Mario Draghi unveils his report on the future of European competitiveness
Mario Draghi, former president of the European Central Bank, presented his anticipated report “The future of European competitiveness” on 9 September 2024. The nearly 400-page document outlines 170 proposals across various policy sectors to ensure that the EU remains competitive with the US and China in the future. These measures would require €750 billion to €800 billion in additional annual investments. In the field of taxation, he advocates to eliminate any taxation obstacles to cross-border investing in the EU. EU citizens should be able to invest in other Member States without complex taxation procedures, effectively resulting in double taxation. Preferably, the taxation related to capital investments should be synchronised as much as possible to reduce fragmentation in terms of incentives. Furthermore, Draghi recommends lowering and levelling the energy taxation playing field and using taxation measures strategically to reduce the cost of energy. He suggests the Commission should propose a common maximum level of surcharges including taxes, levies, and network charges across the EU. Finally, Draghi urges to extend the use of qualified majority voting (QMV) in the Council to policy areas which are subject to unanimity – as taxation. He states that all possibilities offered by the EU Treaties should be exploited to extend QMV. The so-called ‘passerelle’ clause could be leveraged to generalise voting by qualified majority in all policy areas in the Council, Draghi said.
ETAF participates in the ATAD evaluation
On 10 September 2024, ETAF participated in the European Commission's evaluation of the Anti-Tax Avoidance Directive (ATAD). In general, ETAF views the ATAD as an important tool laying down minimum standard measures for addressing the most common forms of aggressive tax planning and tax avoidance practices that directly affect the functioning of the internal market. However, the ETAF members found that the ATAD provisions have been implemented inconsistently across Member States, with some opting for excessive measures leading to further fragmentation, unnecessary bureaucracy and double taxation. Additionally, the introduction of the Minimum Tax Directive has created some duplication with the ATAD Directive resulting in additional burden for taxpayers. Therefore, ETAF recommends to adjust the information requirements in relation with the ATAD1 CFC rules for the companies in the scope of the Minimum Tax Directive as this would already lead to a considerable rationalisation of reporting obligations. ETAF calls on the European Commission to draw all the lessons from this evaluation. We are looking forward to the final results of the evaluation, expected to be published in Q3 2025, and remain available to constructively engage with the European Commission on this matter.
ECJ orders Ireland to recover €13 billion in unlawful aid from Apple
In a judgement on 10 September 2024, the European Court of Justice (ECJ) overturned a previous decision by the General Court regarding Apple’s tax arrangements with Ireland. This case, C-465/20 P Commission v. Ireland and Others, marks a victory for the European Commission in its fight against tax evasion through state aid. The ECJ's decision reinstates the Commission's 2016 ruling, which found that Ireland had granted Apple unlawful state aid through favourable tax rulings. These tax rulings allowed Apple to exclude from the tax base the profits generated by the use of intellectual property licences held by two companies of the Apple Group in Ireland. At the same time, the head offices of these companies were located outside Ireland and the management of the licences depended on decisions of the Apple Group in the United States. This led to an unlawful state aid incompatible with the internal market, because the Apple Group as a whole benefited from the tax rulings and these "selective advantage" were not available to other companies in similar situations. The judgement is seen as a major support to EU Competition Commissioner Margrethe Vestager’s campaign against aggressive tax avoidance by multinational corporations. It comes after the General Court had initially sided with Apple and Ireland in 2020, stating that the Commission had not sufficiently proven that the tax rulings constituted illegal state aid. However, the ECJ has now set aside this ruling, declaring that the aid was unlawful, emphasizing the importance of fair competition across the EU.
Von der Leyen’s new team: key dates in the formation of the next European Commission
As the European Union enters a new institutional cycle following the recent European Parliament elections, the process of forming the next European Commission is in full swing. All Member States have now officially presented their nominees for Commissioners-designate. The next stage involves the formal allocation of portfolios by President von der Leyen followed by confirmation hearings in the respective committees of the European Parliament. Von der Leyen is expected to present her designated Commission team and portfolios to the Conference of Presidents in the European Parliament on 11 September 2024. The Parliamentary hearings are expected to begin as of 23 September, the week after the first Plenary session in the new term. These hearings give MEPs the opportunity to scrutinize each Commissioners-designate’s qualifications, policy positions and suitability for their assigned portfolio. The new Commission – as a whole – will need Parliament approval in a Plenary vote to take office. If no candidate is rejected by the Parliament, the new Commission can be sworn in on 1 November. However, if candidates are rejected, the new Commission will be sworn in on 1 December.
EU Finance Ministers will meet informally on 13 and 14 September
On 13 and 14 September 2024, EU Finance Ministers will gather for an informal ECOFIN meeting in Budapest. During the Friday afternoon session, Ministers and Central Bank Governors will discuss the issue of “sustainable financing of green transition”. The Secretary-General of the OECD and the CEO of the Hungarian Government Debt Management Agency are expected to present possible solution approaches on how to bridge financing gaps with innovative instruments, how to better mobilize household and other private savings when there is a need to enhance green transition and put public debt on a downward path simultaneously. The focus of discussion on Saturday morning will lie on “the effects of demographic changes on public debt sustainability”, where delegations will analyse debt sustainability risks in the context of aging societies and possible lines of action. The discussion will be based on the contribution of the Brussels-based think tank Bruegel. During the ministerial working lunch, the Managing Director of the IMF will outline „the new financing opportunities in supporting low-income countries in their response to global challenges”. The next regular ECOFIN will take place on 8 October 2024.
Draghi reveals details about his competitiveness report
On Wednesday 4 September 2024, Mario Draghi presented his long-awaited report on the future of Europe’s competitiveness in a private session to EU officials and leaders of groups in the European Parliament. Draghi has been tasked last year by the European Commission to draft a report on how the EU should keep its greening economy competitive and stay able to challenge China and the United States in times of a sensitive geopolitical climate. During his presentation he only provided insight into the report’s “general structure”, according to EU diplomats. Draghi explained the report will be divided into five distinct sections: (i) increasing productivity, (ii) reducing dependencies, (iii) climate change, (iv) social inclusion, and (v) “sector-specific” proposals for ten “major sectors” of the EU economy. He further stressed the importance of combating climate change, cutting “red tape”, addressing Europe’s widening skills gap, and integrating the EU’s single market. However, no concrete proposals were made during his presentation. For more detailed recommendations, stakeholders would “have to wait” until the report’s official publication, which is expected for later today.
Pascal Saint-Amans publishes memo to future Tax Commissioner
Pascal Saint-Amans, former Director of the Centre for Tax Policy and Administration (CTPA) of the OECD and non-resident fellow at the think tank Bruegel, published his “Memo to the commissioner responsible for tax policy” on Wednesday 4 September 2024. The memo addresses the significant challenges and opportunities facing EU tax policy. It highlights the complexities of tax harmonization due to the diverse tax systems across EU Member States and the unanimity rule in the area of taxation. Despite some progress in areas like VAT and anti-tax avoidance measures, direct tax harmonization, especially corporate income tax, remains difficult according to the memo. Saint-Amans also emphasises the need to prepare for the potential failure of the global tax initiative Pillar 1, which aims to reallocate profits of large multinationals. Additionally, the document stresses the need for tax simplification, better taxation of digital nomads and high-net-worth individuals, and resetting the EU’s tax relationship with Africa.
