An informal meeting of EU Finance ministers took place in Stockholm on Friday 28 and Saturday 29 April. The two-day meeting began with a working lunch, during which the ministers discussed how to best respond to the current pressing challenges due to high inflation, and how to shape fiscal policy to support the most vulnerable households and businesses. During the first working session on Friday, the ministers and Central Bank Governors were invited to exchange views on European financial markets’ role in financing the next generation of companies that will provide jobs and promote future economic growth. The second working session on Saturday took a longer-term perspective on the role of fiscal policy in overall stabilisation policies. Issues for discussion included the appropriateness of fiscal policy for stabilisation in different situations, the trade-off between discretionary policies and automatic stabilisers, and how different conditions in Member States affect the room for manoeuvre. In the third and final working session, the ministers discussed how to coordinate and organise financial support to Ukraine in the longer term. The aim of the session was to take a broader view of the reconstruction of Ukraine, also considering Ukraine’s path towards closer integration with the EU economy and internal market. Ukraine’s Minister of Finance Sergii Marchenko and Canada’s Deputy Prime Minister Chrystia Freeland took part to share their experiences and views on future cooperation. No tax matter was discussed during this informal Ecofin meeting.
Agreement on DAC8 in sight in the EU Council
The Swedish presidency of the EU Council reportedly plans to seek the approval of Member States on a compromise text on the eighth amendment to the Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC8) during the Ecofin meeting on 16 May. The compromise text reportedly deletes the entire new sanctions regime proposed by the Commission. It also removes the requirement to exchange Tax Identification Numbers (TINs) for DAC7 and DAC8 and postpones the starting period of the TIN requirement for DAC1 until 2030 and for DAC3, DAC4, and DAC6 until 2028. Member States would also reportedly move away from the Commission’s approach to target tax rulings related to high-net-worth individuals who hold a minimum of 1 million € in financial or investable wealth or assets under management and would target instead rulings in which the amount of the transaction or series of transactions of the advance cross-border ruling exceeds 1.5 million €. In parallel, MEPs are also advancing on their position. On Monday 24 April, the debate in the ECON committee on the draft non-binding opinion showed a degree of support for the proposal, although some amendments should be put forward. The European Parliament had accelerated its own procedure, as the EU Council will soon finalise the text. The draft opinion should be voted on 30 May in the ECON committee, with a final vote scheduled for the July plenary session.
Russia urges EU Member States to resume information exchange
Russian authorities have reportedly recently written to several EU Member States to ask them to honour their commitments under the multilateral competent authority agreement on the automatic exchange of financial information. Following Russia’s acts of aggression against Ukraine, the EU Member States have indeed decided to discontinue all exchanges of information for tax purposes with Russia and Belarus. In their letters to Member States, the Russian authorities reportedly said they want to ensure compliance with the multilateral competent authority agreement on the common reporting standard, which says that if any difficulties in the implementation or interpretation of the agreement arise, a competent authority may request consultations with one or more of the competent authorities to develop appropriate measures to ensure that this agreement is fulfilled. Because it hasn’t received financial information from EU Member States for 2021, Russia reportedly asked them to clarify whether they intend to continue the exchange of information.
MEPs quiz experts on the work of national tax authorities
On Tuesday 25 April, the European Parliament’s FISC Subcommittee hosted a public hearing on the work of national tax authorities. The purpose of the hearing was to discuss with experts how to support tax authorities in order to enhance the functioning of the internal market, foster its competitiveness, how to protect the financial and economic interests of the Member States and how to improve tax collection. Among other things, the participants discussed ways for better cooperation between national tax authorities and a more efficient use of resources, issues of upskilling the current staff and attracting new talent as well as the issue of the VAT gap. Participants agreed that the digitalisation presents both challenges and opportunities for the tax authorities. The technological developments have improved tax compliance, increasing transparency and efficiency of the administrations, they recognised. Digitalisation and the use of AI have increased the amounts of data that the authorities managed to collect, enabling them to assess tax liabilities and detect non-compliance. Despite all the benefits, the increasing use of the technological resources also brings some challenges and concerns about cybersecurity and privacy. Hence, it is important to develop appropriate safeguards, they said.
OECD releases its Taxing Wages 2023 Report
Taxes on labour increased in 2022 as rising nominal wages pushed workers into higher tax brackets and reduced their eligibility for tax credits and cash benefits, according to the new Taxing Wages OECD report, published on Tuesday 25 April. The report also shows that while nominal wages increased, high inflation across the OECD caused wages to decline in real terms, resulting in a double blow for workers. With inflation reaching its highest level in over 30 years in 2022, the new OECD analysis shows effective tax rates rose in a majority of OECD countries across a range of income levels and household types, with a significant increase for families with children, particularly at lower income levels. For a single worker earning the average wage, the tax wedge ranged from 53% in Belgium to 0% in Colombia in 2022, averaging 34.6% across the OECD as a whole. On average across the OECD, the tax wedge for a single parent earning 67% of the average wage increased by 1.6 percentage points between 2021 and 2022 to 16.6%, which is the largest annual increase in the average tax wedge since 2000 for any of the eight household types covered by the report. For a one-earner couple earning the average wage with two children, the average tax wedge of 25.6% in 2022 reflected an increase of 1.1 percentage points from the previous year – the largest rise for this household type since 2000, the report states.
EFRAG requests comments on preparatory draft for the endorsement advice on amendments to IAS 12
EFRAG issued on Monday 24 April a preparatory draft of its Endorsement Advice letter relating to the endorsement for use in the EU of the International Tax Reform Pillar Two Model Rules (amendments to IAS12). The objective of the amendments is to introduce a mandatory temporary exception to the requirements in IAS 12 Income Taxes to recognise and disclose information about deferred tax assets and liabilities arising from the OECD’s Pillar Two Model Rules. The amendments also propose the introduction of disclosure requirements. EFRAG’s overall preliminary assessment is that the amendments satisfy the criteria for endorsement for use in the EU and it therefore recommends its endorsement. EFRAG is seeking comments on the analyses supporting its preliminary conclusions by 24 May 2023.
Final adoption of the Carbon Border Adjustment Mechanism
On Tuesday 25 April, the EU Member States adopted the regulation establishing the Carbon Border Adjustment Mechanism (CBAM). Only Poland voted against it while Belgium and Bulgaria abstained. The adoption paves the way for the entry into force of the CBAM, at least its transitional phase, from October 2023 until 1 January 2026. Until the end of 2025, the CBAM will apply only as a reporting obligation. CBAM will be phased in gradually, in parallel to a phasing out of the free allowances, once it begins under the revised EU ETS for the sectors concerned. Free allowances for sectors covered by the Carbon Border Adjustment Mechanism – cement, aluminium, fertilisers, electric energy production, hydrogen, iron and steel, as well as some precursors and a limited number of downstream products – will be phased out over a nine-year period between 2026 and 2034.
This newsletter contains information about European tax policies and developments gathered from official documents, hearings, conferences and the press. It does not reflect the official position of ETAF nor should it be taken as a written statement on behalf of ETAF.