Commissioners-designate to be heard in the European Parliament from 4 to 12 November
On Wednesday 2 October, the European Parliament announced that the hearings of the 26 European Commissioners-designate will take place from 4 to 12 November 2024. MEPs will ask written and oral questions, assess the answers and skills and vote on the performance of the European Commissioners-designate. The European Parliament also decided on the division of responsibilities among committees for the confirmation hearings. A novelty for 2024 is that some committees may be invited to participate and to contribute with oral questions during the hearing but with no say in the final evaluation of the candidates. On Thursday 3 October, MEPs of the Legal Affairs Committee started examining the declarations of interest submitted by Commissioners-designate. The procedure should be concluded by 18 October, which is a pre-condition to start the hearings. The exact running order of the Commissioners-designate will be decided by the Conference of Presidents of the European Parliament on Thursday 10 October. According to a leaked timetable, the written questionnaires will be sent on the same day to the European Commission and Commissioners-designate will have until 22 October to reply. The European Parliament’s vote in Plenary on the whole college of Commissioners is so far scheduled for the last week of November, with the new European Commission taking office on 1 December.
Spain, Cyprus, Poland and Portugal referred to CJEU for delayed transposition of Pillar Two rules
The European Commission decided on Thursday 3 October to refer Spain, Cyprus, Poland and Portugal to the Court of Justice of the European Union (CJEU) for failing to notify measures for the transposition into national law of Council Directive (EU) 2022/2523 ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the European Union (so-called Pillar Two Directive). All EU Member States were required to bring into force the laws necessary to comply with the Pillar Two Directive by 31 December 2023 and communicate the text of those measures to the Commission immediately. These measures are applicable in respect of the fiscal years beginning from 31 December 2023. To date, almost all EU Member States have met these obligations. However, the national implementing measures still have not been notified by Spain, Cyprus, Poland, and Portugal. The Commission acknowledges that significant efforts are being made by the authorities to finalise their Pillar Two national implementing legislation but, to date, these Member States have not notified the transposition measures and therefore it is taking a formal step to refer Spain, Cyprus, Poland and Portugal to the CJEU for lack of transposition of the relevant EU provisions, it explained.
European Commission’s other October tax infringement decisions
On Thursday 3 October, the European Commission issued several other tax infringement decisions. It notably decided to open an infringement procedure against Hungary for failing to bring its retail tax regime in line with the freedom of establishment guaranteed by Articles 49 and 54 of the Treaty on the Functioning of the European Union. According to the 2023 and 2024 Country Specific Recommendations (CSR) to Hungary, this tax disproportionally burdens larger foreign companies, similarly to other sector-specific taxes introduced in the recent years and affecting the internal market. Consequently, Hungary, as part of its Recovery and Resilience Plan (RRP) committed to phase out the retail tax regime, which has initially been introduced to increase the contribution of the retail sector to public finances. Despite its commitment in its RRP, Hungary has so far failed to phase out the surtax on the retail sector. The European Commission also decided to open an infringement procedure against Malta for failing to provide effective assistance to recovery claims relating to taxes, duties and other measures from other Member States. Furthermore, the Commission sent a reasoned opinion to Germany for not having brought in line with EU law the rules on tax advantages regarding voluntary pension savings contracts. The three countries now have two months to respond and take the necessary measures or the European Commission may decide to proceed with the next stage of the infringement procedures.
EU Finance Ministers meet in Luxembourg on 8 October
EU Finance Ministers will meet in Luxembourg on Tuesday 8 October to discuss economic and financial matters. They will notably take stock of the implementation of the Recovery and Resilience Facility (RRF) and be informed of the state of play of the economic and financial impact of Russia’s aggression against Ukraine. The Council will also exchange views on lessons learnt from the 2024 cycle of the European Semester. On the tax front, Minsters will reportedly approve an update to the EU blacklist of non-cooperative jurisdictions for tax purposes, removing Antigua and Barbuda. Armenia and Malaysia are also expected to be removed from the grey list of jurisdictions with tax risks but which have committed themselves to take corrective measures. The Council will also approve the EU terms of reference and IMF Statement in view of the next G20 Finance Ministers and central bank governors meeting on 23-24 October 2024 and the IMF annual meetings.
Work programme of the Code of Conduct Group under the Hungarian Presidency
On Tuesday 1 October, the Council of the EU published the work programme of the Code of Conduct Group on Business Taxation (CoCG) under the Hungarian Presidency of the Council of the EU. The COCG will monitor developments in administrative practices of Member States, continue the review of the tax measures notified by Member States under the standstill and rollback process. The Group will continue to monitor jurisdictions covered by the geographical scope and the implementation of the commitments taken by cooperative jurisdictions. In particular, it will continue the screening process of the three new jurisdictions included in the geographical scope (Brunei Darussalam, Kuwait and New Zealand). The work programme also indicates that the Code of Conduct group will continue to work on future criterion linked to the exchange of beneficial ownership information and the screening exercise for trusts and fiduciaries, among other things. Finally, it intends to continue the work at the technical level to evaluate possible impacts of the international agreement that was reached on a minimum effective taxation on its work, including on the EU listing criteria.