110 countries adopt the terms of reference for a UN Tax Framework Convention
The second substantive session of the Ad Hoc Committee to draft terms of reference for a UN Framework Convention on international tax cooperation took place from 29 July to 16 August 2024. On Friday 16 August, 110 countries adopted the terms of reference while 44 countries – including all EU countries - abstained from the vote and eight countries (Australia, Canada, Israel, Japan, New Zealand, Republic of Korea, United Kingdom and the United States) voted against. The terms of reference include commitments to the fair allocation of taxing rights on multinational enterprises, the prevention of tax evasion and avoidance, sustainable development, tax transparency and information exchange, and the prevention and resolution of tax disputes. They also allow for two separate early protocols to the convention to be negotiated simultaneously; one on the taxation of income derived from cross-border services in a digitalized economy and the second one to be chosen from a list of priority areas for countries. During the negotiations, contention reportedly emerged around the timeline and negotiation of early protocols, the inclusion of a commitment to human rights, whether to include a decision-making structure and on how to incorporate international tax work done in other fora such as the OECD. In a statement published after the vote, the EU explained its abstention by saying that it regrets that the final draft terms of reference text does not adequately reflect its key points of concerns, including on the safeguards for taxpayers and on protocols. The terms of reference will be sent to the UN General Assembly, which will hold a vote during its 79th session that begins in September. If adopted, the Assembly would have the convention and two protocols drafted by a Member State-led negotiating committee, which would meet annually for the next three years. The negotiating committee would then submit a final text to the General Assembly for its consideration in the first quarter of the 82nd session and all 193 UN Member States could vote on a finalised UN global tax treaty in 2027. The UN treaty would need to be adopted by the General Assembly, after which it would be opened for signature and ratification to all Member States.
European Commission evaluates the ATAD
The European Commission launched on Wednesday 31 July its evaluation of the Anti-Tax Avoidance Directive (ATAD), laying down rules against tax avoidance practices that directly affect the functioning of the internal market, by publishing its call for evidence. The evaluation will cover ATAD1 and ATAD2 for the period from 1 January 2020, which is the first date on which the measures were implemented, until the date of completion of the evaluation. The European Commission wants to know to what extent the Directive’s objectives have been achieved and whether the provisions need to be amended in the future, in particular when considering the introduction of Pillar Two rules. Interested stakeholders have until 11 September 2024 to send their feedback to the European Commission. A targeted consultation and a set of interviews with Member State tax authorities, companies and tax advisers will be undertaken by an external contractor at a later stage. The evaluation is expected to be published in Q3 2025.
European Commission proposes common template and electronic reporting formats for the CbC reports
The European Commission released on Thursday 1 August a draft implementing regulation introducing a common template and electronic reporting formats for the application of Directive 2013/34/EU as regards the information to be presented in reports on income tax information (so-called CbCR Directive). The Directive requires undertakings to draw up, publish and make accessible a report on income tax information as regards the latter of the two consecutive financial years in each of which the consolidated revenue on their balance sheet date exceeded a total of 750 000 000 €. The proposed implementing regulation aims at ensuring the CbCR reports are comparable and machine-readable. In particular, it requests obliged entities to ensure that the visual presentation and content of the report on income tax information comply with the specifications provided for in Annex I. The implement regulation would apply to reports on income tax information for the financial years starting on, or after 1 January 2025. The draft was submitted to public consultation until 29 August 2024.
VAT preliminary ruling officially conferred to the EU General Court
A significant amendment to the Statute of the Court of Justice of the European Union entered into force on Sunday 1 September. The amendment provides for a transfer, applicable from 1 October 2024, from the Court of Justice to the General Court of part of the jurisdiction to give preliminary rulings. The transfer concerns six specific areas: the common system of VAT; excise duties; the Customs Code; the tariff classification of goods; compensation and assistance to passengers in the event of denied boarding or of delay or cancellation of transport services; and the system for greenhouse gas emission allowance trading. The amendment to the Statute also provides for an extension, from 1 September 2024, of the mechanism for the determination of whether an appeal is allowed to proceed. The aim of this reform is to reduce the workload of the Court of Justice in the sphere of preliminary rulings and to allow it to continue to fulfil, within a reasonable period, its mission of ensuring that in the application and interpretation of the Treaties the law is observed.
CJEU validates several DAC6 provisions
In a judgment released on 29 July 2024, the Court of Justice of the European Union (CJEU) held that the fact that Directive 2011/16, as amended by Directive 2018/822 (DAC6), does not limit the reporting obligation solely to the area of corporate taxes does not affect the validity of that directive in the light of the principles of equal treatment and non-discrimination, and of Articles 20 and 21 of the Charter of Fundamental Rights. Furthermore, it held that the degree of precision and clarity of the terminology used in the provisions of the directive submitted for its consideration does not call into question the validity of that directive in the light of the principles of legal certainty and legality in criminal matters, and it similarly held that the interference with the private life of the intermediary and the relevant taxpayer entailed by the reporting obligation is defined in a sufficiently precise manner in view of the information which that reporting must contain. The Court also explained that the judgment of 8 December 2022 (Orde van Vlaamse Balies and Others) - in which it held that the obligation imposed on a lawyer, who is exempt from the reporting obligation as a result of legal professional privilege, to notify other intermediaries involved in the tax arrangement of their own reporting breached that legal professional privilege - applies only in respect of lawyers within the meaning of the directive to facilitate practice of the profession of lawyer on a permanent basis in a Member State other than that in which the qualification was obtained and not in respect of other professionals who may be authorised to ensure legal representation. Finally, the Court held that the reporting obligation imposed on intermediaries who are not entitled to a waiver from that obligation as a result of the legal professional privilege by which they are bound and, in default, on the relevant taxpayer constitutes a proportionate and justified interference in the right to respect for private life, understood as the right of everyone to organise his or her private life. The judgement is unfavourable for many tax professionals in the ETAF Member States as the CJEU refused the possibility to substitute the obligation to notify by the obligation to report for tax professionals who are not authorised to represent their clients before courts.
ETAF participates in the DAC evaluation
On Monday 29 July, ETAF submitted its answer to the European Commission’s public consultation to evaluate the effectiveness, efficiency and continued relevance of the Directive on administrative cooperation in tax matters (DAC) and its successive amendments (from DAC2 to DAC6). In principle, ETAF views the DAC as an effective tool for enhancing cooperation among tax authorities in the European Union and combating tax evasion and money laundering. While we acknowledge that DAC Directives have significantly increased information exchange, we must also recognize that they have resulted in a substantial volume of data that tax administrations must now manage. It is questionable whether all the information requested by the successive DACs are really in use and of use for the tax authorities. As an immediate simplification tool, ETAF members would welcome a consolidation of the initial DAC and its subsequent amendments into a single text. In view of the disproportionate costs/benefits combined with the legal uncertainties and the overlaps with more recent EU legislations, ETAF advises the European Commission to submit a proposal that would completely remove the reporting obligation of DAC6 from the legal text. In order to relieve companies of the reporting obligations of the Minimum Taxation Directive in the long term, the current temporary CbCR Safe Harbour, should be established as a permanent measure and the Public CbCR requirements should be adapted and standardized accordingly. We call on the European Commission to draw all the lessons from this evaluation and not to shy away from taking radical decisions, in order to achieve the announced goal of reducing EU reporting obligations. We are looking forward to the final results of the evaluation, expected to be published in Q3 2024, and remain available to constructively engage with the European Commission on this matter.
