Weekly Tax News - 30 May 2022

May 30, 2022

Commission unveils its plan to help countries confiscate Russian oligarch’s frozen assets

On Wednesday 25 May, the European Commission proposed to add the violation of EU restrictive measures to the list of EU crimes. The Commission also proposed new reinforced rules on asset recovery and confiscation, which will also contribute to the implementation of EU restrictive measures against Russian oligarchs. The proposal however goes beyond Russian oligarchs and extends to all criminal groups. It modernises EU asset recovery rules, among others, by extending the mandate of Asset Recovery Offices to swiftly trace and identify assets of individuals and entities subject to EU restrictive measures. These powers will also apply to criminal assets, including by urgently freezing property when there is a risk that assets could disappear. It also proposes to establish Asset Management Offices in all EU Member States to ensure that frozen property does not lose value, enabling the sale of frozen assets that could easily depreciate or are costly to maintain.

France optimistic an agreement on Pillar II can be reached on 17 June

Meeting on Tuesday 24 May, EU Finance Ministers were supposed to debate the Implementing Directive for Pillar II. But at the last minute, the French Presidency of the Council of the EU reportedly decided to remove the point from the agenda, due to Poland’s persistent disagreement. During the press conference at the end of the Ecofin meeting, the French Finance minister, Bruno Le Maire, said that he is optimistic an agreement could be reached at the next Ecofin meeting – and last one under the French Presidency– on 17 June. He explained that the EU Council is now working on a politically binding link between Pillar I and Pillar II of the OECD agreement, rather than on a legally one, as Poland initially requested. Hopes for an agreement are also rising as Brussels is about to approve the recovery plan of Poland. In the meantime, the European Parliament is keeping pressure on Member States. On 19 May, it adopted its opinion on the Directive and urged the EU Council to reach a deal. On 23 May, Green/EFA MEPs wrote to the European Commission to urge it, in case of failure to agree on 24 May, to re-table the proposal through qualified majority, using article 116 TFEU or article 20 TEU.

OECD Pillar I implementation now expected in 2024

Speaking at the World Economic Forum in Davos on Tuesday 24 May, Mathias Cormann, the OECD Secretary General, reportedly said that the multilateral convention to implement Pillar I of the OECD tax deal will likely be finalized later than planned and that it would come into force in 2024 at the earliest. The deal, brokered in October 2021, was originally set for implementation in 2023. For the multilateral convention to be ready in time, all signatories would now need to be close to a consensus and willing to change their national tax rule books, which is not the case. Mr Cormann admitted this lack of consensus meant that, instead of the full text of the deal being ready by the middle of this year, this is now more likely to be by the end of this year. “We deliberately set a very optimistic timeline for implementation to keep the pressure on and it has helped keep the momentum going. But I suspect it is probably most likely that we will end up with a practical implementation from 2024 onwards”, he reportedly said.

OECD consults on tax certainty aspects of Amount A under Pillar I

The OECD opened on Friday 27 May a public consultation on its proposal for a tax certainty framework for Amount A under Pillar I, which will guarantee certainty for in-scope groups over all aspects of the new rules, including the elimination of double taxation. According to the OECD, this framework would eliminate the risk of uncoordinated compliance activity in potentially every jurisdiction where a group has revenues, as well as a complex and time-consuming process to eliminate the resulting double taxation. It incorporates:

  • a Scope Certainty Review, to provide an out-of-scope Group with certainty that it is not in-scope of rules for Amount A for a Period, removing the risk of unilateral compliance actions,
  • an Advance Certainty Review, to provide certainty over a Group’s methodology for applying specific aspects of the new rules that are specific to Amount A, which will apply for a number of future Periods,
  • a Comprehensive Certainty Review to provide an in-scope Group with binding multilateral certainty over its application of all aspects of the new rules for a Period that has ended, building on the outcomes of any advance certainty applicable for the Period.

Furthermore, in-scope Groups will benefit from dispute prevention and resolution mechanisms to avoid double taxation due to issues related to Amount A, in a mandatory and binding manner. Interested parties are invited to send their written comments no later than 10 June 2022.

Belgo-German colloquium on the global tax reform

The German Federal Ministry of Finance, the Belgian Federal Public Service Finance and the German Embassy in Brussels organized a Belgo-German Colloquium on the OECD/G20 two-pillar solution on Monday 23 May in Brussels. At this occasion, German and Belgian experts discussed which challenges and hurdles does the project still have to overcome and what are the next steps to be taken. On Pillar I, Achim Pross, Head of the International Co-operation and Tax Administration division within the OECD’s Centre for Tax Policy and Administration, outlined the importance of tax certainty. He explained that the OECD is reflecting on a tax certainty framework and is also working on the issue to have sufficient critical mass in the system before it goes live. On Pillar II, Uwe Ihli, Senior expert from DG TAXUD of the European Commission said that the text is now stable in the EU Council, that the technical work is closed and that all that is missing now is a political decision. Harald Pierard from the Belgian FPS Finance said that if the Directive implementing Pillar II is not approved, Belgium will nonetheless transpose and implement these new rules as it engaged itself at OECD to do so. He also specified that Belgium doesn’t intend to lower the threshold to fall in the scope when transposing the Directive and will make use of the option to have a qualified domestic top up tax. The Ministers of Finance of Belgium and Germany, Mr. Vincent Van Peteghem and Mr. Christian Lindner, concluded the event by highlighting the political importance of the new rules.

