Weekly Tax News - 3 October 2022

October 3, 2022

New EU sanctions against Russia

The European Commission announced on Wednesday 28 September a new package of sanctions against Russia, in response to Russian President Vladimir Putin’s recent announcement to mobilise 300,000 reservists. In a press statement, the president of the European Commission, Ursula von der Leyen, cited three new categories of sanctions: - the registration of new individuals and entities participating in or benefiting from the war; - additional trade restrictions worth “€7 billion”; - the creation of a “legal basis” for a cap on the international price of Russian oil and oil products in the EU. These measures still have to be agreed by Member States.

Agreement on the energy crisis package

On Friday 30 September, EU Energy Ministers agreed on the package of emergency measures to tackle the energy crisis, that was presented on 14 September. On the temporary mandatory solidarity contribution for the fossil fuel sector, Member States agreed on several changes compared to the initial text from the Commission, in particular to allow them to maintain their enacted equivalent national measures, to choose whether they want to apply it to the year 2022 and/or to 2023 and to provide flexibility on the use of its proceeds. According to the new text, the fossil fuel and refinery companies not already subject to a similar national tax will be required to pay a minimum 33% tax on profits which are above a 20% increase of the average yearly taxable profits of the last four years (2018 – 2021). The measure is set to expire in December 2023 but could be extended by the Commission. The text will be formally adopted by written procedure in early October.

Commissioner Gentiloni quizzed by MEPs on upcoming tax files

On Monday 26 September, EU Commissioner for Taxation Paolo Gentiloni discussed with MEPs of the ECON committee of the European Parliament upcoming priorities of the Commission in the area of taxation. They discussed in particular the EU implementation of the OECD's Pillar I and Pillar II tax reform. On Pillar II, Mr Gentiloni assured that the Commission remains fully committed to pressing ahead and that it will not give up until the blockade of Hungary can be overcome. The Commission will use “all the political and legal means” at its disposal, he said. On Pillar I, the Commission stands ready to present a proposal as soon as the work at international level is sufficiently mature, he said. Paolo Gentiloni also briefly mentioned several other initiatives to come: - a new modern and simpler framework for business taxation in the EU (BEFIT); - an initiative to address the role of enablers facilitating tax evasion and aggressive tax planning through the use of complex structures in third countries (SAFE); - the VAT in the digital age package ; - the revision of the tobacco taxation directive and ; - the revision of the directive on the exchange of tax information (DAC8). Finally, he regretted the freezing of the discussions until March next year on the Energy Taxation Directive and hoped that this freezing can be overcome.

Three jurisdictions to be added to the EU blacklist of tax havens

The Bahamas, Anguilla and the Turks and Caicos Islands are reportedly expected to be added to the EU blacklist of non-cooperative jurisdictions for tax purposes during the Ecofin Council meeting on Tuesday 4 October. All three countries were already on the EU’s ‘grey’ list of third countries and jurisdictions with commitments in this area. The EU criticised these countries for their lack of transparency, the existence of tax regimes that facilitate the creation of offshore structures and/or a failure to prevent tax base erosion and profit shifting. They are expected to join American Samoa, Fiji, Guam, Palau, Panama, Samoa, Trinidad and Tobago, the US Virgin Islands and Vanuatu on the EU blacklist, bringing the number of countries on the list to twelve. Turkey and Russia are expected to stay on the grey list.

Commission refers Belgium to the ECJ for non-transposition of the EU rules on the proportionality of new regulation of professions

On Thursday 29 September, the European Commission decided to refer Belgium to the Court of Justice of the European Union, with a proposal to impose financial sanctions, over the failure to transpose the Directive on a proportionality test for assessing new regulations of professions before their adoption (Directive 2018/958/EU). The Directive, adopted in 2018, requires Member States to assess the proportionality of any new regulation of professions on the basis of a common set of criteria, before the adoption of that regulation. Member States had until 30 July 2020 to transpose it. In the absence of adoption of the relevant national rules, the Commission sent a letter of formal notice to Belgium in October 2020, followed by a reasoned opinion on 12 November 2021. To date, Belgium has failed to fully transpose and communicate the measures implementing the Directive, the Commission said. “Making sure that national rules on professions are justified and proportionate is essential to facilitate professionals from across the EU to access these professions, while also creating benefits for consumers and citizens who use their services”, it wrote in a press release.

Germany requested to bring its rules on calculating allowances for cross-border workers in line with EU law

On Thursday 29 September, the European Commission decided to send a letter of formal notice to Germany in relation to the calculation method of work and sickness allowances and unemployment benefits, which appears to disadvantage workers employed in Germany but resident in a neighbouring country, it said. Under German law these allowances are calculated on a net income basis. However, some bilateral conventions on the prevention of double taxation between Germany and its neighbours attribute the taxing rights over such allowances exclusively to the neighbouring Member States where those workers reside. In those cases, the net wage calculation method results in less favourable treatment of frontier workers working in Germany but residing in other Member States in comparison to German resident workers, the Commission explained. For this reason, it considers that the German “net-income” calculation method has an adverse effect on cross-border workers exercising the freedoms conferred upon them in Article 45 TFEU and in Regulation (EU) No 492/2011 on freedom of movement for workers within the Union. Germany now has two months to address the concerns raised by the Commission. Otherwise, the Commission may decide to go to the second step of the infringement proceeding.

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