OECD announces new tax staff appointments
In a LinkedIn post published on Friday 5 August, Manal Corwin, the Director of the OECD’s Centre for Tax Policy and Administration (CTPA) announced that Ben Dickinson has been appointed acting deputy director of the CTPA, replacing David Bradbury, who left his post at the end of June. Mr Dickinson served as head of the CTPA’s global relations and development division since 2015 and prior to that, served as Tax and Development Manager responsible for the establishment of the OECD’s fiscal programme for developing countries (2010-2015) and was Head of the work on Governance, Conflict and Fragile States (2005-2010). John Peterson was appointed head of the cross-border and international tax division, while Kurt Van Dender was appointed head of the tax policy and statistics division. Both had previously served as acting heads of their respective CTPA divisions. Claudia Vargas will begin her new role as head of the CTPA’s tax administration and VAT division (TAV) in September, leaving her position as the head of the Colombian National Tax and Customs’ International Office. Sandra Knaepen has been appointed Deputy Division Head of TAV as of September, and will continue to co-lead the Tax Certainty Unit alongside her new role.
G20 Finance Ministers adopt a declaration on international tax cooperation
Gathered in Rio on Thursday 25 July and Friday 26 July, G20 Finance Ministers adopted for the first time a declaration specifically on tax issues (The Rio de Janeiro G20 Ministerial Declaration on International Tax Cooperation) in which they acknowledged that: "It is important for all taxpayers, including ultra-high-net-worth individuals, to contribute their fair share in taxes. Aggressive tax avoidance or tax evasion of ultra-high-net-worth individuals can undermine the fairness of tax systems, which comes along with a reduced effectiveness of progressive taxation. […]. Promoting effective, fair, and progressive tax policies remains a significant challenge that international tax cooperation and targeted domestic reforms could help address. […] We will seek to engage cooperatively to ensure that ultra-high-net-worth individuals are effectively taxed.” Ahead of the meeting, the Brazilian G20 Presidency requested several reports from the OECD: a diagnostic report examining interactions between taxation and inequality with regard to progressivity and the taxation of high-net-worth individuals, a report on tax transparency and beneficial ownership, a report on tax transparency real estate properties and a report on bringing tax transparency to crypto-assets. In its tax report to G20 Finance Ministers, the OECD Secretary-General, Mathias Cormann, also reported “excellent progress” on the Two-Pillar international tax package. On Pillar One, members of the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) have secured “near full consensus” on the Multilateral Convention to implement Amount A (MLC) and are working to resolve remaining gaps on a framework for Amount B. In their communiqué, G20 Finance Ministers encouraged the Inclusive Framework to expeditiously complete the negotiations.
European Parliament’s committees elect their Chairs
The European Parliament’s committees held their constitutive meetings on Tuesday 23 July. On this occasion, they elected their Chairs and Vice-Chairs for a two-and-a-half-year mandate. For the Committee on Economic and Monetary Affairs (ECON): - Aurore Lalucq (S&D, France) was elected Chair; - Damian Boeselager (Greens/EFA, Germany) was elected 1st Vice-Chair: - Ludovit Odor (Renew Europe, Slovakia) 2nd Vice-Chair, - Ludek Niedermayer (EPP, Czech Republic) 3rd Vice-Chair. The 4th Vice-Chair: will be elected at a forthcoming meeting, following a request by the ECR group to postpone the election of the fourth vice-chair in order to comply with the gender balance rules. For the Subcommittee on Tax Matters (FISC): - Pasquale Tridico (The Left, Italy) was elected Chair; - Kira Marie Peter-Hansen (Greens/EFA, Denmark) was elected 1st Vice-Chair; - Regina Doherty (EPP, Ireland) 2nd Vice-Chair; - Markus Ferber (EPP, Germany) 3rd Vice-Chair; - Matthias Ecke (S&D, Germany) 4th Vice-Chair. For the Committee on the Internal Market and Consumer Protection (IMCO): - Anna Cavazzini (Greens/EFA, Germany) was elected Chair; - Christian Doleschal (EPP, Germany) was elected 1st Vice-Chair; - Nikola Minchev (Renew, Bulgaria) 2nd Vice-Chair; - Maria Grapini (S&D, Romania) 3rd Vice-Chair; - Kamila Gasiuk-Pihowicz (EPP, Poland) 4th Vice-Chair. An overview of the results for all EP committees is available here.
New FISC Chair pledges to address tax fairness and tax evasion
In a special newsletter published on Friday 26 July, the newly elected Chair of the FISC subcommittee of the European Parliament, Pasquale Tridico, said that one of his key priorities will be to create a fairer and more balanced taxation system while addressing tax evasion. “It is essential to ensure that all businesses, regardless of size, contribute their fair share, while promoting healthy competition and economic stability across Member States”, he said. Mr Tridico also wants to address the unfair tax burden, advocating for a fairer and more progressive tax system. He also acknowledged that combating organised tax fraud, such as VAT carousel fraud, involves a close connection between tax evasion, organised crime and money laundering. Finally, Mr Tridico recognized the power of Artificial Intelligence to transform tax systems. “Striking the right balance between taxing labour and other income sources, financial rents, technology, capital, and assets is our greatest challenge in the near future”, he concluded. The first meeting of the FISC subcommittee will take place on 26 September 2024.
European Commission consults on its new electronic VAT exemption certificate
The European Commission opened on Friday 19 July a public consultation on its recent proposal for a Directive introducing an electronic VAT exemption certificate for certain transactions treated as exports under the VAT Directive. The proposal would amend Council Directive 2006/112/EC (the VAT Directive) and Council Implementing Regulation (EU) No 282/2011 (the VAT Implementing Regulation). It includes implementing measures laying down the technical details and specifications concerning the applicable electronic format of the certificate and the way in which it is to be processed electronically. This solution will include an e-form in PDF format and the electronic procedure for the VAT exemption certificate, which will also allow the use of advanced electronic signatures. Member States will be allowed to continue to use the paper version of the exemption certificate for a transitional period until 30 June 2030. The public consultation takes the form of an open feedback and runs until 13 September 2024.
European Commission assesses the application of VAT rules on vouchers
The European Commission published on Monday 22 July a report assessing the application of the VAT rules on vouchers by Member States in the 4 years since the rules were first put in place (between 2019 and 2022). The rules aim to simplify, modernise and harmonise the VAT rules applicable to vouchers, particularly in order to avoid inconsistencies, distortion of competition, double or non-taxation and to reduce the risk of tax avoidance. The results of a survey, carried out from 27 March to 9 June 2023, show that given the short period the VAT rules on vouchers have been applied, Member States have not had enough time to collect evidence, carry out audits, and formulate a final judgment on the general performance of the VAT rules on vouchers. However, no major problems were detected from the compliance checks in terms of formal transposition and no infringement procedures have been launched, the Commission said. Insofar as information was available, Member States confirm that the common EU rules on vouchers have broadly addressed the fragmentation and complexity of applying VAT to various business models resulting in simpler rules and a more uniform application across the EU. Consequently, the Commission concluded that, given the short period the VAT rules on vouchers have been applied and the limited data available for the assessment, any proposal to amend the current rules would be premature.
European Commission refers Belgium to Court over its tax exemption of remuneration received from savings deposits
The European Commission decided on Thursday 25 July to refer Belgium (INFR(2015)4212) to the Court of Justice of the European Union (CJEU) for maintaining discriminatory conditions for applying the tax exemption of remuneration received from savings deposits. The Commission considers that the Belgian tax exemption system applicable to income from savings deposits imposes discriminatory conditions for access to the Belgian banking market on service providers established in other Member States of the European Union or the European Economic Area and is, therefore, contrary to the freedom to provide services. The CJEU confirmed the violation of the above freedom by the Belgian law on 8 June 2017 and 27 March 2023 following preliminary ruling procedures. The Commission sent a reasoned opinion in July 2023 to Belgium. However, considering the efforts made by the Belgian authorities as insufficient, it decided to refer Belgium to the Court.
