Weekly Tax News – 2 November 2021

ETAF reacts to the Pandora Papers revelations

On Tuesday 26 October, ETAF reacted to the European Parliament resolution adopted on 21 October in Plenary session calling on the EU to draw the lessons from the Pandora Papers. ETAF supports the ambitious approach set out in the text and agrees that tax evasion is a criminal offence which is contrary to the general interest of the EU and which must be fought with determination. However, ETAF opposes the general suspicion around intermediaries introduced by the text and claims the positive role of tax advisers for our societies while outlining the need to preserve professional secrecy, which is a core value of the exercise of the profession. ETAF also pointed out that, at this point in time, it remains to be seen how many tax advisers from regulated organisations are involved in the Pandora Papers. ETAF launched an inquiry among its members to get a better insight on this issue.

G20 Leaders endorse the global corporate tax reform deal

Leaders from the G20 Countries endorsed on Sunday 31 October in Rome the final political agreement reached on October 8 between 136 countries at OECD level on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. In a statement published at the end of the meeting, they call on the OECD/G20 Inclusive Framework on BEPS to “swiftly develop the model rules and multilateral instruments as agreed in the Detailed Implementation Plan, with a view to ensure that the new rules will come into effect at global level in 2023”.

Carveouts will significantly decrease EU revenues from global minimum tax

The EU Tax Observatory published on Wednesday 27 October new simulations of the revenue effects of the global minimum tax of 15% laid out in the OECD Tax Deal. The study shows that substance-based carve-outs agreed will decrease revenues from the minimum tax. In the agreement reached in October 2021, profits equal to 10% of assets plus 8% of payroll are exempt from the minimum tax for the first fiscal year. This exemption will reduce revenues from €83 billion to € 64 billion or 23% of the initial revenue gain for the EU-27, according to the EU Tax Observatory. Over ten years, the carve-out rates progressively decrease to 5% of assets and payroll but it will still reduce revenue gains by about €12 billion or 14%, it said.

MEPs quiz experts on the creation of a European Withholding Tax Framework

MEPs from the FISC subcommittee of the European Parliament discussed on Wednesday 27 October with experts about the best ways of reforming withholding tax systems in Europe. MEPs and participants all expressed the need for improving the current system, especially in the wake of the new CumEx Files 2.0 revelations last week. Professor Nadine Riedel from the Institute for Public and Regional Economics at the University of Münster said that a relief at source mechanism would be a good way forward while Professor Lorenz Jarass from the Wiesbaden University proposed a withholding tax on all interest and license fee payments without any relief at source because it supports Base Erosion and Profits Shifting, according to him. Marlies De Ruiter from EY explained how technology, particularly blockchain, can step in to help cut out fraud possibilities. Paul Gisby from Accountancy Europe also supported the development of a pan EU framework, with digitalized national refunds and reliefs mechanisms.

LuxLetters: EC says there is no evidence of a breach of EU law so far

On Thursday 28 October, MEPs from the FISC subcommittee of the European Parliament discussed the LuxLetters investigation which in July 2021 uncovered that multinational corporations registered in Luxembourg are believed to use a loophole in the country’s tax system to circumvent EU transparency rules and underpay tax. Reinhard Biebel, Head of the Unit for Direct Tax Policy and Cooperation at the European Commission said that, based on a first analysis, the European Commission has found no evidence that there is in Luxembourg a practice in place to bypass EU reporting requirements. He also said that the Commission is working on the eighth revision of the Directive on Administrative Cooperation (DAC8) and its extension to cryptocurrencies but that in this context it will also consider some additional changes that have been highlighted by the Pandora Papers, such as the extension of the scope to include natural persons. The chair of the FISC subcommittee, Paul Tang, regretted that Luxembourg’s Finance Minister Pierre Gramegna had refused to attend the meeting. Mr Gramegna provided a two-page written statement before the meeting, claiming that the allegations made by the LuxLetters investigation were “unsubstantiated and unfounded”.

EP set to hold its final vote on public CBCR

MEPs from the ECON and JURI committees of the European Parliament approved on Thursday 28 October the result of the interinstitutional negotiations between the European Parliament and the Council on the directive on public country-by-country reporting (CBCR), paving the way for its final adoption. The next step before the directive can enter into force is the final vote during the EP Plenary Session, scheduled on 10 November. The new rules will require certain multinational undertakings with revenue of more than €750 million to disclose publicly the income tax they pay. Member states will have 18 months to transpose the directive into national law.

OECD calls for better coordination of carbon pricing

Almost half of all energy-related CO2 emissions in G20 economies are now covered by a carbon price, as several countries introduced carbon taxes or emissions trading systems in the last few years, but more needs to be done and measures should be globally better coordinated, according to a new OECD report published on Wednesday 27 October. “We need a globally more coherent approach which enables countries to lift their ambition and effort to the level required to meet global net zero by 2050, with every country carrying an appropriate and fair share of the burden while avoiding carbon leakage and trade distortions”, OECD Secretary-General Mathias Cormann said. In all, 12 G20 economies now have explicit carbon pricing instruments in place or participate in the EU Emissions Trading System.