On Friday 8 October, 136 countries out of the 140 members of the OECD/G20 Inclusive Framework (IF) on Base Erosion and Profit Shifting (BEPS) reached a final agreement on a new framework for international tax reform. All EU members of the Inclusive Framework finally decided to join the agreement. Ireland and Estonia did so on Thursday 7 October while Hungary announced its decision on Friday 8 October. Kenya, Nigeria, Pakistan and Sri Lanka have not yet joined the agreement. The deal updates the July Statement signed by 134 countries and contains in Annex a Detailed Implementation Plan to ensure an effective implementation of the two-pillar solution from 2023 onwards. The amount of residual profit to be re-allocated to market jurisdictions under Pillar I was left open in July but has now been agreed as 25%. The rate of the minimum tax under Pillar Two has now also been agreed at 15%, whereas in July the level remained open to a rate of “at least 15%”. The agreement is now expected to be endorsed by G20 Finance Ministers in their meeting in Washington on 13 October, before a final approval of G20 leaders in Rome at the end of the month.
On Sunday 3 October, the Pandora Papers investigation led by the International Consortium of Investigative Journalists (ICIJ) has uncovered more than 29 000 offshore companies and shed light on tax evasion by thousands of individuals, including many political leaders such as Czech Prime Minister Andrej Babiš, Cypriot President Nicos Anastasiades and the Dutch Finance Minister Wopke Hoekstra. The Pandora Papers investigation, which is based on more than 11.9 million records coming from 14 providers that offer services in at least 38 jurisdictions is broader than the 2016 Panama Papers and the 2017 Paradise Papers investigations. On Wednesday 6 October, MEPs held an urgent debate on this new scandal in the European Parliament Plenary. During the debate, EU Commissioner for Taxation Paolo Gentiloni said that the European Commission is preparing new initiatives, including a legislative proposal before the end of the year to tackle the misuse of shell companies as well as an initiative on the publication of effective tax rates paid by multinationals. MEPs expressed their indignation towards this new scandal and regretted that those who are supposed to fight tax avoidance are too often tax avoiders themselves.
The Ecofin Council decided on Tuesday 5 October in Luxembourg to officially remove Anguilla, Dominica and the Seychelles from the European Union’s blacklist of jurisdictions that are uncooperative on tax matters. American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, the US Virgin Islands and Vanuatu will remain on the blacklist. This further reduction of the EU blacklist in the middle of the Pandora Papers scandal has triggered a lot of criticism. Although Turkey has not met all the requirements set by the Ecofin Council last February, it remains on the EU’s grey list of jurisdictions with tax risks but which have committed themselves to take corrective measures. In a statement, Austria, Cyprus, Denmark and Greece said that they accepted this decision in order not to jeopardise the update of the list but that swift and noticeable progress is expected from Turkey.
During its Plenary session on Thursday 7 October, the European Parliament adopted by 506 votes in favour, 81 against and 99 abstentions a report prepared by MEP Aurore Lalucq (S&D, France) calling for a wholesale reform of the Code of Conduct on Business Taxation, a tool used to tackle harmful tax competition. The criteria, governance and scope of the Code of Conduct should all be revised, MEPs urge. The report also lays out a detailed plan for developing a ‘Framework on Aggressive Tax Arrangements and Low rates’ (FATAL) that would eventually replace the current Code of conduct.
The European Court of Justice ruled on Wednesday 6 October that the European Commission was right to label as illegal a Spanish regime that granted tax breaks to companies that acquire shares abroad. The Commission in 2009 and 2011 required Spain to abolish this scheme that allowed Spanish companies acquiring shareholdings in other European businesses to write off part of the price paid. In 2014 the EU General Court cancelled the Commission’s decision because it found the Spanish regime didn’t correspond to the conditions that need to be met for a measure to be declared “illegal state aid.” The European Court of Justice already overruled the General Court in 2016 and again in its new ruling clarified the concept of “selectivity.” “The mere fact that that measure is of a general nature, in that it may a priori benefit all [companies] subject to corporate tax, depending on whether or not they carry out certain transactions, does not mean that it cannot be selective”, the ECJ said.
The ECON committee of the European Parliament has distributed the rapporteurships for the anti-money laundering (AML) files contained in the Package that was presented in July by the European Commission. Luis Garicano (Renew Europe, Spain) will lead the EP´s negotiations on the future anti-money laundering authority (AMLA). Ernest Urtasun (Greens/EFA, Spain) will be in charge of drafting an opinion to the LIBE committee on the development of AML disclosure measures for the trading of digital assets and Eero Heinäluoma (S&D, Finland) will be responsible for drafting an opinion to the LIBE committee on the future AML rulebook.
