European Commission adopts its DAC9 proposal
The European Commission published on 28 October 2024 a proposal for a ninth amendment of the Directive on administrative cooperation in the field of taxation (DAC9), aiming to simplify compliance obligations for multinational enterprise groups (MNEs) under the Pillar Two Directive. The proposal would allow in-scope MNEs under Pillar Two to fulfill their filing obligations only once in the Member State of the Ultimate Parent Entity (UPE) or of the designated filing entity, rather than requiring filing a top-up tax information return in each Member State where constituent entities are located. To this end, the Commission proposes expanding the scope of automatic information exchange among Member States’ authorities under the DAC to include reports filed by MNEs under the Pillar Two Directive. Article 44 of the Pillar Two Directive outlines the relevant information for filing returns under the Pillar Two Directive, including identification of MNE constituent entities, corporate structure details, and information necessary for computing the effective tax rate, top-up tax and allocations. The OECD has developed a standard template (“GloBE Information Return” or GIR) to help entities meeting their filing obligations. This proposal transposes the GIR into EU law as the required top-up tax information return referred to in Article 44 of the Pillar Two Directive. Reporting entities would have to file the top-up tax information return within 15 months of the fiscal year-end, with an extended deadline of 18 months for the first reporting fiscal year. The relevant parts of the top-up tax information return would then be exchanged between Member States’ authorities following the “dissemination approach” approved by the OECD/G20 Inclusive Framework no later than three months after the filing deadline for the reporting fiscal year. Exceptionally, for the first year of application of the Pillar Two Directive (i.e. reporting fiscal year 2024), the deadline for exchanging the information should be prolonged to six months after the filing deadline to accommodate any delays in the new system of exchange. The European Commission has identified a “political urgency” for the adoption of this proposal, as MNEs are expected to submit their first top-up tax information return by 30 June 2026, as required under the Pillar Two Directive. Accordingly, it proposes that EU governments implement DAC9 by 31 December 2025. The proposal now needs to be examined and adopted by Member States. It will be first discussed at the Working Party on Tax Questions on 13 November.
EU Finance Ministers meet on 5 November to seal the fate of ViDA
EU Finance Ministers will meet on Tuesday 5 November to discuss economic and financial matters, and in particular act an agreement on the long-awaited VAT in the digital age (ViDA) package, which has been stalled over the deemed supplier rule for months. The deemed supplier rule, which would make online platforms responsible for collecting VAT on behalf of their users, has faced resistance from Estonia, particularly over concerns that it could negatively affect small traders who fall below the VAT registration threshold. In an effort to break the deadlock, Hungary presented a new compromise proposal that further refines the SME opt-out by allowing Member States to exclude SMEs from the deemed-supplier regime without needing to justify the decision to the VAT committee. The compromise also reportedly introduces a transitional period during which the rule would be voluntary from 1 July 2028 and mandatory from 1 January 2030. This opens the door to the long-awaited adoption of the full package, which also includes provisions on e-invoicing and single VAT registration, already provisionally agreed upon in May. All compromise texts and notes related to the ViDA package prepared for the meeting are available here. Ministers will also take stock of the implementation of the Recovery and Resilience Facility (RRF) and will be informed of the state of play of the economic and financial impact of Russia’s aggression against Ukraine. The Council will hold an exchange of views on the 2024 annual report of the European Fiscal Board (EFB) in the presence of the EFB Chair, Niels Thygesen. The Council will approve conclusions on the progress made on the EU’s statistical priorities, while providing guidance for further work. Finally, the Council and Commission will debrief Ministers on the main results of the G20 Finance Ministers and central bank governors meeting that took place on 23-24 October 2024 in Washington.
European Commission releases implementation report on the review of the DRM Directive
The European Commission released on Monday 28 October an implementation report on the review of the Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union (DRM Directive). The Directive sets out a framework to resolve disputes between Member States arising from the interpretation and application of agreements and conventions between Member States that provide for the elimination of double taxation of income and, where applicable, capital. According to the results of the consultation undertaken with Member States and stakeholders, the DRM Directive does provide for an improvement in terms of efficiency and effectiveness compared to the situation before its implementation. This stems from the fact that the DRM Directive provides for clear and defined timelines, it offers improved opportunities for recourse for the taxpayer(s) and has a broader scope covering not only disputes regarding transfer pricing or attribution of profits to permanent establishments but any dispute that arises from the interpretation and application of agreements and conventions that provide for the elimination of double taxation of income, the Commission says. However, both Member States and stakeholders indicated in their responses that the experience with the rules of the DRM Directive is limited as the first cases of double taxation that fall under the scope of the DRM Directive are only now emerging, because of the closing of tax audits covering tax years commencing on or after 2018. So, limited or no feedback could be provided on all the aspects of the DRM Directive and more specifically on the dispute resolution stage as, at the time of writing of this report, no advisory commission was set up. Nevertheless, suggestions were already made to further improve certain aspects of the DRM Directive in terms of providing further clarity on the interpretation and application of certain rules or definitions to ensure a common approach. It was further suggested to extend the scope of the DRM Directive and to use the resolution mechanism to resolve disputes related to other directives in the direct and indirect tax area. A fully-fledged evaluation of the DRM Directive should be conducted once more information on and experience with real cases is available, including with cases that have reached the dispute resolution stage. The DRM Directive is also within the scope of an ongoing European Court of Auditors’ audit on harmful tax competition in the EU.