Hungary asked to correctly transpose the AML Directive
The European Commission decided on Thursday 25 July to send a second letter of formal notice to Hungary (INFR(2023)2098) for having incorrectly transposed the Anti-Money Laundering Directive. The first letter of formal notice sent to Hungary in September 2023 was related to the licensing of virtual asset service providers. In addition, the Commission now takes the view that the Hungarian legal framework also does not ensure the completeness of the National Beneficial Ownership Register by not including private equity funds in its scope. Hungary now has two months to respond and address the shortcomings raised by the Commission. In the absence of a satisfactory response, the Commission may decide to issue a reasoned opinion.
New EU Tax Observatory paper on the effects of automatic bank information exchange
On Tuesday 23 July, the EU Tax Observatory published a new study on the effects of automatic bank information exchange with foreign tax authorities on taxpayer behaviour and compliance along its key dimensions: repatriation of assets previously held abroad; increases in self-reporting; improvements in the auditing capacity of tax authorities. The authors, who include the Director of the EU Tax Observatory Gabriel Zucman, analysed information reports sent by foreign banks to Danish authorities, matched to population-wide micro-data on income, wealth, and cross-border bank transfers. Overall, they found evidence of large effects along each of these margins, with particularly large effects on the repatriation of wealth. They estimate that around 70% of the wealth that would have been hidden offshore by Danish individuals in the absence of this policy has been brought into compliance or has become observable by the tax authority. These results highlight, according to them, the power of international cooperation to improve tax compliance. However, realizing the full potential of this policy may require additional actions, such as sending letters or targeted audits and improving technology.
Main highlights from the EP constitutive session
The European Parliament’s constitutive session took place from Tuesday 16 July to Thursday 18 July in Strasbourg. On Tuesday 16 July, the composition of the European Parliament was confirmed, after each MEP’s eligibility has been checked and political groups formed. 54% of MEPs are newly elected. There are eight political groups, including two new far-right ones. 33 MEPs remain non-attached. The full list of elected MEPs for the tenth legislature can be consulted here. On Tuesday, MEP Roberta Metsola (EPP, Malta) has been re-elected EP President until 2027, with 562 votes (out of 699) in the first round. Her only contender was MEP Irene Montero (The Left, Spain), who obtained 61 votes. The function being awarded to the EPP group was part of the agreement reached at the end of June in the EU Council. Addressing the House after her election, President Metsola said: “I want people to recapture a sense of belief and enthusiasm for our project. A belief to make our shared space safer, fairer, more just and more equal. A belief that together we are stronger and we are better. A belief that ours is a Europe for all.” A full version of her address is available here. On Tuesday and Wednesday 17 July, MEPs elected their 14 Vice-Presidents and 5 Quaestors. Three candidates from far-right groups were not elected due to the so-called “cordon sanitaire’” set up by the pro-European groups. Last but not least, on Thursday 18 July, MEPs decided to re-elect Ursula von der Leyen as President of the European Commission for five years (with 401 votes in favour, 284 against and 22 cast blank or invalid votes). The necessary majority for her election was 360 votes. Ms von der Leyen will now invite Member States to put forward their candidates for European Commissioner posts. The Commission will interview the candidates starting mid-August. The European Parliament will then organise nominee hearings in the relevant committees after the summer break. The full college of Commissioners will also need to be endorsed by the European Parliament.
EP committees are taking shape
After the approval of their numerical strength on Wednesday 17 July, the 20 committees and 4 standing subcommittees of the European Parliament are about to hold their constitutive meetings on Tuesday 23 July. On this occasion, they will elect their chairs and vice-chairs. Posts are distributed among political groups using the d’Hondt system. Here again, a “cordon sanitaire” is expected to block far-right groups from having responsibility posts. The chairmanship of the ECON committee would reportedly go to MEP Aurore Lalucq (S&D, France) while the FISC subcommittee would likely be chaired by MEP Pasquale Tridico (The Left, Italy). MEP Anna Cavazzini (Greens/EFA, German) would reportedly chair again the Internal Market and Consumer Protection (IMCO). The names of the MEPs appointed to each committee have been announced on Friday 19 July. Find the list of ECON members here, of FISC members here and of IMCO members here.
European Commission President-elect presents her political guidelines for the next five years
Ahead of the vote on her election for the Presidency of the European Commission, Ursula von der Leyen presented to MEPs her political guidelines for the next five years. Key initiatives announced include: - a new Clean Industrial Deal to be presented in the first 100 days of her mandate to drive decarbonisation and industrial growth; - A European Competitiveness Fund to boost innovation; - A new European Internal Security Strategy; - A European Democracy Shield for countering foreign information manipulation and interference; - A European Affordable Housing Plan; - A Skills Portability Initiative to ensure a skill acquired in one country is recognised in another; - A plan for Agriculture to adapt to climate change; - A Roadmap for Women’s Rights. In particular, Ms von der Leyen promised to make “speed, coherence and simplification key political priorities in everything we do”. Each Commissioner will be tasked with focusing on reducing administrative burdens and simplifying implementation, she said. They will hold regular dialogues on implementation with stakeholders to discuss how best to align implementation with realities on the ground. They will work with a Vice-President for Implementation, Simplification and Interinstitutional Relations to stress-test the entire EU acquis. She also put significant focus on defence, proposing to create a new post of Commissioner for Defence. New Commissioner roles she announced also include Housing, the Mediterranean and Intergenerational Fairness. Her full speech can be found here.
Hungarian Presidency urged to act as an honest broker at ECOFIN meeting
EU Finance Ministers met in Brussels on Tuesday 16 July. One point on their agenda was a presentation from the Hungarian Presidency of the Council of the European Union of its priorities for economic and financial affairs during its mandate until December 2024. The work programme and Presidency priorities were largely welcomed by EU Finance Ministers. However, Hungarian Prime Viktor Minister Orbán’s visit to Moscow and the delisting of Ukraine from the priority list took the focus of the meeting. All speakers underlined the importance of maintaining Ukraine at the top of the agenda and some countries like Sweden, Germany, the Netherlands, Belgium and France also condemned the visit to Moscow. Most of the ministers said Ukraine’s needs are the more urgent and hoped the Hungarian Presidency will act as an “honest broker”. Regarding its tax programme, the Hungarian Presidency said that it will take forward measures aimed at consolidating Member States’ budget revenues. In particular, it will strive to reach an agreement on the VAT in the Digital Age (ViDA) package. It will also provide support in the international role of the European Union in taxation, respecting Member States’ competencies in this area, it said.
EU expresses concerns about early protocols in drafting terms of reference process of the UN Framework Convention on tax
On Tuesday 16 July, EU Finance Ministers adopted the EU’s position for the second substantive session of the Ad Hoc Committee to draft terms of reference for a UN Framework Convention on international tax cooperation, which will take place from 29 July to 16 August. The document expresses serious concerns regarding the “zero draft” of the terms of reference that was published on 7 June and which states that Members would start negotiating the UN Framework Convention in 2025, alongside a set of early protocols that could include issues like the taxation of the digital economy. In particular, Member States reject the reference to the simultaneous development of early protocols in the terms of reference. “No early protocol should be discussed until the negotiations on the Framework Convention are concluded. Once they are, only a limited number of early protocols could be developed, within a reasonable timeframe. The timeframe to be required for the negotiations of these protocols should depend on the number of protocols and on the subjects they cover. A single deadline for finalising all protocols is not feasible. These protocols should focus on areas with the broadest consensus, avoiding controversial topics. It is therefore appropriate to first assess the suitability of certain topics to determine which ones should be subject to further analysis”, the position paper says. It also says the EU believes that the principal decision on the development of protocols should be taken by the intergovernmental negotiating committee.
