Weekly Tax News – 15 February 2021

FISC subcommittee workshop on digital taxation

On 12 February, the subcommittee for tax matters of the European Parliament (FISC) organized a workshop on the Taxation of the Digital Economy. Prof. Dr. Jeffrey Owens (Director of the Global Tax Policy Center at Vienna University and former Director of the OECD Tax Center) focused his speech on how the EU should balance risks and opportunities deriving from the taxation of the digital economy, on what is at stakes at OECD/G20 level and on how the EU should judge the outcome of the negotiations. He also made clear his skepticism towards the possibility for the US to be fully on board for an OECD agreement by mid-2021. Prof. Anne Van De Vijver (Professor of Tax Law at the University of Antwerp) has elaborated about the importance of implementing a fair tax system, both from the point of view of distributive fairness and of the perception of fairness. Daniele Majorana (Special Legal Counsel for International and EU Taxation) described the Italian Digital Services Tax and has also suggested that the gathering and exploitation of digital data should be taxed at EU level similarly to what happens to oil, with a consumption tax. The chair of FISC, Paul Tang (S&D, the Netherlands) clarified that the work undertaken in the course of the hearing will support the draft Report on Digital Taxation, prepared by the rapporteurs Andreas Schwab (EPP, Germany) and Martin Hlavacek (Renew Europe, Czechia) who have also actively participated to the workshop. The report of the European Parliament will also serve as a political push to the work that the European Commission has re-started on the issue of digital taxation by issuing a Public Consultation on the Digital Levy.

Luxembourg tax regime once again under scrutiny

On 8 February, the French newspaper Le Monde, in cooperation with 16 other international media, has unveiled the results of an investigation on the tax practices of Luxembourg, called OpenLux. According to the newspaper, Luxembourg would be home to up to 55,000 offshore companies managing assets worth over 6 trillion euros. The journalists have compiled a database that lists the beneficiaries of the 124,000 commercial Luxembourg companies, including questionable funds, suspected of originating in criminal activity or linked to criminals targeted by judicial investigations. The government of the Gran Duchy has promptly reacted to the investigation by creating a website on which it refuses the allegations by stating that “Luxembourg is fully compliant with EU and international regulations and transparency standards, and applies the full arsenal of EU and international measures to exchange information in tax matters and combat tax abuse and tax avoidance”. The investigation ignited a quick reaction from the European Parliament, where Paul Tang (S&D, the Netherlands) highlighted that it is absurd that EU countries cannot end up on EU’s tax blacklist of tax havens, while Sven Giegold (Greens/EFA, Germany), Philippe Lamberts (Greens/EFA, Belgium) and Markus Ferber (EPP, Germany) called on the Commission to launch infringement proceedings against countries with incomplete registers of beneficial owners.

Commission’s plan for VAT: “mind the gap” and VAT on financial services

The works of the European Commission to ameliorate the EU VAT framework are going forward. On 3 February, the Commission has published a Roadmap to inform citizens that it intends to issue a Communication before the summer to support Member States in reducing the VAT gap. The VAT gap, which is the difference between the expected VAT revenues and the amount actually collected by a tax authority, amounts to €140 billion in 2018 and the Commission estimates it will further grow up to €164 billion in 2020, primarily driven by bankruptcies linked to the COVID-19 crisis. On 8 February, the Commission launched a public consultation on the review of VAT on financial and insurance services. The review, which was already attempted back in 2007, seeks to update tax rules dating back to 1977 that have become obsolete and difficult to apply to a financial system that makes a broad use of new digital technologies.

Public CbCR is back on the Council’s table

On 25 February, the Competitiveness Council will discuss the possible introduction of a public Country-by-Country Reporting (CbCR). However, since the debate is only taking place via a videoconference and not with physical meeting, it will not be possible to table a vote for agreeing on the proposal. The change of position of Austria seems to have put an end to the blocking minority against the measure and it should be possible to adopt the proposal during the next in-person meeting of the Council.