Weekly Tax News - Monday 10 June 2024

June 10, 2024

The election of members of the European Parliament for 2024-2029 took place from Wednesday 6 June to Sunday 9 June across EU Member States. Based on the latest available provisional or final national results published by the European Parliament on Monday 10 June at 09:38 CET, the provisional composition of the new European Parliament is as follow: European People's Party (EPP): 184; Socialists and Democrats (S&D): 139; Renew Europe: 79; European Conservatives and Reformists (ECR): 73;  Identity and Democracy (ID): 58; Greens/EFA: 52;  The Left: 36; Non-attached Members: 45; Newly elected Members not allied to any of the political groups set up in the outgoing Parliament: 54. The EPP emerged stronger than before and will now account for 25,56% of the seats while the S&D group has consolidated its position as second largest European political family. As predicted in the polls, Renew Europe has lost a significant number of seats (-23) but could just manage to retain its third place while ECR is set to become the fourth political force and ID the fifth. Ranked sixth, the Greens/EFA group also lost a significant number of seats (-19) while the Left lost only one seat. Preliminary figures suggest an estimated turnout across the EU of 51%. The projection of Parliament's composition is based on the structure of the outgoing Parliament and its political groups, without prejudice to the final composition of the next Parliament at its constitutive session, which will take place from 16 to 19 July and where MEPs will elect their President and Vice-Presidents. Newly elected MEPs will now have to undergo a verification of their eligibility, namely that they do not hold another office that is incompatible with membership of the European Parliament. The constitution of political groups will also start. The results will continue to be updated and published here, where you will also find the breakdown country-by-country.

European Commission prepares an evaluation of the ATAD Directive

The European Commission informed on Monday 3 June stakeholders that it is preparing an evaluation of the 2016 Anti-Tax Avoidance Directive (ATAD), which lays down minimum standard rules to address the most common forms of aggressive tax planning and tax avoidance practices that directly affect the functioning of the internal market. The evaluation is foreseen by the Directive itself and the results are expected for the third quarter 2025. In the context of the Commission’s work on rationalising EU reporting requirements, ETAF argued that with the introduction of Pillar Two, most of the information required by the 2016 ATAD should be waived for multinational companies meeting Pillar Two thresholds in order to avoid duplication. In particular, the relation between Pillar Two and the ATAD CFC rule should be clarified in our view as they both pursue the same objective, i.e. to prevent profit shifting in low-tax countries, and they overlap in their scope of application. A closer look should also be given to the evidence to be provided in accordance with the anti-hybrid mismatches rules set out in ATAD1 and ATAD2.

European Commission announces New Platform for Tax Good Governance

The European Commission announced on Friday 7 June that it has decided to continue the work of its Platform for Tax Good Governance in the form of a new expert group. Since its establishment in 2013, the Platform for Tax Good Governance brings together non-government and government stakeholders and creates a framework for consultation and exchange of views. It allows for a dialogue in the field of tax good governance and other related areas, for instance on cross-border taxation, aggressive tax planning, double taxation, and double non-taxation. The current mandate is coming to an end on 17 June 2024. The new Platform will continue the work with revised tasks to reflect on the developments in tax transparency and the fair taxation agenda, the Commission said. The group will be composed of representatives of the Member States tax authorities, business associations, CSOs, and academia. The call for applications for interested non-governmental organisations will soon be published here.

European Commission attempts to relaunch UNSHELL negotiations with a new approach

The European Commission will reportedly discuss with Member States a new approach for its proposal of Directive on the misuse of the shell entities (UNSHELL) during a meeting of the High-Level working party on tax questions on Tuesday 11 June. The new approach reportedly no longer includes an economic substance test and would limit reporting obligations to entities that present a high risk of being used in abusive tax schemes. The proposal would still include risk hallmarks under which entities should self-assess. If four of the hallmarks are met or if the hallmark related to the managing person, which includes not being resident for tax purposes in the Member State of the entity and two other hallmarks are met, the entity would be considered high risk. A high-risk entity would then have to report to authorities the hallmarks it met and information about its shareholders and beneficial owners. The new approach also reportedly no longer includes common tax consequences. Instead, it would create an obligation for Member States to use the exchanged information and take administrative measures, such as tax audits, to identify possible abuse schemes and apply their national anti-abuse rules accordingly.

On Wednesday 5 June during a Bruegel event, a High-Level panel of tax experts composed of Gerassimos Thomas, Director-General for DG TAXUD of the European Commission, Fabrizia Lapecorella, Deputy Secretary General of the OECD, Pascal Saint-Amans, Non-resident fellow at Bruegel and Edwin Visser, Partner at PwC discussed how the EU can improve tax efficiency and establish new resources amid pressures for competitiveness, tax fairness, and green transition. Speakers gave their opinion on the adjusted package of new EU own resources, put forward by the Commission in 2021 and 2023. In 2021, the Commission proposed three sources of revenue: - one based on revenues from the Emission Trading System (ETS), one drawing on the resources generated by the EU Carbon Border Adjustment Mechanism (CBAM) and one based on the OECD/G20 Pillar One agreement. In 2023, the Commission proposed some adjustments to the own resources proposals based on the ETS and CBAM, as well as a new temporary statistical own resource based on company profits until there is an agreement on the BEFIT proposal. In this regard, Mr Saint-Amans regretted that the Commission did not look at Pillar Two as a possible candidate. Mr Thomas replied that Pillar Two was considered as a one-off adjustment while the Commission was looking for more stable own resources. He further added that the Commission has “other ideas” for new own resources that could be launched in the context of the next round of EU multiannual financial framework (MFF) process. Speakers reviewed the list of possible EU own resources candidates ranging from wealth taxation, aviation and shipping taxation to exit taxes. Several speakers also noted that the implementation of Pillar Two is an opportunity to simplify the tax system, evaluate the possible duplications or overlap with existing tax rules in the EU and put forward more taxpayers’ friendly tax regulations. The event can be watched again here.

On Thursday 6 June, the EU Tax Observatory published a new report, drafted by Giulia Aliprandi and Kane Borders, on advancing corporate tax transparency via Country-by-Country Reporting (CbCR). The two researchers collected the publicly available CbCR reports and compiled them into a single database, which shows that large multinationals, particularly from Western Europe, are leading the way as primary publishers of such reports. However, the large multinationals publishing public CbCR account for less than 2% of large companies, and significant gaps remain, as US multinationals and firms from major economies like China and Russia have only a few CbCR disclosures available, the researchers found. The report points out that an important step in advancing corporate tax transparency is the entry into force early 2024 of the EU mandatory CbCR Directive, which will make it compulsory not only for European multinationals to publish their CbCR but also for foreign multinationals. The report notably estimates that nearly one third of large US MNEs will be compelled to publish more disaggregated financial information than ever before publicly available. However, the directive has serious limitations, according to the two researchers, who suggest a series of improvement. They notably argue in favour of a full country-by-country disclosure, an extension of the information to be disclosed to include as a minimum the variables required by the OECD standard, the extension of the personal scope to include all non-EU domiciled MNEs with an EU representation regardless of their size, the creation of a central repository across Member States and the removal of the “safeguard clause”, which currently grants firms some discretion in determining whether specific information is deemed harmful, thereby permitting the temporary omission of such information from the CbC reports.

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

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