regulation of crypto assets – the latest amendment to the Directive on administrative cooperation (DAC). 

Work on details of the rule is at an advanced stage, making possible “political agreement” by ministers at the 16 May Ecofin, an official from the Council of the EU, who asked not to be named citing institutional policy, told Bloomberg Tax.

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Member States adopt CBAM

The Council adopted the interinstitutional agreement on Carbon Border Adjustment Mechanism (CBAM) on 25 April, a week after EP approved it (see above). Poland opposed, whilst Belgium and Bulgaria abstained, but the agreement passed nonetheless with a qualified majority. EC will add CBAM to the EU Official Journal as a next step, thus enshrining it into EU law.

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EC maintains DEBRA is beneficial for EU economy but points to lack of disaggregated country–level data

• Question by MEP Claude Gruffat (Greens-EFA/France) 
• Reply by Commissioner Gentiloni

UK and EU boost cooperation over new carbon border tax

Britain and the EU are boosting the coordination of efforts to tackle climate change and respond to a massive US green subsidy programme. This is a sign of warming relations between the two sides. UK prime minister Rishi Sunak said that Britain and the EU could co-ordinate moves on a new carbon border tax that would place a levy on imported carbon-intensive goods arriving in Europe.

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IASB confirms temporary relief from deferred tax accounting following OECD agreement

The International Accounting Standards Board (IASB) decided to finalise amendments to IAS 12 Income Taxes following the Pillar Two model rules published by the OECD on 11 April. 

The amendments, approved in a special supplementary meeting, will temporarily relieve companies from having to account for deferred taxes arising from implementing the Pillar Two model rules.

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Companies pressed to reveal more about the taxes they pay

Making companies publicly disclose the tax they pay country-by-country could curb international tax avoidance and cut the risks of damaging disputes with local authorities, according to campaigners pressing the issue in US boardrooms. 

A coalition of investors and activists is seeking shareholder support for increased tax transparency at the annual meetings of several of the largest US companies in the coming weeks, making it the latest frontier in the battles over environmental, social and governance reporting.

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