The ambassadors of Member States (Coreper) gave their green light on Wednesday 10 May to the latest Swedish Presidency’s compromise text on the Council Directive amending Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC8), which paves the way for a formal agreement at the Ecofin meeting on 16 May. Member States have completely deleted from the text the minimum penalties proposed by the European Commission in case of a breach of the reporting obligations of the DAC. The text now only states that “the penalties provided for should be effective, proportionate and dissuasive”, while stressing that “the choice of penalties remains within the discretion of Member States”. ETAF very much welcomes this news, as the proposed minimum sanctions were the main concern we pointed out in our position paper on the proposal. Some changes have also been made on the automatic exchange of tax rulings. Member States want to target advance cross-border ruling issued, amended or renewed after 1 January 2026 and where the amount of the transaction or series of transactions of the advance cross-border ruling exceeds 1,5 million € or the advance cross-border ruling determines whether a person is or is not resident for tax purposes in the Member State issuing the ruling. As expected, Member States also added a provision to address the recent Court of Justice of the European Union decision invalidating DAC6 reporting requirements that infringe professional privilege. In parallel, the EP is finalizing its non-binding opinion with the intention to vote on it in the ECON committee on 30 May and in Plenary in July. The amendments drafted by the political groups touch upon the issue of scope, the privacy aspects, obligations of intermediaries, the proposed minimum penalty level as well as the definition of a high net worth individual.
Summary report of the answers received to the public consultation on BEFIT
On Monday 8 May, the European Commission published a summary report of the answers it received to its public consultation on its initiative Business in Europe: Framework for Income Taxation (BEFIT). Overall, the Commission received 77 responses to its survey. Almost two thirds of the respondents (50/77) agreed or strongly agreed that the current situation with 27 different national corporate tax systems gives rise to problems in the internal market. Regarding the scope, a majority of respondents considered it as “effective” or “very effective” to have a threshold for mandatory application with a possibility for companies (including SMEs) below the threshold to opt in. Most respondents also considered a threshold for groups with over EUR 750 million of consolidated group revenues as “effective” or “very effective”. Among other things, respondents were asked whether they see any benefits that the BEFIT initiative could bring regarding their current compliance and administrative costs. The Commission recognized that they expressed mixed views as to whether the proposed approach would lead to simplifications and added that some felt it could lead to higher compliance and administrative costs. A majority of respondents also said that filing simplifications would be the most useful in terms of reducing the compliance and administrative burden.
EU implementation directive of Pillar II challenged in court
A company identified as “VF” has reportedly filed an application with the General Court of the European Union contesting the validity of the EU implementation directive of the global minimum tax (so called Pillar II of the OECD agreement). According to a summary of the application, published on Monday 8 May in the Official Journal of the European Union, the company argued that the court should annul the international shipping income exemption contains in the Directive. The company noted that article 17 of the implementing directive excludes income from shipping activities covered by EU member states’ tonnage tax regimes, other than international shipping income and qualified ancillary international shipping income. It also noted that the EU directive does not lay down transitional measures for taxpayers that made substantial investments relying on a national tonnage tax regime. By doing so, the company argued that the directive breaches EU law, including the principle of equal treatment of comparable enterprises and the principle of proportionality. The company also alleged that the directive infringes the principle of protection of legitimate expectations and legal certainty.
OECD reports on progress on Pillar I and Pillar II
OECD Secretary General Mathias Cormann gave some news on the progress being made on Pillar I and Pillar II of the OECD agreement in his tax report to G7 Finance ministers and central bank governors, published on Thursday 11 May. In particular, he said that the OECD is developing a secure communication mechanism to allow confidential discussions between tax administrations and taxpayers in support of the Two-pillar global tax reform and expects it to be operational no later than 2024. “To fully unlock the potential of digital technology for tax administrations, coordinated work is now being undertaken to build a secure communications mechanism to allow both tax administrations, as well as taxpayers, to engage in confidential discussions and securely share documents in a cross-border environment”, the report says. The OECD is also working on standardizing a GLOBE information return that the ultimate parent entity of an in-scope MNE group can file centrally with a jurisdiction that has a qualified competent authority agreement with the jurisdictions of its constituent entities. Similar principles underpin the work being finalized on amount A of Pillar I, the report adds, pointing to a one-stop-shop approach for filing amount A returns and documentation packages and advance certainty review processes under amount A.