Political groups negotiate EP top jobs and chairmanships ahead of constitutive session
Political groups are negotiating how positions of responsibility within the European Parliament will be distributed among political groups ahead of the constitutive session of the European Parliament, which will be held from Tuesday 16 July to Friday 19 July in Strasbourg. On Tuesday, MEPs will first elect their President. Christian Democrat Roberta Metsola from Malta is standing as a candidate for a second two-and-a-half-year term and is likely to be re-elected as the function being awarded to the EPP group was part of the agreement reached at the end of June in the EU Council. On Tuesday and Wednesday 17 July, MEPs will then elect the European Parliament’s Bureau, which is composed of the President, 14 Vice-Presidents and 5 quaestors. Posts are distributed among political groups using the d’Hondt system, which is the starting point for negotiations. It is expected that the political groups that form a pro-European majority will decide to throw a so-called “cordon sanitaire” around the Patriots group, thus preventing it from receiving a European Parliament vice-presidency. The vote on the President-designate of the European Commission, Ursula von der Leyen, is scheduled for Thursday 18 July at 13:00, following a speech and debate in the hemicycle. To be elected, Ms von der Leyen will need 361 votes out of 720 MEPs. Last week, she held talks with the S&D, Renew Europe and Greens/EFA groups to present her political priorities for the 2024-2029 legislative cycle and ensure their support. This week, MEPs will also settle on the numerical composition of parliamentary committees and sub-committees while the inaugural meetings of the parliamentary committees will take place in Brussels the following week. The ECON and FISC constitutive meetings are scheduled to take place on Wednesday 23 July. The chairmanships of the ECON committee would reportedly go to S&D while the FISC subcommittee would go to the Left.
Two new far-right groups in the European Parliament
Representatives of thirteen national far-right and sovereignist right-wing political groupings reportedly formed the “Patriots for Europe” group in Brussels on Monday 8 July. With 84 elected members, including 30 for the French Rassemblement National and 11 for the Hungarian Fidesz, this brand-new group replaces the radical right ECR group in third place in the European Parliament, which now has 78 MEPs after the departure of 6 Spanish Vox MEPs. The new group, chaired by French MEP Jordan Bardella, will focus mainly on the fight against the transfer of new powers to the EU and against illegal immigration. On Wednesday 10 July, a second far-right group called “Europe of Sovereign Nations” also reportedly announced its creation. Founded around the German AfD party, which was expelled from the previous Identity and Democracy (ID) group, the new group includes 25 MEPs from eight EU countries. The Co-Presidents are Germany’s René Aust and Poland’s Stanisław Tyszka. Europe of Sovereign Nations becomes the third political force on the far right in the European Parliament.
European Commission proposes an electronic VAT exemption certificate for certain export transactions
The European Commission published on Monday 8 July a proposal for a Directive introducing an electronic VAT exemption certificate for certain transactions treated as exports under the VAT Directive, replacing the current paper form to be signed by hand. Member States will be required to use an electronic certificate to confirm that a transaction qualifies for an exemption under article 151 (1) of the VAT Directive (e.g. supply of goods or services under diplomatic and consular arrangements; supply of goods or services to recognised international bodies; supply of goods or services to another Member State intended for the armed forces, …). According to the proposal, no distinction will be made between domestic and cross-border transactions when applying the electronic exemption certificate. The electronic exemption certificate will also be applied if the exemption is granted by means of a refund of the VAT in accordance with Article 151(2) of the VAT Directive. The European Commission will establish technical details for the electronic certificate through implementing acts. Once adopted, Member States will have to implement the new rules by 30 June 2026. However, Member States will be allowed to continue to use the paper version of the exemption certificate for a transitional period until 30 June 2030.
Last EU Finance Ministers’ meeting before the summer break
EU Finance Ministers will meet one last time before the summer break on Tuesday 16 July in Brussels. The Hungarian Presidency of the Council of the EU will present its priorities and work programme in the field of economic and financial affairs. Ministers will 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. In the context of the European Semester, the Council will be invited to approve the country-specific recommendations as well as conclusions on the 2024 in-depth reviews under the macroeconomic imbalance procedure. Finally, the Ecofin Council will seek to approve the EU terms of reference in view of the G20 Finance Ministers and Central Bank Governors meeting of 25-26 July. It should also approve without discussion the position of the European Union and its Member States for the second substantive session of the Ad Hoc Committee to draft terms of reference for a UN Framework Convention on international tax cooperation, which will take place in New York from 29 July to 16 August.
Hungarian Presidency working on the idea of a non-binding Transfer Pricing Forum
The Hungarian Presidency of the Council of the EU is reportedly working on the idea of a non-binding Transfer Pricing forum composed solely of Member States and the European Commission, in the framework of discussions on the Commission’s proposal for a Directive on transfer pricing. It appeared that Member States don’t support the proposal in its current form, with some concerns about the risk of creating a transfer pricing double standard and the loss of flexibility that Member States have in negotiating and applying the OECD's transfer pricing guidelines. Several Member States, however, reportedly support the idea of a non-binding forum similar to the Joint Transfer Pricing Forum (JTPF) established in 2002. The JTPF’s mandate expired in 2019 and was not renewed. The objective of Hungary would be to deliver an agreement on the design of a non-binding transfer pricing forum during its Presidency. According to its draft agenda, it plans to ask EU Finance Ministers to exchange views and give political guidance on the proposed Directive on transfer pricing on 5 November.
20 former Heads of State and government call on G20 leaders to back global deal to tax the ultra-rich
Nearly 20 former heads of state and government from G20 and high-income countries called on current G20 leaders to support a new global agreement to tax the ultra-rich in an open letter, coordinated by Club de Madrid and Oxfam and published on Thursday 11 July. The former leaders believe that Brazil’s proposal for a global wealth tax to the G20 highlights “the opportunity to write a new history about taxation for the first time in a generation”, at a time when “billionaires, globally, are paying a tax rate equivalent to less than 0.5% of their wealth”. In their view, ensuring that the ultra-rich pay their fair share would reduce inequality and raise trillions of dollars necessary for investments in industrial policy and a just transition. The signatories include former Swedish Prime Minister Stefan Löfven, former French Prime Minister Dominique de Villepin and former Spanish Prime Minister José Luis Rodríguez Zapatero. The letter comes alongside talks across G20 capitals to back the deal, and ahead of a meeting of G20 Finance Ministers and central bankers in Rio de Janeiro on 25 July. Governments including Brazil, South Africa, France and Spain have already voiced their support to this proposal.
OECD 2024 Corporate Tax Statistics
The 2024 edition of OECD Corporate Tax Statistics, published on Thursday 11 July, showed that average statutory corporate income tax (CIT) rates have remained steady at 21.1% over the past three years. Anticipation of the new Global Minimum Tax may have contributed to the recent stabilisation, the OECD said. More than 35 jurisdictions are currently implementing, or plan to implement, the 15% minimum corporate effective tax rate with effect from 2024, the OECD estimates. This year’s edition of Corporate Tax Statistics also points to a stabilisation of certain tax incentives designed to attract mobile intangible assets and their related income. The publication contains new data on the effective tax rates available to MNEs on their intangible income through tax incentives, such as intellectual property (IP) regimes. This data shows that average effective tax rates including these incentives have stayed relatively constant over the period from 2019 to 2023, compared to a decline of almost 13 percentage points from 2000 to 2019. However, new country-by-country data on the variation of MNEs’ effective tax rates within jurisdictions highlights the presence of low-taxed profit in high-tax jurisdictions, which may reflect the use of tax incentives and other targeted concessions. These low-taxed profits point to the revenue-raising potential of the Global Minimum Tax, even in jurisdictions often considered to be high-tax, according to the report.
