Weekly Tax News – 13 December 2021

European Commission considers taking part of revenues of Pillar I for the EU budget

Now that the EU digital levy is officially off the table, the European Commission is reflecting on other alternative sources of revenues for the EU budget. It is reportedly considering taking a portion of the revenues from the OECD tax deal to help repay the EU recovery plan. Pillar I of the reform, which is expected to reallocate $125 billion of profits worldwide, would be the basis for a new EU levy, that could be announced on 22 December as part of the EU own resources package. The share that the EU could claim through Pillar I however remains uncertain. The Commission intends to present a proposal implementing Pillar I in the EU next year in June, according to a draft agenda. The own resources package should also contain two other levies based on a carbon border adjustment mechanism (CBAM) and the EU Emissions Trading System (ETS).

France unveils its priorities for its Presidency of the EU Council

French President Emmanuel Macron presented, on Thursday 9 December, the priorities of the French Presidency of the Council of the EU, which will run from 1 January to 30 June 2022. The slogan of the French Presidency is “recovery, power and belonging” and will be structured around three axes: a more sovereign Europe, a new growth model and European Humanism. One priority will be the OECD tax deal. “By spring, we will have passed in the competent Council, in particular in the so-called Ecofin Council, the texts allowing to put in place these two pillars and thus to complete this work for a real taxation of multinationals”, Emmanuel Macron said. However, the implementation of Pillar I depends on the conclusion of a multilateral convention at the OECD, which is not expected before June. France also plans to make the Carbon Border Adjustment Mechanism (CBAM) a priority and “complete” the project during its presidency. See the calendar of the French Presidency here.

Member States reach an agreement on VAT rates

After almost 4 years of negotiations, EU Finance ministers unanimously reached an agreement on Tuesday 7 December at the Ecofin Council meeting on the Council Directive amending Directive 2006/112/EC as regards rates of value added tax. The text modifies the VAT Directive of 2006 to grant more flexibility to Member States in the setting of VAT rates and to ensure that they are all treated equally. According to the final text, Member States will now have the possibility to apply a maximum of two reduced rates of a minimum of 5 %, one super-reduced rate lower than the minimum of 5 % and one exemption with the right to deduct input VAT. Each Member State will be able to choose 24 items on a positive list of products and services to which a reduced rate could be applied and 7 items to which a super-reduced or a zero rate could be applied. Reduced VAT rates for environmentally harmful products will also be progressively phased out and the text allows Member States to better respond to exceptional circumstances like pandemics, humanitarian crises or natural disasters. As the Council’s text diverges significantly from the Commission’s initial proposal, a new opinion of the European Parliament will be requested before the Council will be able to formally adopt the directive.

Revision of the Code of Conduct on Business Taxation stuck in EU Council

EU Finance Ministers failed on Tuesday 7 December to find an agreement on the revision of the 1997 Code of Conduct, which aims to limit harmful business taxation practices in the European Union. Taking into account the OECD tax deal, the revision extends the Code of Conduct to generally applicable tax features of a Member State which create opportunities for double non-taxation or which may lead to the multiple use of tax advantages. The Slovenian Presidency decided to submit the file to the Ecofin Council despite the opposition of Hungary and Estonia but the two countries maintained their blockade. Hungary is reportedly holding the reform hostage because the European Commission refuses to unlock recovery cash to Budapest over concerns of corruption. Estonia prefers to await the outcome of the OECD tax reform before embarking on amending the Code of Conduct. “The global tax reform may have an unpredictable impact on tax systems and investment strategies, both within and outside the EU. We should monitor the results of its implementation before taking further important steps”, Estonian Finance minister Keit Pentus-Rosimannus said in a statement.

Smplification of business taxation still part of EU agenda, European Commission says

Simplification is still part of the EU tax agenda, the Director-General for Taxation at the European Commission, Gerassimos Thomas, assured on Thursday 9 December during an online conference on business taxation in the EU organized by EuropeanIssuers and EY. On the OECD tax deal, he said that the calls from companies for simplification have been heard and that the OECD and the Commission are working on it. Responding to criticisms about the lack of involvement of companies in the elaboration of the new rules, Mr Thomas said that the OECD has a structure where businesses are involved and that there were in the past a lot of consultations where companies participated while recognizing that some of the last changes require further engagement with companies. He also recalled that, on the basis of this agreement, the Commission intends to come in 2023 with a proposal for a “Business in Europe: Framework for Income Taxation” (BEFIT) that will simplify the corporate tax regime for businesses that operate in the EU.

EU Finance Ministers take stock of the progress on the AML package

EU Finance Ministers took stock on Tuesday 7 December of the progress in the negotiations on the Anti-Money Laundering (AML) package presented in July by the European Commission. According to a progress report prepared by the Slovenian Presidency of the EU Council, during the first discussions on the proposal for a new EU AML Authority (AMLA), some Member States expressed strong concerns about AMLA’s tasks of overseeing the non-financial sector and raised the fact that powers vis-à-vis the supervisory authorities of self-regulatory bodies could affect the independence of legal professionals, such as lawyers, tax advisers and auditors.

ECON committee adopts its report on the impact of national tax reforms on EU economy

The ECON committee of the European Parliament adopted on Monday 6 December the report on the impact of national tax reforms on the EU economy, drafted by MEP Markus Ferber (EPP, Germany). The final text outlines that if Member States are free to decide on their own tax policies, a certain degree of policy coordination is nevertheless desirable in order to prevent problems such as legal uncertainty, red-tape or risk of double taxation. The report notably supports the future Commission’s proposal for a “Business in Europe: Framework for Income Taxation” (BEFIT), for a Debt Equity Bias Reduction Allowance (DEBRA) and for an EU-wide system for withholding tax relief at source. It also invites the Commission to look into whether some Member States are distorting competition by artificially lowering their effective margin tax rate and stresses the need for a joint understanding of Member States on how to handle tax incentives for research and development.

Thomas Westphal appointed Director-General for ECOFIN in the Council’s General Secretariat

The EU Council appointed on Thursday 9 December Thomas Westphal as the new Director-General for Economic and Financial Affairs (ECOFIN) in its General Secretariat. Mr Westphal is an economist with a long career in Germany’s public administration in the fields of finance, economics and EU policies. He is currently Director-General for European Policy at the German Federal Ministry of Finance and Director at the European Investment Bank. In this new role, he will be in charge, among other things, to assist the Eurogroup meetings of ministers for finance of the euro area Member States and assist the work of the President of the European Council. He will replace Carsten Pillath, who will retire at the end of 2021.