Weekly Tax News - 26 September 2022

September 26, 2022

First discussions between Member States on the energy crisis levies

EU Member States started to discuss the two energy crisis levies that the European Commission proposed on 14 September, on the basis of a first compromise text from the Czech Presidency of the Council of the EU. Concerning the limitation of revenues for electricity generators with a cost below the wholesale market price, the Czech document reportedly retains the cap foreseen by the Commission, i.e. €180 EUR/MWh. However, it proposes to allow Member States to set a higher cap for electricity producers that can demonstrate that their current level of costs exceed €180 EUR/MWh. With regard to the temporary solidarity contribution for the fossil fuels industry, the draft compromise maintains the 33% rate foreseen by the Commission. It also adds that Member States should be able to replace this instrument with “equivalent national measures”. The draft compromise was discussed by the Member States’ ambassadors to the EU on Wednesday 21 September, with a view to reaching a political agreement on 30 September at the extraordinary meeting of EU energy ministers. The European Commission is also reportedly planning to submit a communication to Member States outlining new measures to tackle soaring energy this week, in particular addressing the capping of gas prices, the security of the EU’s energy supply and the liquidity of electricity futures markets.

Tax policy plays a key role in responding to the energy price shock, the OECD says

Tax policy is playing a critical role as countries seek to promote economic recovery from the COVID-19 pandemic and respond to the impact of rapid increases in energy prices, according to a new OECD report published on Wednesday 21 September. The report tracks tax policy developments over time and gives an overview of the latest tax reform trends. Among other things, it finds that tax reforms - notably reductions in taxes on labour and more generous corporate tax incentives - have been among the key policy tools that countries have used to stimulate growth and promote economic recovery from the pandemic. As energy prices rose steeply from the second half of 2021, countries moved quickly to shield households and businesses by providing temporary fiscal support - including tax cuts - and by tapering existing stimulus measures that could add to inflation. Personal income taxes and social security contributions were reduced in 2021 in almost all countries covered in the report, with most reductions targeted at lower-income households to support employment and provide in-work benefits. The most significant VAT reforms focused on the digital economy and e-commerce, including strong growth in e-invoicing and digital reporting requirements, the report explains.

ICRICT issues a tax plan to counter inflation

In a declaration published on Tuesday 20 September, the Independent Commission for the Reform of International Corporate Taxation (ICRICT) called on governments to implement emergency tax measures to combat the current crisis and inflation. In particular, it recommends to tax windfall profits of companies that are benefiting from the crisis and the pandemic, including but not limited to the energy sector, as well as to impose a surtax on firms that raise their prices well above costs. ICRICT also criticises the OECD agreement’s lack of ambition on minimum corporate taxation. “Rather than waiting for the OECD/G20 Inclusive Framework “global tax deal” to get out of its political impasse, countries should introduce measures to tax large corporations engaged in cross-border and highly digitalized activities”, it says. It suggests alternative measures for developing countries, such as progressive digital services taxes and the revision of tax policies and treaties.

Work programme of the Code of Conduct Group under the Czech Presidency

Under the Czech Presidency of the Council of the EU, the Code of Conduct Group on Business Taxation will monitor developments in administrative practices of Member States, continue the review of the tax measures notified by Member States under the standstill and rollback process and continue the monitoring of actual effects of some regimes for which regular monitoring was decided, according to a work programme published on Thursday 22 September. The Group will continue the work at technical level to evaluate possible impacts of the international agreement that was reached on a minimum effective taxation on its work, including on the EU listing criteria. It will also continue working with a view to advancing on the reform of the Code of conduct, it says. The next revision of the EU list of non-cooperative jurisdictions for tax purposes is foreseen for the October Ecofin Council.

MEPs urge Ireland to move forward on Pillar II

A delegation of MEPs from the European Parliament’s subcommittee on tax matters (FISC) was in Dublin on 19 and 20 September to meet with representatives of key institutions as well as stakeholders from the private sector including Apple, Google, Microsoft and Meta. The discussions allowed MEPs to gather information about the tax climate in Ireland, as well as press the authorities on the need to undertake important tax reforms, they explained in a press release. At the end of the visit the chair of the FISC subcommittee, MEP Paul Tang said: “It’s good to hear that Ireland remains fully committed to implementing the agreement on a global tax reform. However, the veto of Hungary should not prevent us to move forward. We urge the Irish government to join the coalition of Member States that are ready to move forward”.

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