Weekly Tax News – 27 July 2020

The European Council agreement on the EU recovery plan

On 21 July, the EU Head of State or Government have reached an agreement on the Multiannual Financial Framework (MFF) 2021-2027 and new recovery instrument called “Next Generation EU”. The €750 billion post-Covid-19 Economic Recovery Plan will be financed by a joint loan from the European Commission on behalf of the EU27. Its overall budget will be made up of €390 billion in grants and €360 in loans. On the side of the revenues, the plan introduces a new own-resource based on non-recycled plastic packaging (i.e. the so-called plastic tax) from 1 January 2021. Furthermore, the European Commission has been invited to present in 2021 proposals on a carbon border adjustment mechanism and on a digital levy, to be introduced no later than 2023. The agreement mentions the possibility for the EU to introduce other own resources (e.g. the financial transaction tax) by the end of 2027. Compared to the proposal put forward by the Commission’s Communication on 27 May, any reference to a new corporate tax based on operations of enterprises that draw huge benefits from the EU single market has now disappeared. The introduction of new own resources was also requested by the European Parliament resolution of the 15 May on the recovery plan.

European Commission launches public consultations on Green Deal taxes

On 22 July, the European Commission has launched public consultations on two initiatives that aim to maximise the impact of taxation in meeting the EU’s climate goals. The public consultation on the revision of the Energy Taxation Directive targets an update of the minimum tax rates applicable to energy products and to electricity, which have not been updated since the Directive’s entry into force in 2003. With the revision, the Commission also intends to restructure the current tax exemptions in order to reduce implicit subsidies to fossil fuels and to certain economic sectors. Interested parties have until October 14 to comment on this initiative. The public consultation on the carbon border adjustment mechanism targets the introduction of a price of imports that reflects more accurately the carbon content of the imported goods. This would ensure that the EU’s green objectives are not undermined by production relocating to countries with less ambitious climate policies. Respondents have until 28 October to send in comments.

G20 Finance Ministers are committed to agree on the international tax reform

On 22 July, in a webinar organised by the OECD, Pascal Saint-Amans (Director of the OECD's Centre for Tax Policy and Administration) confirmed that an agreement on the international tax reform before the US elections may prove difficult but that the G20 Finance Ministers are willing to reach a global solution by the end of 2020. Mr Saint-Amans has analysed the Communiqué published by the G20 Finance Ministers after their meeting of 18 July highlighting that it reveals a commitment to reach an agreement by the end of the year. The Finance Ministers asked the OECD to prepare a report on the blueprints for each pillar for their next meeting on 15-16 October, but Saint-Amans reassured that the plan will be made available already to the G20/OECD Inclusive Framework meeting on BEPS on 8-9 October. The blueprints should provide technical details on the two pillars in order to be as close as possible to the documents that will be approved by the ministers. However, the question of the scope of pillar 1 remains very controversial, according to Saint-Amans.

Council of the EU officially postpones VAT e-commerce package

On 22 July, the Council of the EU has formally adopted a Council Decision and a Council Regulation that postpone by six months the introduction of the VAT e-commerce package in response to the COVID-19 outbreak. The adoption of the Council follows the opinions of the European Parliament (only consulted on tax matters) that called for a shorter postponement of only three months.

European Commission extends VAT and customs duties relief for import of medical equipments

On 23 July, the European Commission has decided to extend for further three months the temporary exemption from customs duties and VAT on the import of medical devices and protective equipment from third countries in order to help in the fight against COVID-19. This measure covers masks and protective equipment, as well as testing kits, ventilators and other medical equipment and it will apply until 31 October 2020.