Weekly Tax News - Monday 10 July 2023

July 10, 2023

European Commission publishes its Annual Report on Taxation

The European Commission published on Monday 3 July its Annual Report on Taxation 2023, which assesses the recent trends in EU tax systems and identifies how tax policy, implementation or compliance could be improved. It shows that, in 2021, tax revenue in absolute terms accounted for 40.6 % of gross domestic product (GDP) across the EU, 0.6 percentage points more than in 2020. The report shows that the EU relies heavily on labour taxation which, accounts for more than half of all tax revenues in the EU-27 in any given year. VAT is also a significant source of revenue, having increased from 6.9 % of GDP in 2020 to 7.4 % of GDP 2021. Revenues from corporate income tax as a share of GDP increased from about 2.4 % in 2020 to 3 % in 2021. Environmental taxes remained unchanged at 2.2 % of GDP in the EU in both 2020 and 2021. The 2023 report is centred around a discussion and analysis of the tax mix and of how to re-design the tax systems in the light of structural changes, such as demographic change, digitalisation, globalisation, inequalities, climate change and environmental degradation. On the same day, the DG TAXUD of the European Commission presented its report during an online event.

European Commission takes stock of the progress made on Pillar One

In a report published on Friday 30 June, the European Commission welcomed the progress made so far and urged all participants to make a final effort to reach an agreement on the Multilateral Convention (MLC) on the reallocation of taxing rights (so-called OECD Pillar One). In particular, the report notes that the rules on Amount A that already appear as agreeable to the members of the Task Force on the Digital Economy (TFDE) are being translated into provisions for inclusion in the MLC and an Explanatory Statement by the OECD Secretariat. Still, the technical work of the TFDE is not finished yet and several meetings have been scheduled in the upcoming weeks to discuss and agree on several topics: - the elimination of double taxation; the marketing and distribution safe harbour and the treatment of withholding taxes; - the standstill and rollback of digital services taxes and other relevant similar unilateral measures; - the implementation of an autonomous domestic business exemption and the carve-out for defensive revenues; - as well as the condition of entry into force. The OECD Secretariat aims to finalise the technical work by 10-12 July 2023 and present the package of the MLC and the Explanatory Statement. Still, the signing ceremony of the MLC is expected to take place at the end of 2023. The OECD Secretariat also plans to have a preliminary agreement in July on the main components of Amount B subjected to a validation phase to be undertaken by the end of 2023. The Commission stressed that it will do its utmost to ensure a timely and consistent implementation of Pillar One at EU level.

European Commission’s call for evidence on new measures to reinforce administrative cooperation in the field of VAT

The European Commission published on Thursday 6 July a call for evidence for a new Proposal for an amendment to Council Regulation (EU) No 904/2010 of 7 October 2010 on administrative cooperation and combating fraud in the field of VAT, to be presented in Q2 2024. The Commission explains that an evaluation of the Regulation is currently ongoing and that, so far, the initial findings show that VAT fraud and collecting non-payment of VAT remain significant problems, particularly cross-border VAT fraud. The Commission also considers that the current rules don’t make the most of digital solutions and that some modernisation is necessary. In particular, the Commission wants to strengthen the cooperation of tax administrations with Eurofisc, Europol, the European Anti-Fraud Office (OLAF, and the European Public Prosecutor’s Office (EPPO), as well as the cooperation between these agencies themselves. It will also explore introducing quick-reaction systems to deal with VAT identification numbers that may be used in cross-border VAT fraud, strengthening the enforced collection of VAT that remains unpaid under the One Stop Shop and Import One Stop Shop as well as transferring VAT refund amounts to another Member State when there is double taxation, unpaid VAT or other tax debts. Interested stakeholders have until 3 August to give a feedback to the Commission on its call for evidence.

The Spanish presidency’s tax ambition

The Spanish Presidency of the Council of the EU began on Saturday 1 July. It has now published its agenda of meetings and full programme, where it says that it will “expedite files regarding corporate, indirect and customs taxation with the aim of streamlining the burden for individuals and companies, and to combat tax evasion and avoidance”. During the semester that runs until 31 December, the Spanish Presidency will start the work on the Business in Europe: Framework for Income Taxation (BEFIT), expected to be published on 12 September. The Presidency foresees a first policy debate on this proposal at the 17 October Ecofin meeting. It will also resume work on the Directive laying down rules to prevent the misuse of shell entities (UNSHELL), with the aim to reach an agreement at the Ecofin council on 9 November. An agreement on UNSHELL would reportedly allow the European Commission to present its SAFE proposal on aggressive tax planning. The Spanish presidency also aims at reaching an agreement on the VAT in the Digital Age package (ViDA), presented in December 2022. On the recent proposal for a new framework for “Faster and Safer Relief of Excess Withholding Taxes” (FASTER) and the adjusted package of new own resources, the Spanish Presidency only foresees a progress report.

MEPs analyse the role of tax policy in time of crisis

The ECON committee's own initiative draft report on the role of tax policy in times of crisis has been published recently. Drafted by MEP Kira Marie Peter-Hansen (Greens/EFA, Denmark), it focuses on the strongest negative effects that the COVID-19 crisis has had on societies in the EU and on which solutions to these effects can be found in a more solid and just taxation system. “While not everything can be fixed via tax reforms, a well-functioning and well-designed tax system can ensure healthy societies where income and wealth are fairly redistributed, work is valued in a carbon-free economy, explicit and implicit gender biases are tackled and governments have the means to respond to our common challenges”, Ms Peter-Hansen writes. The report notably proposes the establishment of: - a permanent excess profit tax on all sectors, in light of the growing evidence that inflation is in part profit driven; - an EU-wide prohibitive tax on private jets to account for high levels of carbon-dioxide emissions; - a carbon tax ensuring the 'polluters pay' principle; - a progressive wealth tax, similar to the OECD/G20 global tax deal for corporations. The vote in the ECON committee on the report is scheduled for 24 October and the vote in plenary for 11 December 2023.

New EU Tax Observatory’s note on the new own resource on corporate profits

The EU Tax Observatory analysed the perimeter and provided country-by-country revenue estimates for the newly-proposed temporary statistical based own resource on company profits, in a working paper published on Tuesday 4 July. The proposed company profit contribution would correspond to a 0.5% call rate on a “statistical proxy” of corporate profits in national accounts, that is the gross operating surplus as defined in the European System of Accounts 2010 for financial and non-financial corporations. The working paper scored the proposed temporary company profit contribution both good in terms of revenue potential and simplicity and full in terms of fast mobilization. The projected total revenues using 2021 data range from 3.5bn€ to 17.7bn€ depending on the rate used. Unsurprisingly, Member States with the largest economy will be the biggest contributors in absolute terms (Germany, France, Italy and Spain), the authors found. In relative terms however, Member States with a larger share of corporate profits out of their total tax revenues will be the biggest contributors (Ireland and Luxembourg for instance).

HKPS joins ETAF as observer member

The Croatian Chamber of Tax Advisers (HKPS) became member of the European Tax Adviser Federation (ETAF) on 1 July 2023. All ETAF members are delighted about this decision and looking forward to a constructive and fruitful collaboration with HKPS. HKPS, which was founded in Zagreb in November 2011, meets all the ETAF admission requirements, including that the tax profession is regulated by law. The decision to accept the application of HKPS as an observer member was taken unanimously on 28 June 2023 during the ETAF General Assembly in Brussels. On this occasion, delegates to the General Assembly were happy to welcome the President of HKPS, Damir Brajković, as a guest.

ETAF is a registered organisation in the EU Transparency Register, with the register identification number 760084520382-92.

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