Weekly Tax News – 1 February 2021

MEPs worried about the future UK tax policy

On 26 January, the subcommittee on tax matters of the European Parliament (FISC) have had an exchange of view with the Commission’s “Task Force for Relations with the United Kingdom” followed by a hearing on “The impact of Brexit on taxation”. The members of the task force explained to the MEPs that, though the agreement cannot set the corporate tax rate applied by the United Kingdom, it contains a good governance clause, which requires London to comply with the OECD BEPS action plan. It also includes a non-regression clause which obliges the UK to maintain a minimum standard of tax policy at the same level as the OECD standards at the end of the transition period. Answering to many worried MEPs, Benjamin Angel (Director for Direct Taxation at DG TAXUD) recalled that on the international tax reform under discussion at the OECD, the UK supports the EU stance for an effective minimum taxation.

The European Court of Auditors warns that DAC is not working as it should

On 26 January, the European Court of Auditors (ECA) has published a Special Report on Exchanging tax information in the EU: solid foundation, cracks in the implementation. The auditors have looked at the implementation of the Directive on Administrative Cooperation in the field of taxation (DAC – Directive 2011/16/EU) between 2014 and 2019 in five EU Member States: Italy, Spain, Poland, Cyprus and the Netherlands. Overall, the auditors highlight that the system for exchange of tax information has been well established, but more needs to be done in terms of monitoring, ensuring data quality and using the information received. They have recommended the Commission to expand the scope of mandatory information exchange to include cryptocurrencies, non-custodial dividend income and advance cross-border tax rulings issued for natural persons. ECA has also asked the Commission to address the poor quality of data sent by Member States and to develop guidance for Member States on implementing the DAC legislation. With regard to Member States, the report concludes that the information exchanged are of limited quality and underused. Recommendations to the Member States (specific to the 5 abovementioned countries but also applicable to the other EU Member States) include the request to improve the quality and completeness of DAC1 and DAC2 data and to make a better use of received information. In order to monitor the impact of information exchange, the ECA recommended the Commission to establish, together with Member States, a reliable common framework for measuring the benefits of the system for exchange of tax information.

International tax reform: Member States more optimistic than MEPs

On 28 January, the OECD Inclusive Framework on BEPS held a videoconference in which the Finance Ministers of Germany, Italy, UK, Canada, Jamaica and Indonesia have expressed a positive aptitude towards the negotiation on the international tax reform. The Italian Finance Minister, Roberto Gualtieri, remarked that this will be the top priority on the G20 chaired by Italy and that Italy “will engage with all stakeholders, including the new US Administration, to build political consensus”. German Finance Minister Olaf Scholz said that the US is ready to find a solution on the reform, based on the contacts he has recently had with the Biden’s administration. On 26 January, the European Parliament released the draft own initiative report on “Digital taxation: OECD negotiations, tax residency of digital companies and a possible European Digital Tax” which seems less positive on the outcome of the international negotiation. The rapporteurs Andreas Schwab (EPP, Germany) and Martin Hlaváček (Renew Europe, Czech Republic) have called on the Commission to present a proposal for taxing the digital economy by June 2021 regretting that the failure to find a solution at OECD level in October 2020 is prolonging “the under-taxation of the digital economy”. The draft report remarks that the COVID 19 pandemic has largely benefitted digital businesses, re-emphasizing the need to reform the current tax system. The document asks the Member States to refrain from introducing unilateral solution that fragments the single market and, to the ones that have already implemented a national digital tax, it recalls that such national measures should be phased out once a multilateral solution is found.