Weekly Tax News – 6 December 2021

EU digital levy still on hold, EU Commissioner Gentiloni says

The decision of the European Commission to put on hold its proposal for a digital levy remains valid, the European Commissioner for Taxation Paolo Gentiloni said on Tuesday 30 November in front of the FISC subcommittee of the European Parliament. He explained that the implementation at EU level of the OECD tax deal remains the Commission’s number one priority. For Pillar II, the Commission is indeed expected to propose an EU directive on 22 December that will be aligned as much as possible with the OECD model rules while ensuring that it is fully compatible with EU law, he assured. Commissioner Gentiloni expects a first discussion on this file in the EU Council at the January Ecofin Council meeting with a view to have an agreement during the French Presidency of the EU Council. On Pillar I, the text of the multilateral convention will be stabilized in Spring next year, signed by June and ratified before the end of 2022, he recalled. Once the text is sufficiently advanced, the Commission will have “more clarity on the way forward” for the EU, he said.

Estonia and Hungary block the revision of the EU Code of Conduct for Business Taxation

EU Council experts are finalising a revision of the 1997 Code of Conduct for Member States to limit harmful national corporate tax practices but Hungary and Estonia are blocking the agreement, EU Commissioner Paolo Gentiloni said on Tuesday 30 November. According to a draft resolution, in addition to tackling very low or zero tax rates, the Code of Conduct will cover generally applicable tax features of a Member State which create opportunities for double non-taxation or that can lead to multiple use of tax benefits, in connection with the same expenses, amount of income or chain of transactions. Moreover, a State will be able to bring to the attention of the EU Council’s Code of Conduct Group any tax measure that an EU country has introduced and not spontaneously notified. The Slovenian Presidency of the EU Council has reportedly decided to maintain this item on the agenda of the Ecofin Council on 7 December to try to reach an agreement, despite the opposition of the two countries.

MEPs quiz experts on the Pandora Papers revelations

The FISC subcommittee of the European Parliament organized on Tuesday 30 November a hearing about the lessons to be learnt from the Pandora Papers revelations. On this occasion, Will Fitzgibbon, senior ICIJ reporter, stressed the importance of not only focussing on tax havens, saying that wealth managers and other enablers such as bankers or tax advisers are key for tax avoidance and evasion. He also recalled that the 14 offshore providers involved in the Pandora Papers are largely not headquartered in Europe and operate from traditional tax heavens but that they do have practical offices within Europe. Moran Harari of the Tax Justice Network explained why it was so important to know the beneficial owner and outlined the changes that should be made to current rules to achieve this. She said that one proposal could be that enablers should disclose the identity of their clients who set up offshore structures. Benjamin Angel, Director at the Tax department of the European Commission, stressed that the Pandora Papers imposed on the EU to make its tax haven list more effective and make full use of the existing rules.

Agreement in the EU Council on transparency of crypto assets transfers

EU Member States’ ambassadors (Coreper) agreed on Wednesday 1 December on a mandate to negotiate with the European Parliament on a proposal to update existing rules on information accompanying transfers of funds. The update – which is part of the AML package presented in July 2021 - introduces an obligation for crypto-asset service providers to collect and make accessible full information about the sender and beneficiary of the transfers of virtual or crypto assets they operate. In practice, this amendment aims to transpose into European law Recommendation 15 (known as the ‘travel rule’) of the Financial Action Task Force (FATF). In its text, the Council also introduced further requirements for crypto-asset transfers between crypto-asset service providers and un-hosted wallets. It aims to synchronise the application of the proposal on transfer of funds and the market in crypto-assets regulation (MiCA).

ECON and LIBE committees kick off their work on the AML package

The ECON and LIBE committees of the European Parliament have requested the co-lead on all the files of the AML Package presented by the European Commission in July 2021. On Wednesday 1 December, they organised a hearing to discuss the proposals with EU policymakers and experts. During this meeting, Raluca Pruna, head of the Financial Crime Unit at the European Commission, described the details of the legislative proposals. Mihails Kozlovs from the European Court of Auditors (ECA) described the findings of the ECA’s Special report on AML noting that EU bodies currently have limited means to enforce AML rules on the national level. He also said that around 75% of all suspicious transactions in a majority of Member States come from the banking sector. Burkhard Mühl, Head of the European Economic and Financial Crime Centre at Europol, regretted that the current proposals do not foresee a strong cooperation between AMLA and law enforcement agencies and Europol, nor between FIUs and law enforcement agencies themselves.

EU countries lost €134 billion in VAT revenues in 2019

In 2019, EU Member States lost an estimated €134 billion in Value-Added Tax (VAT) although the overall EU VAT Gap continues to decrease, according to a new report released by the European Commission on Thursday 2 December. In 2019, Romania recorded the highest national VAT compliance gap with 34.9% of VAT revenues going missing in 2019, followed by Greece (25.8%) and Malta (23.5%). The smallest gaps were observed in Croatia (1.0%), Sweden (1.4%), and Cyprus (2.7%). In absolute terms, the highest VAT compliance gaps were recorded in Italy (€30.1 billion) and Germany (€23.4 billion). The full extent of the COVID-19 pandemic on consumer demand and therefore VAT revenues in 2020 remains unknown, the Commission also said.

Belgium asked to correctly transpose the controlled foreign company rules of the ATAD

The Commission decided on Thursday 2 December to send a reasoned opinion to Belgium on the grounds of incorrect transposition of the Anti-Tax Avoidance Directive (ATAD). According to the Commission, Belgian law does not allow a taxpayer to deduct from its tax liability the tax paid by a controlled foreign company in the state of tax residence, which would be contrary to Article 8(7) of the ATAD. If Belgium does not act within the next two months, the Commission may decide to refer the case to the Court of Justice of the European Union.

Germany urged to allow automated exchange on call-off stock arrangements

The Commission decided on Thursday 2 December to send a reasoned opinion to Germany for failing to fulfil its obligation to grant other Member States automated access to the information concerning call-off stock arrangements via the electronic system VIES (VAT Information Exchange System). The call-off stock arrangements require, amongst others, that Member States adapt their IT systems in order to allow for the exchange of information between Member States as required by Council Regulation 904/2010. However, the lack of necessary adaptations on the side of Germany makes it more difficult for other Member States to carry out the controls necessary to prevent VAT fraud or tax evasion, the Commission explained in a press release.

Commission calls on 18 Member States to strengthen the EU Single Market for regulated professions

The European Commission opened on Thursday 2 December infringement proceedings against 18 Member States who allegedly failed to correctly transpose the 2018 Directive on a proportionality test before adoption of new regulation of professions. These Member States have failed to sufficiently capture all types of regulations such as those adopted by professional associations, failed to accurately transpose the criteria of the proportionality test, or failed to ensure the necessary procedural guarantees, it said in a press release. France, Austria, Germany, Romania and Hungary are among the concerned Member States. They now have two months to react to this otherwise the Commission will move to the next stage of the proceeding. On the same day, the Commission also decided to open an infringement proceeding against Romania for breaching EU rules on professional qualifications. The Commission is urging Romania to comply with its obligations under the Lawyers' Directive 98/5/EC by ensuring automatic recognition of the EU professional titles of lawyer.