OECD consults on its user guide for the GLOBE Information Return XML Schema
As part of its work to facilitate the implementation of the Global Minimum Tax, the OECD opened on Wednesday 10 July a public consultation on an XML schema and a corresponding user guide regarding the standardized GloBE Information Return (GIR). The Global Anti-Base Erosion (GloBE) Model Rules require the annual filing of a GIR that provides information on the tax calculations made by an MNE Group under the GloBE Rules. It is designed to both facilitate domestic GIR filings wherever appropriate, and to be the technical format for exchanging GIR information between tax administrations, the OECD said. Interested stakeholders have until 19 August to send their comments by email to: [email protected].
Final composition of the European Parliament is taking shape
The final composition of the future hemicycle is taking shape. Political groups in the European Parliament have given themselves until Thursday 4 July to form, before beginning negotiations on the distribution of posts in the parliamentary committees according to their size. According to the European Parliament’s latest projections, the European Conservatives and Reformists (ECR) has grown to 84 seats with the Polish PiS finally deciding to stay in the group, therefore confirming, for the moment, its third place behind the European People's Party (EPP) group (188 seats) and the Socialists and Democrats (S&D) group (136 seats). However, a new far-right group called “Patriots for Europe” recently announced by Hungarian Prime Minister Viktor Orbán, Austrian Herbert Kickl and former Czech Prime Minister Andrej Babiš is reportedly trying to form itself and could have up to 95 MEPs. This new group is likely to replace the Identity and Democracy (ID) group and to attract French Rassemblement National and German AfD, who would consequently drop their project of creating “The Sovereignists” group. The formal decision is set to be taken on Monday 8 July, when the Patriots for Europe group is scheduled to hold its constitutive meeting.
DG TAXUD 2024 Annual Report on Taxation
The Directorate-General for Taxation and Customs Union (DG TAXUD) of the European Commission published on Wednesday 3 July its 2024 Annual Report on Taxation, which presents facts and analysis of the state of play of taxation and tax systems in the Member States. The report discusses both recent reforms in tax systems and changes in the main indicators used by the Commission to assess taxation policies in EU Member States and at EU level. The analysis contains a survey of different tax bases and types of taxes and their role for the tax mix, with a focus on differences across countries and over time. This year’s edition includes a focus on the role of taxation to support a competitive EU economy. Changes to the tax mix and the tax burden have been small, with some heterogenous developments across EU Member States, the report finds. The overall tax burden has increased from 39.8% to 40.2% of GDP over the past ten years. Moreover, it states that revenue losses due to tax avoidance and evasion continue to be a problem for all types of taxes. In particular, revenue losses due to corporate profit shifting are estimated to be worth up to 20% of all CIT revenues collected in 2022 in the EU which would amount to about EUR 100 billion in nominal terms. Reducing tax uncertainty through simple and predictable tax rules, coupled with the efficient use of revenues for growth-enhancing public spending, would contribute to a more growth-friendly environment, the report concludes. In parallel, ensuring increased compliance by all EU taxpayers, including by fighting against aggressive tax planning, would help to promote a prosperous economy by harnessing the full revenue potential of current tax bases and rates, it adds. The report was presented and debated during an event organised by the European Commission on Thursday 4 July. It will feed the reflexion on the future tax mix, including in view of the forthcoming annual EU Tax Symposium, scheduled for 6 November 2024.
OECD still optimistic about Pillar One after the missed June deadline
The OECD is maintaining its optimism on the conclusion of the Pillar One tax reform after the 30 June deadline to finalise the negotiations has been missed. In a statement sent to the media Tax Notes on Monday 1 July, the director of the OECD’s Centre for Tax Policy and Administration, Manal Corwin, reportedly said that the OECD Inclusive Framework continues to make significant progress in closing the gaps amongst members on various issues, in particular on the multilateral convention itself, and also on the architecture of amount B. A first draft of the Multilateral Convention (MLC) providing for the reallocation of taxing rights to market jurisdictions over some of the profits of the largest multinational enterprises regardless of their physical presence (so-called Amount A of Pillar One) was published in October 2023. However, several objections on technical aspects were remaining. On 30 May, the Co-Chairs of the OECD/G20 Inclusive Framework on BEPS, Marlene Nembhard-Parker (Jamaica) and Tim Power (United Kingdom), assured in a statement that the Inclusive Framework was “nearing completion” of the negotiations on a final package on Pillar One, maintaining its goal of reaching a final agreement in time to open the MLC for signature by the end of June.
European Court of Auditors assesses the performance of the recognition of professional qualifications in the EU
The European Court of Auditors (ECA) published on Monday 1 July a special report on how the Directive on the recognition of professional qualifications is actually enforced in the EU. The audit covered the period from 2013 – 2023 and focused on four professions: nurse responsible for general care, secondary school teacher, carpenter/joiner, and civil engineer, with visits in four Member States (Austria, Belgium, Czech Republic and Luxembourg). The ECA’s main finding is that the number of regulated professions in the EU remains high, while the EU systems for recognising professional qualifications are sparsely used (only in around 6 % of the cases of EU mobility). The ECA also found some shortcomings in the application of the Directive by Member States such as the lack of electronic procedures, the charges to use the recognition procedure being set arbitrarily and differing considerably among the Member States, authorities requiring more documents than laid down in the Directive and the code of conduct, imposition of excessive prior checks and compensation measures, and procedures longer than provided for. The ECA notably recommends clarifying, by proposing changes in the legislation or issuing Commission recommendations, the importance for the Commission and/or an independent body to review the proportionality tests carried out by the Member States. In its reply to the report, the European Commission recalls that it initially included this in its proposal for the Proportionality Test Directive but that the final legal act as adopted by the co-legislators does not include this requirement. The Commission said it will follow up with Member States to highlight the benefits of involving an independent body in proportionality tests, provide concrete guidance to Member States and facilitate the exchange of best practices.
EU leaders agree on EU top jobs
During their meeting in Brussels on Thursday 27 June, EU leaders confirmed the agreement found a few days before by negotiators from the Christian Democrat (EPP), Social Democrat (S&D) and centre-right (Renew Europe) political families on the three top European posts to be filled at the start of the 2024-2029 institutional cycle. EU leaders consequently nominated: - German Christian Democrat Ursula von der Leyen as President of the European Commission for a further five years; - Portuguese Socialist António Costa as President of the European Council for two and a half years; - Estonian Liberal Kaja Kallas as High Representative of the Union for Foreign Affairs and Security Policy for five years. However, the decision was not unanimous. The Italian Prime Minister, Giorgia Meloni, reportedly voted against the appointments of Mr Costa and Ms Kallas and abstained on that of Ms von der Leyen. Hungarian Prime Minister Viktor Orbán would also have opposed the nomination of Ms von der Leyen, abstained on that of Mrs Kallas and approved that of Mr Costa. Ms von der Leyen will have to be elected by an absolute majority of MEPs, i.e. 361 votes. According to the European Parliament’s latest projections, the EPP, S&D and Renew Europe groups have a total of almost 400 votes. Her election should take place on Thursday 18 July during the European Parliament’s constituent session, when MEPs are also expected to re-elect Maltese Christian Democrat Roberta Metsola as President of the European Parliament.