German Chancellor Olaf Scholz addresses MEPs
On Tuesday 9 May, the European Parliament gathered in plenary for a “This is Europe” debate with Olaf Scholz, Chancellor of Germany. In his speech, the Chancellor focused on a number of key challenges for the future of the EU, including the war in Ukraine and the need for strengthened defence cooperation, the need for more openness to the world, more honest enlargement policy and treaties’ reform. He also pushed for extending qualified majority decision-making to more decisions dealing with foreign policy and taxation. Reacting to Chancellor’s words, the MEPs called on the leader to be more courageous in delivering his policies, turn words into action and ensure faster deliveries to Ukraine. In particular, several MEPs demanded a continued support for Ukraine in the Russian war of aggression until a just peace is secured, while others criticised Germany for providing tardy support to Ukraine. Many MEPs called on Chancellor Scholz to push for a Convention before the 2024 European elections and also addressed the need for more support for the EU citizens in the face of the energy and climate crises.
MEPs start their work on the VAT in the digital age package
MEP Olivier Chastel (Renew Europe, Belgium) recently published its draft report for the ECON committee on the VAT in the digital age package. In his draft report, he says he wants to achieve more balance between the objectives of combating fraud and the difficulties for businesses which might arise in applying the newly proposed rules. In particular, he believes that a ten working day deadline for issuing and declaring invoices would be more realistic for businesses, especially SMEs, than the two-day deadline proposed by the Commission. Mr Chastel also finds it necessary to reinforce data protection both for the safeguard of citizens’ privacy and for the safety of companies’ business secrecy, with data storage within the companies themselves. He also insists on close cooperation between all actors involved in the fight against VAT fraud, in particular EPPO, Eurofisc, Europol and Eurojust. In order to limit compliance costs for both businesses, in particularly SMEs, and tax administrations, Mr Chastel requests the European Commission to develop a secure and reliable software for connecting them to the national administrations and the central VIES system. Finally, the rapporteur is of the view that the implementation periods should be reassessed and more time (at least one year more) should be given to businesses and national administrations, to prepare and coordinate the entry into force of digital reporting requirements, the VAT treatment of the platform economy and the single VAT registration and Import One-Stop-Shop (IOSS) update. The vote of this report in the ECON committee is scheduled for October 2023.
New EU Tax Observatory study on corporate tax avoidance and sales
The EU Tax Observatory published on Wednesday 10 May a new study investigating the influence of corporate tax avoidance (CTA) on firm-level sales, and its aggregate implications. The aim of the study is to demonstrate that tax avoidance has given a competitive edge to firms that engage in it. The authors found that large corporations’ relative increase in tax avoidance has contributed significantly to the observed increase in industry concentration since the 1990s. According to them, in specific sectors, such as chemical manufacturing, non-store retailers, or computer products, tax avoidance by large firms could explain up to 30% of the industry concentration increase. They also found that tax avoidance can distort market shares and influence real production in many industries beyond its impact on government revenues. The authors further argue that the enforcement of corporate tax policy can help curb industry concentration. The European Commission’s rulings against tax breaks given to Apple, Fiat, Amazon, and Starbucks further underscore the need for coordinated tax policies to ensure fair competition within the European Union, they say. In their view, tax policy should be an integral part of competition policy and policymakers must work towards coordinated tax policies to ensure a level playing field for all firms.
Reminder – ETAF Conference on SAFE on 28 June
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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.