EU strengthens its VAT administrative cooperation with Norway
On Wednesday 2 October, the EU and Norway signed an agreement to amend the existing cooperation agreement on aspects of administrative cooperation, fight against fraud and assistance on recovery of claims in the field of VAT. The initial EU-Norway agreement on administrative cooperation in the field of VAT entered into force on 1 September 2018. It was the first EU international agreement in the field of VAT cooperation. After six years of application, the agreement was now amended to introduce new tools in line with the Council Regulation 904/2010 on administrative cooperation and fight against fraud in the field of VAT and Council Directive 2010/24/EU on mutual assistance for the recovery of claims relating to taxes, duties and other measures. The new cooperation tools include the spontaneous and automatic exchange of information and feedback, assistance on administrative notifications, participation in administrative enquiries, simultaneous controls and Eurofisc.
National legislation limiting the deduction of interest paid in respect of an intra-group loan is compatible with EU law, CJEU says
National legislation which limits the deduction of interest paid in respect of an intra-group loan is compatible with EU law, the Court of Justice of the European Union (CJEU) ruled on Friday 4 October. In case C-585/22, X, a Dutch company within a multinational group, challenged the Netherlands tax authority's refusal to deduct interest on loans from an intra-group entity, C, in its 2007 tax assessment. The loans were financed by C using funds from another intra-group entity A, both Belgian companies. Dutch legislation presumes that such intra-group loans are part of artificial arrangements aimed at tax avoidance, thus preventing deduction of interest expenses. X argued that this law violated the EU freedom of establishment by disadvantaging cross-border transactions. In its judgment, the Court agreed that the Dutch legislation could deter cross-border activities but found that it pursued a legitimate objective of preventing tax evasion. It aimed to stop companies from artificially presenting group funds as loans to reduce taxable profit. The Court also stated that that taxpayers can rebut the presumption of artificial arrangement if the loans reflect economic reality. If a loan’s interest rate exceeds market norms, only the excessive portion should be denied deduction, while an entirely unjustified loan can be fully excluded from tax deductions, it said.
2024 OECD tax policy reforms report released
The OECD published on Monday 30 September its 2024 tax policy reforms report, which describes the tax reforms implemented in 2023 across 90 jurisdictions, including all OECD countries. The report shows a shift from the tax-decreasing reforms introduced during the COVID-19 pandemic and the subsequent period of high inflation to more balanced approaches involving rate increases and base broadening initiatives. Data highlighted in the report suggest that the trend of decreasing corporate income tax (CIT) rates observed since the Global Financial Crisis is reversing, with more jurisdictions implementing CIT rate increases than decreases in 2023. Furthermore, significant progress has been made towards implementing the Global Minimum Tax, the OECD observed. As of April 2024, 60 jurisdictions had announced that they are considering or taking steps towards implementing the Global Minimum Tax, with 36 jurisdictions taking steps towards an application of the tax starting in 2024, and some expect to implement legislation taking effect from 2025. On the VAT side, the report shows that the pace of VAT cuts, following significant VAT relief measures on energy products to counter rising energy costs and inflation, is now slowing, with some jurisdictions scaling back VAT relief. The use of reduced VAT to promote lower-carbon economies, through reduced rates for electric vehicles or zero rates for solar panels, is increasingly common. Several countries also extended tax incentives for electric vehicles at the time of purchase and increased their carbon taxes to support the transition to a low-carbon economy.
OECD releases interpretative guidance and IT format for crypto asset reporting
On Wednesday 2 October, the OECD released the XML Schemas and user guides to support the transmission of information between tax authorities pursuant to the Crypto-Asset Reporting Framework (CARF) and the amended Common Reporting Standard (CRS). The XML schemas and user guides reflect the reporting requirements of the CARF and the amended CRS that were approved by the OECD in 2023 and subsequently endorsed by the G20 and the Global Forum as international standards. First exchanges under both the CARF and the amended CRS are expected to commence in 2027. The OECD also issued a first set of frequently asked questions (FAQs) to provide interpretative guidance on the CARF. In particular, the guidance clarifies that, as a general matter, providers of non-custodial services in respect of crypto assets, including in a decentralised manner, can meet the definition of reporting crypto asset service provider. Given the interest expressed by both governments and business, work on further and more detailed guidance is underway on relevant aspects surrounding the application of the CARF to non-custodial and decentralised services.
