Weekly Tax News – 29 November 2021

EC is working on the implementation of Pillar II in the EU

The European Commission is working on its proposal on the implementation of the OECD global agreement on minimum effective taxation (Pillar II), expected to be unveiled on 22 December 2021. According to an article published on Wednesday 24 November in La Libre Belgique, the Commission is reportedly considering to state in its proposal that the country of the subsidiary – and not the country of headquarters as provided by the OECD Tax Deal – would have the first hand to tax profits taxed below the 15% minimum rate. The OECD Pillar II is designed to apply to international profits taxed below 15%. But the European Commission’s aim would be to introduce a minimum tax rate of 15% for large companies with a consolidated turnover of 750 million euros in all EU countries and therefore tax all domestic profits at 15% as well. The justification for this change would be that the freedom of establishment within the EU prevents from applying the OECD rule as it stands because it would discriminate against domestic and international profits, which is forbidden by EU Treaties.

US signs Pillar I transitional agreements with India and Turkey

The United States reached with Turkey, on 22 November, and with India, on 24 November, agreements on the withdrawal of their domestic digital taxes ahead of the implementation of the OECD Tax deal. The countries have agreed to the same terms that apply under the joint statement that was issued in October by the United States, Austria, France, Italy, Spain and the United Kingdom. However, for India, the interim period that will be applicable will be from 1st April 2022 until the implementation of Pillar I or 31st March 2024 - whichever is earlier -, the press release states.

French EU Council presidency aims at an agreement on CBAM

France is determined to try to reach an agreement under its six-month Presidency of the EU Council - starting in January - on the Carbon Border Adjustment Mechanism (CBAM), the French Secretary of State for Europe Clément Beaune said at a POLITICO event on Monday 22 November. In this regard, he said that it would be good to have first an agreement at EU level and to implement it to have some leverage and then open international negotiation with like-minded countries. From the European Parliament’s side, MEP Mohammed Chahim, who is in charge of Parliament’s position on the proposal, is reportedly aiming to finalize his report for the ENVI committee before Christmas.

Overview of progress made on tax issues under the Slovenian Presidency

The Ecofin Council will adopt during its meeting on 7 December its traditional report to the European Council on tax issues, which gives an overview of the progress made under the Slovenian Presidency of the EU Council. The report mentions possible incoming agreements on the proposal to give Member States the freedom to set reduced, super-reduced and zero VAT rates as well as on the revision of the Code of Conduct on Business Taxation. It however reports no progress on the proposal to transform the VAT Committee into a comitology committee and on the Financial Transaction Tax (FTT)

EU Member States asked to promote fair and efficient taxation

The European Commission published on Wednesday 24 November its euro area recommendation for 2022-2023, in the framework of the European Semester Autumn Package. It calls for euro area Member States to take action, individually, including through the implementation of their Recovery and Resilience Plans, and collectively within the Eurogroup, to promote policies that tackle aggressive tax planning, tax evasion and tax avoidance to ensure fair and efficient tax systems. Euro area Member States are also encouraged to work to limit harmful tax competition including through the implementation of the OECD Tax Deal and to promote a shift-from labour taxation towards taxes that are less distortive.

EU should limit special tax regimes for wealthy individuals, the European Tax Observatory says

Preferential tax regimes for wealthy individuals generate a loss of revenue of over €4.5 billion per year for the EU as a whole, the EU Tax Observatory estimates in a new report on tax competition within the EU published on 22 November. If it is not possible to establish an EU regulation to end these regimes, another way to stop this kind of tax competition would be to establish a unilateral mechanism for the temporary taxation of expatriates who decide to move their tax residency outside of a given country, the report says. Other recommendations from the EU Tax Observatory relate to the reform of the Code of Conduct on business taxation to make it a binding instrument and to the full implementation of the global minimum tax, with minimum exclusions and limited deductions for research and development.

MEPs call for the removal of unjustified barriers in the Single Market

The IMCO committee of the European Parliament adopted on Thursday 23 November a report on tackling non-tariff and non-tax barriers in the Single Market, drafted by MEP Kosma Złotowski. In the report, MEPs call for the removal of unjustified barriers across the EU and list some of them, stressing that inadequate implementation and enforcement of EU law, restrictive national regulations, territorial supply constraints, red-tape and gold-plating may have negative consequences both at EU and national level. The report proposes a number of measures, including better and more unified transposition of EU law, monitoring of national rules, finding a balance between justified and unjustified barriers, ensuring the right level of harmonisation, stronger enforcement and further digitalisation of public services. The report will be submitted to a vote in plenary in December.