New European Commission’s discussion paper on tax expenditures
In a discussion paper published on Tuesday 29 October, the European Commission’s Directorate-General for Economic and Financial Affairs reviewed issues related to tax expenditures in personal income taxation (PIT), value-added taxation (VAT) and corporate taxation. Tax expenditures are tax relief measures targeted at some socially desirable activities or specific groups of taxpayers. Like spending programmes, tax expenditures can be used for allocative or redistributive purposes, the authors highlight. At the same time, tax expenditures can make the tax system more complex, less transparent, may have adverse distributional impacts, and they can result in substantial revenue loss. They may also, in some cases, result in harmful tax competition among Member States, the paper points out. Tax expenditures in PIT that are covered by this study are estimated to represent about 16% of tax revenues from PIT in the EU27 (corresponding to about 1.2% of GDP on average). Reduced VAT rates represent a similar magnitude at about 16% of VAT paid by households in the EU27 (corresponding to about 1.1% of GDP on average). Regular reporting, monitoring and assessment of tax expenditures is crucial as it allows Member States to review and revise their tax policies, according to the paper. Eliminating or reducing (ineffective or cost-ineffective) tax expenditures can, in some cases, create crucial fiscal space that allows for stronger fiscal consolidation, a revenue-neutral reduction in statutory tax rates, or growth-friendly tax shifts, the authors find.
FISC Subcommittee 2025 Work Programme
The European Parliament’s Subcommittee on Tax Matters (FISC) reportedly agreed on its Work Programme for 2025, which was approved on 25 October by the Committee on Economic and Monetary Affairs (ECON) by written procedure. The FISC Subcommittee plans to issue two own-initiative reports: the first one on a “Coherent Tax Framework for the EU’s Financial Sector” and the second one on “The role of simple tax rules and tax fragmentation in European competitiveness”. The latter would tackle remaining tax barriers to cross-border investment, cross-border business, and cross-border workers and self-employed in the EU. It will also look at the impact of national tax incentives on the fragmentation of the EU tax framework and make suggestions to simplify EU tax rules. The FISC Subcommittee also intends to request from its research service two studies. The first will focus on tax incentives and best practices to stimulate private investments and prevent harmful tax practices. The study will address the effectiveness of tax incentives and their impact on investment and public finances. It will also look at whether tax incentives could potentially distort the EU single market and facilitate aggressive tax planning. Moreover, it will examine the emergence of tax credits as a means to subsidize companies in reaction to the implementation of Pillar 2. The study will identify Member States’ best practices on research and development tax incentives. It could also consider the impact of national tax incentives on cross-border investments and on internal market fragmentation. The second study will be about tax barriers, cross-border workers and the fragmentation of the EU tax framework. The FISC Subcommittee will gather on 7 November to participate to Wopke Hoekstra’s hearing. The next regular meetings of the FISC are currently scheduled for 21 November and 3 December.
Member States fine-tune Budapest declaration on EU competitiveness
Member States are preparing a draft declaration on EU competitiveness that the EU leaders are due to adopt on Friday 8 November during their informal meeting in Budapest. According to a draft version leaked in the press, which can still change, EU leaders should invite the Commission to present by June 2025 a new and comprehensive horizontal strategy on the deepening of the Single Market, building on the Letta and Draghi reports and their recommendations, notably in the areas of energy, finance and telecommunications. This strategy should address: - the elimination of remaining barriers, while ensuring a level playing field; - improving current rules and ensuring their implementation and enforcement; and - putting forward a stronger and more efficient Single Market governance framework. The draft also says that more convergence in the Single Market on tax matters would increase productivity and growth. It therefore invites the Council and Member States to take work forward on fostering tax convergence to promote cross-border savings and investment in the Union, particularly by building on existing instrument. The text also puts emphasis on digital transformation, stating that it needs to be accelerated by investing in digital infrastructure, overcoming cross-border barriers in the telecommunications sector using cutting-edge technologies. Finally, it acknowledges that the EU regulatory framework must be more simple, predictable and stable and includes a commitment for an ambitious plan to dramatically reduce administrative and reporting burdens.