EU leaders approve the Strategic Agenda 2024-2029
EU leaders also adopted, during their meeting on Thursday 27 June, the Strategic Agenda 2024-2029, which sets out the political priorities to be pursued that will enable the EU to meet the challenges it will face in the future. It is based on three pillars: - a free and democratic Europe; - a strong and secure Europe; and - a prosperous and competitive Europe. The text notably sets a direction to prepare for a bigger and stronger Union. The European Union will undertake the necessary internal reforms to ensure that EU policies are fit for the future and financed in a sustainable manner and that the EU institutions continue to function and act effectively, it says. Charles Michel, President of the European Council, led the process by working closely with leaders since the informal European Council meeting in Granada on 6 October 2023. In November 2023 and April 2024, Mr Michel organised further consultation rounds with the leaders which led to the current adopted text.
Political groups in the European Parliament get formed
Political groups in the future hemicycle continue being formed in view of the European Parliament’s constitutive session on 16 July. They reportedly have given themselves until Thursday 4 July to form, after which they will begin negotiations on the distribution of posts in the parliamentary committees according to their size. According to the European Parliament’s latest projections, the European Conservatives and Reformists (ECR) group has grown to 83 members, overtaking the liberal Renew Europe group (75 seats) to become the third largest force in the European Parliament. Renew Europe indicated it still expects to grow in the coming days. The EPP re-elected German MEP Manfred Weber as Chairman and S&D re-elected Spanish MEP Iratxe García Pérez as its President. Centre-right and liberal Renew Europe group reappointed French MEP Valérie Hayer and the Greens/European Free Alliance (EFA) group re-elected Dutch MEP Bas Eickhout and German MEP Terry Reintke as their Co-Presidents. The ECR reportedly postponed the election of its chairman until 3 July. A third far-right group, led by AfD MEPs and named The Sovereignists, would also reportedly try to form itself.
Hungarian Presidency of the Council of the EU kicks off
The Hungarian Presidency of the Council of the EU starts today for six months and a number of tax issues will be on the table, for discussion at least. First, Hungary will have the delicate task of convincing Estonia to lift its veto on the VAT in the digital age (ViDA) package. Hungary will also resume discussions on the UNSHELL Directive to fight the misuse of shell entities, based on the new approach presented beginning of June. According to a draft agenda of Ecofin Council meetings under its Presidency published on Monday 24 June, Hungary only plans to hold a state of play discussion to get guidance for further work on the Business in Europe: Framework for Income Taxation (BEFIT) proposal, the Head Office Tax system (HOT) proposal and the Transfer Pricing Directive proposal at the November Ecofin Council. The Hungarian Presidency also foresees to work on the Directive on exchange of information to ensure global minimum level of taxation for multinational groups (DAC 9), when the proposal will be issued. Finally, it should present a progress report on the revision of the Energy Taxation Directive at the Ecofin in December.
Gabriel Zucman presents his blueprint for an international minimum tax on billionaires
On Tuesday 25 June, the Director of the EU Tax Observatory, Economist Gabriel Zucman, published his blueprint for a coordinated minimum effective taxation standard for ultra-high-net-worth individuals, commissioned by the Brazilian Presidency of the G20.The report presents a proposal for an internationally coordinated standard ensuring an effective taxation of ultra-high-net-worth individuals. In the baseline proposal, individuals with more than $1 billion in wealth would be required to pay a minimum amount of tax annually, equal to 2% of their wealth. This standard could be flexibly implemented by participating countries through a variety of domestic instruments, including a presumptive income tax, an income tax on a broad notion of income, or a wealth tax, the report says. Mr Zucman estimates that a minimum tax on billionaires equal to 2% of their wealth would raise $200-$250 billion per year globally from about 3,000 taxpayers; extending the tax to centimillionaires would add $100-$140 billion. According to the author, such a standard could be enforced successfully even if all countries did not adopt it, by strengthening current exit taxes and implementing “tax collector of last resort” mechanisms as in the coordinated minimum tax on multinational companies.
Outcomes of ECOFIN Council meeting
On Friday 21 June, EU Finance Ministers convened in Luxembourg. They reviewed and concluded discussions on the progress of the Recovery and Resilience Facility (RRF). The economic and financial repercussions of Russia’s aggression against Ukraine were also on the agenda. In addition, the Ecofin Council deliberated on the European Semester Package, which serves as the annual coordination of economic, budgetary, employment, and social policies within the European Union. An agreement on VAT in the digital age could not be reached due to a veto by Estonia.
Estonia rejects Belgium's final EU VAT proposal
At the ECOFIN meeting on Firday 21 June, the ViDA (VAT in the Digital Age) package was a major discussion point. Despite extensive negotiations, no final agreement was reached. The ViDA package aims to simplify VAT processes through several key reforms, such as implementing a unified e-invoicing system, digital reporting obligations, updated VAT regulations for passenger transport and short-term accommodations, and a single VAT registration across the EU. A significant obstacle to consensus was Estonia's firm opposition to the proposed deemed supplier regime for digital platforms. Estonia continues to resist the proposed VAT liabilities for digital platforms in the ride-sharing and short-term accommodation sectors such as Airbnb or Bolt. Estonia argued that taxing service providers solely for offering their services on digital platforms would disproportionately burden SMEs and increase competitive distortions. They also pointed out the difficulty in justifying rules that heighten administrative burdens. Estonia proposed an opt-in clause for the deemed supplier regime, allowing each country to adopt measures best suited to their needs. Vincent Van Peteghem, Belgian Deputy Prime Minister and Minister of Finance, highlighted that the text was changed to limit the administrative burden. At technical level, this solution was supported by 26 Member States. However, Estonia still did not accept the compromise. Further negotiations are scheduled for the next ECOFIN meeting on 14 July, where Estonia is expected to continue seeking clarifications on VAT obligations for digital platforms in the sectors of passenger transport and short-term accommodations.
Upcoming Hungarian Presidency publishes its priorities and programme
On 18 June, the upcoming Hungarian Presidency of the Council of the EU published its priorities and programme under the controversial motto “Make Europe Great Again”. Hungary will hold the Presidency for the second time between 1 July 2024 and 31 December 2024 and has set out seven key priorities for its term: - New European Competitiveness Deal; - The reinforcement of European defence policy; - A consistent and merit-based enlargement policy; - Stemming illegal migration; - Shaping the future of cohesion policy; - An economy-centred EU agricultural policy; - Addressing demographic challenges. As regards taxation, Hungary’s main objective is to effectively advance the discussions on the taxation files and international issues currently on the agenda, achieving progress which responds to the needs posed by new business models, international cooperation and fiscal revenues. Its main focus lies on fighting tax evasion, ensuring legal certainty for taxpayers and supporting the international engagement of the European Union. The Hungarian Presidency sees an opportunity to enhance the competitiveness of European businesses through digitalisation, the efficient use of information and simplification in the area of taxation.
EU leaders lay groundwork for EU top jobs
Following the European elections, EU leaders met for an informal dinner on Monday 17 June, to discuss the next institutional term. The European Council is essential for designating the so-called EU top jobs, namely nominating the President of the European Commission, electing the President of the European Council and appointing the High Representative of the Union for Foreign Affairs and Security Policy. The proposal on the table involved re-nominating incumbent European Commission President Ursula von der Leyen for a second term, appointing António Costa as European Council President, and naming Estonia’s Prime Minister Kaja Kallas as High Representative of the Union for Foreign Affairs and Security Policy. In his remarks following the informal leaders’ meeting, Charles Michel, President of the European Council, acknowledged that although an agreement was not reached at this stage, it was “a good conversation” which is moving in “the right direction”. Charles Michel further stated that the political parties are playing a role and have made several proposals. EU leaders would work further and prepare the decision they “need to make”. The next European Summit will take place on 27 and 28 June 2024.
