Weekly Tax News – 11 July 2022

European Commission’s public consultation on aggressive tax planning enablers

The European Commission launched on Wednesday 6 July its public consultation on a proposal for a Directive to tackle the role of enablers that facilitate tax evasion and aggressive tax planning in the European Union. The initiative will be called “SAFE” for Securing the Activity Framework of Enablers. The Commission is testing four options vis-a-vis the public: - a Code of conduct that would prohibit the enablers who design, market, organise or assists in the creation of tax evasion and aggressive tax planning schemes without any complementary mandatory measures; - an EU register of enablers and the obligation to register; - due diligence procedures to perform a self-assessment test to demonstrate that the tax schemes do not lead to tax evasion or aggressive tax planning; and - a new reporting requirement for EU taxpayers of participation above 25% of shares, voting rights, ownership interest, bearer shareholdings or control via other means in a non-listed company outside the EU. It also asks if monetary penalties would be an adequate means to appropriately sanction enablers. The Commission now plans to present this proposal in the first quarter of 2023 and not in 2022, as previously announced. Stakeholders have until 12 October 2022 to send their comments to the European Commission.


The Czech Presidency tax agenda

On tax matters, the Czech Republic, which took over the rotating Presidency of the Council of the EU on 1 July, is expected to have modest ambitions according to a draft agenda. By December, it aims at progressing on the UNSHELL Directive to fight the misuse of shell companies, on the recast of the Energy taxation Directive as well as on the recent debt-equity bias reduction allowance (DEBRA) but without promising to get a deal on those files. It however hopes to strike a deal with the European Parliament on the Carbon Border Adjustment Mechanism (CBAM) as well as to reach a general approach among Member States on the new AML regulation and directive. Finally, the Czech Presidency will also have the difficult task to resume negotiations with Hungary who vetoed the adoption of the Directive implementing the minimum taxation of multinationals in the EU (Pillar II). The Pillar I of the agreement, which concerns the reallocation of taxing rights, will be discussed in December if an agreement is reached at OECD level.


MEPs support alternative solutions to implement Pillar II in the EU

On Wednesday 6 July, MEPs adopted a resolution which calls on Hungary to “immediately end its blockage” on the implementing Directive for Pillar II and asks the European Commission and Member States “not to engage in political bargaining” and to “refrain from approving Hungary’s national recovery and resilience plan unless all the criteria are fully complied with”. If Hungary persists with its veto, MEPs say alternative options should be explored to honour the EU’s commitments, including the possible use of the enhanced cooperation mechanism. MEPs also remind Member States that unanimity decision making in the EU requires a “very high level of responsibility, in line with the principle of sincere cooperation”. For the longer term, they strongly recommend to Member States to consider the benefit of transitioning from unanimity to qualified majority voting on tax matters.


Taxing windfall profits of energy companies does not make unanimity in the EP

On Wednesday 6 July, MEPs discussed with the Commission and Council during the European Parliament’s plenary session the idea of taxing the windfall profits being currently made by energy companies. A windfall tax is a tax applied to companies that generate a significant increase in their earnings due to circumstances or events for which they are not responsible. Some EU countries have recently already levied this type of tax such as Italy and Romania. The Commission in March also proposed that Member States impose this tax. In a resolution adopted in May, MEPs also called for such a tax in principle. During the debate, while several MEPs reportedly called for the introduction of taxing windfall profits of energy companies, others highlighted a structural problem and criticized the European energy policy. The Czech Presidency of the EU Council reportedly said that taxing windfall profits of energy companies is indeed among the tax measures that could be considered in a context where both households and companies are suffering greatly.


Interinstitutional negotiations on CBAM to start on 11 July

Negotiators from the Council of the EU and the European Parliament are reportedly due to meet on Monday 11 July to start interinstitutional negotiations (so-called ‘trilogues’) on the creation of an ‘EU Carbon Border Adjustment Mechanism’ (CBAM). The objective of the Commission's proposal for a CBAM is to prevent that the emissions reduction efforts of the EU are offset by increasing emissions outside its borders through relocation of production to non-EU countries (where policies applied to fight climate change are less ambitious than those of the EU) or increased imports of carbon-intensive products. The European Parliament recently adopted its position on this file on 22 June while the Council of the EU did it already in March.