MEPs want to strengthen the AML Directive

MEPs Paul Tang (S&D, Netherlands) and Luděk Niedermayer (EPP, Czech Republic) have just published their draft report on the proposal for a sixth AML Directive. Among the main changes to the Commission’s proposal, the rapporteurs are proposing that the beneficial owners of real estate and high value assets worth above €1 million should be included in national registers and that these registers should be digitized. They fully support the Commission’s proposal for public oversight of self-regulatory bodies, who are in charge of supervision of specific obliged entities in the non-financial sector, and further detail requirements. They also wish to increase the role of the future AML authority, notably by giving it the power to draft and publish guidelines on the elements to be taken into account by supervisors when assessing suitability of the management and beneficial ownership of certain obliged entities, as well as on the circumstances where conflicts of interest may arise amongst FIU staff members. The co-rapporteurs will present their report in a joint session of Parliament’s LIBE-ECON committee on 2 June. The deadline for amendments is reportedly one week later while the vote in both committees still has to be scheduled after the summer break.

EP starts its work on the UNSHELL Directive

The European Parliament has started its work on the Directive to prevent the misuse of shell entities for tax purposes (UNSHELL), with the recent publication of the draft opinion elaborated by MEP Lídia Pereira (EPP, Portugal). The rapporteur wants to “guarantee a proportionate legal framework that safeguards the situation of small and medium-sized enterprises (SMEs) that use legal structures to promote investments, comply with national laws or operate in different national markets while, at the same time, legislating in concrete, on the misuse of shell entities to avoid taxation”. The rapporteur also wants to get more clarity on the obligations for reporting undertakings and more legal clarity on the minimum substance for tax purposes. Among other things, she suggests lowering to 2,5% instead of 5% of the undertaking’s turnover the penalty for failing to comply with the Directive as well as to apply the new rules in 2025, one year later than what was foreseen by the Commission.

Labour taxation rebounded in most OECD countries in 2021

Effective tax rates on labour rebounded in 2021 as the global economy recovered and many countries began withdrawing or scaling back measures implemented in response to the COVID-19 pandemic, according to a new OECD report published on Tuesday 24 May. This marks a turn-around from 2020, when the pandemic drove significant decreases in the labour tax wedge – defined as the total taxes on labour paid by both employees and employers, minus family benefits, as a percentage of the labour cost to the employer. Between 2020 and 2021, the tax wedge for the single worker increased in 24 of the 38 OECD countries, fell in 12 and remained the same in two, according to the report. The increases exceeded one percentage point in Israel, the United States and Finland, while the declines exceeded one percentage point in Australia, Latvia, Greece and the Czech Republic.

European Commission welcomes the successful implementation of EU VAT rules for e-commerce

In a press release published on Monday 23 May, the European Commission said that an ex-post evaluation of the first months of application of the new value-added tax (VAT) rules for online shopping, which came into force on 1 July last year, point to a successful implementation of the new rules. In the first six months of operation, Member States collected €6.8 billion in VAT revenues via the expanded ‘One Stop Shop’ (OSS) portals, it said. In addition to this €6.8 billion, over €2 billion in VAT revenues was collected on imports of low value consignments not exceeding €150. Of those revenues on low value consignments, more than half – approximately €1.1 billion - was collected via the import OSS. Separately, an estimated additional €270 million in VAT was collected as a direct result of the import OSS’s capacity to counter fraud and VAT losses due to undervaluation, according to the Commission.

MEPs from tax subcommittee travel to Washington DC

MEPs from the subcommittee on tax matters (FISC) of the European Parliament travelled to Washington DC between the 23rd and 25th May to meet legislators, NGOs, businesses, and international organisations. The delegation, led by the Chair of the FISC subcommittee, MEP Paul Tang (S&D, Netherlands) met with representatives of Congress from both Republicans and Democrats. The delegation also met with representatives of Amazon, Meta and Google, tax experts, as well as stakeholders from the private sector and civil society. Discussions focussed on topical international tax issues and challenges, such as the Pandora Papers and the implementation of the two-pillar tax reform agreed by the OECD/G20 Inclusive Framework. “The delegation has made clear that if Pillar One is off the table, digital services taxes are back on the table. Our meetings with big tech companies clearly showed that they dread this scenario”, Paul Tang said in a statement.

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