OECD issues administrative guidance on GloBE rules
On Monday 17 June, the OECD published further administrative guidance on the global anti-base-erosion (GloBE) rules. The GloBE rules are an essential component of Pillar 2 of the so-called Two-Pillar solution, a global tax reform initiative, on which the majority of jurisdictions in the 147-member Inclusive Framework on Base Erosion and Profit Shifting (BEPS) reached a political agreement in October 2021. These rules seek to ensure that large multinational enterprises are subject to an effective tax rate of 15 % regardless of where their constituent entities are located. The latest document aims to further clarify and simplify aspects of the GloBE rules. It clarifies the criteria for determining the scope of a deferred tax liability category and introduces a simplification measure which extends the application of the unclaimed accrual election rule. Further issues which have been addressed in the guidance include the cross-border allocation of current and deferred taxes, how to allocate profit and taxes for flow-through entities and the treatment of securitization vehicles.
2024 EU elections: latest results, main takeaways and next steps
The European elections of 6 to 9 June, marked by a surge of the far-right in several countries including Italy, France, Germany, Austria, Greece and the Netherlands and which caused a political earthquake in France with the dissolution of the French National Assembly, did not upset the major political balances within the Strasbourg hemicycle. EPP, S&D and Renew Europe grand coalition indeed retains its majority after EU elections. The latest projections published on Friday 14 June by the European Parliament services show that the EPP political group would win four more seats than estimated on 10 June, giving a total of 190 seats (+14 compared to the outgoing Parliament). The estimates remain at 136 elected members for the S&D Group and 80 members for Renew Europe (-22). The Greens/EFA Group would total 52 MEPs (-20). The ECR Group has also 3 seats more than previous estimates reaching 76 seats (+7), ID 58 (+9) and The Left 39 seats (+2). There are also gains for certain forces among the Non-attached Members (NI), such as the AfD and the Fidesz party of Hungarian Prime Minister Viktor Orbán. What about the next steps? The formation of political groups has started and will continue until the constituent plenary sitting of the European Parliament from 16 to 19 July, where MEPs will elect their President and Vice-Presidents. The constituent meetings of parliamentary committees will take place from 22-25 July. In the meantime, EU leaders will meet informally on 17 June to draw the first lessons from the results of the European elections and test several names for appointment to the “top European posts”, before a decision that should be taken at the European Council meeting on 27-28 June.
New attempt to agree on ViDA despite remaining Estonia concerns
The Belgian Presidency will try again to reach an agreement on the VAT in the digital age (ViDA) package during the next ECOFIN meeting (and last of its mandate) on Friday 21 June. During the last ECOFIN meeting on 14 May, an agreement was not possible because of the concerns raised by Estonia on the new deemed supplier regime for digital platforms (Pillar Three of the reform). EU Finance Ministers however did agree on the two other Pillars of the reform (Digital Reporting Requirements and the Single VAT registration) but these will only pass if a compromise can be reached with Estonia on the third Pillar. The Belgian Presidency already accommodated part of these concerns by giving Member States the possibility to prevent the deemed supplier regime from applying to SMEs. But Estonia wants Member States to be allowed to opt in to the deemed supplier instead of having the option to exclude SMEs. In a new compromise proposal discussed on Tuesday 11 June the Belgian Presidency reportedly gave Member States the option to check the status of an SME by consulting an online database. The proposal would also state that the deemed supplier provision should not add undue administrative burden on businesses and tax administrations. But it appeared that these efforts would not be enough to convince Estonia. Bilateral talks between the Belgian Presidency and the countries are continuing. During the Ecofin meeting, Ministers will also exchange views on the state of play of the implementation of the Recovery and Resilience Facility (RRF) and on the state of play of the economic and financial impact of Russia’s aggression against Ukraine. Furthermore, the Commission will present the 2024 European Semester Spring Package and Ministers will approve a report to the European Council on tax issues as well as conclusions on the progress achieved by the Code of Conduct Group during the Belgian Presidency.
Member States open to relaunch talks on UNSHELL on the basis of the Commission’s new approach
Member States reportedly showed openness on Tuesday 11 June to relaunch technical talks based on the new approach proposed by the European Commission on the UNSHELL Directive laying down rules to prevent the misuse of shell entities. The new approach no longer includes an economic substance test and would limit reporting obligations to entities that present a high risk of being used in abusive tax schemes. The proposal would still include risk hallmarks under which entities should self-assess. A high-risk entity would then have to report to authorities the hallmarks it met and information about its shareholders and beneficial owners. The new approach also reportedly no longer includes common tax consequences. Instead, it would create an obligation for Member States to use the exchanged information and take administrative measures, to identify possible abuse schemes and apply their national anti-abuse rules accordingly. During a meeting of the High-Level Working Party on tax questions, Member States reportedly broadly agreed to consider this new approach as a basis for restarting the negotiations under the upcoming Hungarian Presidency of the Council of the EU, although some Member States have issues with the proposal and are eager to see a redrafted text.
EU takes stock of the progress on the draft terms of reference for a UN Tax Convention
In a note published on Wednesday 12 June, the Belgian Presidency of the Council of the EU informed Member States about the outcomes of the first session of the Ad Hoc Committee to Draft Terms of Reference for a United Nations Framework Convention on International Tax Cooperation, which took place in New York, from 26 April to 8 May. The note recalled that the EU approved a common position for this meeting, which emphasized the importance of a rules-based international order, inclusive and equitable tax cooperation, and fostering global dialogue to create policy synergies. The discussions during the first substantive session of the Ad Hoc Committee focused on the possible structure of the terms of reference, including substantive elements of the convention and potential topics for high-level commitments, the note says. On substantial issues, key discussions focused on the concept of domestic resource mobilization (DRM) and the role of capacity building, the importance of effectively taxing high-net-worth individuals and possible tax measures to address environmental challenges. The most controversial issues were the equitable taxation of income of multinational enterprises (MNEs) and the taxation of cross-border transactions. Another divisive issue was the possible development of early protocols, specifically whether to first develop the framework convention (FC) and only then the protocols, or to develop simultaneous protocols on urgent issues. The Ad Hoc Committee Chair proposed a timeline for the next steps, including the circulation of a zero-draft of the terms of reference and opportunities for written submissions from UN Member States and stakeholders in the lead-up to the second substantive drafting session, which will take place from 29 July to 16 August 2024 in New York. Negotiations on the text of the convention will proceed in the subsequent stage.
European Commission’s annual report on taxation to be presented on 4 July
The European Commission will present its 2024 Annual Report on Taxation during an event in Brussels on 4 July. Entitled “Building strong foundations for growth: EU Tax Policy for lasting prosperity”, the conference will have two panel discussions. The first panel will address the job market of tomorrow and how taxation can help to address labour and skill shortages. Among others it will answer the following questions: How can policy makers address labour and skill shortages that hinder competitiveness? Can the design of taxation contribute to higher employment rates? Is there a role for taxation to ensure a smoother transition from education and training to employment, especially for young people? Can taxation support necessary periods of reskilling in a fast-changing job market? Is there a role for taxes in supporting longer working lives? In the second panel, participants will discuss tax compliance costs and their impact. The event will also be livestreamed.
