Weekly Tax News - Monday 11 December 2023

December 11, 2023

The Belgian Presidency of the Council of the EU, which is due to take place between 1 January and 30 June 2024, published on Friday 8 December its priorities and programme. The thirteenth Belgian Presidency will be structured around six priorities: - Defending rule of law, democracy, and unity; - Strengthening our competitiveness; - Pursuing a green and just transition; - Reinforcing our social and health agenda; - Protecting people and borders; - Promoting a global Europe. The Presidency notably says it will work on narrowing the VAT gap and on revising legislation related to the Customs Code as well as taxation rules for cross-border teleworking. As the Belgian presidency will straddle the close of one European parliamentary term and the start of another, it will work to finalise major outstanding files while also stimulating discussion on the economic state of the Union and its future, it states.

Results of ECOFIN meeting 8 December

On Friday 8 December, EU Finance Ministers met in Brussels to discuss, among several topics, the reform of the Stability and Growth Pact, the adjusted package for the next generation of own resources presented in June 2023 and the digital euro. In the area of taxation, the Ecofin Council approved its traditional report to the European Council on tax issues, which outlines the progresses made by the Spanish Presidency during the last six months. It also took note of a progress report on the VAT in the Digital Age (ViDA) package. Finally, EU Finance Ministers also approved conclusions on the progress achieved by the Code of Conduct Group under the Spanish Presidency.

Deal on updated EU Court of Justice statute

On Thursday 7 December, MEPs of the Legal Affairs Committee and EU Member States found an agreement on the reform of the Court of Justice of the European Union (CJEU) to improve effectiveness of the workload management. Given the rising number of requests for a preliminary ruling brought before the Court of Justice and of appeals against the decisions of the General Court, the Court of Justice submitted a request for amending the Protocol No 3 on its Statute in December 2022. According to the provisional agreement, requests for preliminary rulings in specific areas such as common VAT system, excise duties, Customs Code, compensation for passengers for delayed or cancelled transport services or scheme for greenhouse gas emission allowance trading should now be transferred from the Court of Justice to the General Court. This should alleviate the Court of Justice of some of the workload, since requests in those areas represent on average 20% of all requests, according to co-legislators. The most sensitive and complex cases regarding interpretation of the primary law will continue to be heard by the Court of Justice. The reform proposal also allows for the extension of the mechanism determining whether an appeal is allowed to proceed. Moreover, a broader public access to some of the documents held by the Court of Justice will be ensured, such as written observations by the parties in the case. Finally, in case of a new request for preliminary ruling, the European Parliament, the Council and the European Central Bank will from now on be always entitled to submit statements or written observations to the Court. Once formally approved by the whole European Parliament in plenary and the Member States, the updated statute will enter into force in the month following its publication in the Official Journal.

Tax rulings granted by Luxembourg to Engie comply with EU law, CJEU says

In a judgment issued on Tuesday 5 December, the Court of Justice of the European Union (CJEU) decided to annul the judgment of the General Court of May 2021, which confirmed the 2018 European Commission’s decision that the tax rulings granted by Luxembourg to Engie in 2008 and 2014 were State aid that was incompatible with the internal market. In its decision, the CJEU considers that the Commission's examination was contrary to European law and that an error had been made in determining the reference system constituting the starting point for the comparative examination to be carried out in order to assess the selectivity of these tax measures and therefore their classification as prohibited State aid. It also considers that the General Court wrongly accepted the Commission's conclusion as to the existence of such a conditional link between the two tax treatments in the case. Similarly, the Court of First Instance erred in holding that the Commission was not obliged to take into account the administrative practice of the Luxembourg tax authorities in relation to a national provision on abuse of rights, the CJEU says. These errors tainted the whole selectivity analysis, the CJEU concluded. For this reason, it decided to follow the recommendation made in May by Advocate General Juliane Kokott to annul the Commission’s decision.

New EP study on the signalling role of FDI data in the fight against tax avoidance

At the request of the subcommittee on tax matters (FISC), the European Parliament’s Policy Department for Economic, Scientific and Quality of Life Policies recently published a report entitled "Good tax practices in the fight against tax avoidance: The signalling role of FDI data". The report examines the role of Foreign Direct Investment (FDI) in tax havens. Because FDI and foreign affiliates of multinational firms in low-tax jurisdictions could provide these firms opportunities to lower their tax burden, FDI and international corporate tax avoidance are closely related, the report says. The statistics on FDI stocks reveal whether Member States have normal or abnormal FDI patterns. The anomalies are a starting point for further analysis to possible preferential or even harmful tax arrangements in these countries, it further points out. The report finds that global FDI stock to GDP ratio increased from 36% to 45% between 2009 and 2017, suggesting an increase in globalisation, but could also provide more opportunities for international tax avoidance. The financial centres Hong Kong, Ireland, Luxembourg, Netherlands, Singapore and Switzerland are responsible for about 90% of the FDI stocks in all tax havens. The report also explores possible new European policies that could reduce the conduit function of European tax havens. It particularly mentions the benefits of the UNSHELL and BEFIT proposals. The possibility of minimum withholding tax rates for dividend, interest, and royalty flows at the external border of the EU would also reduce the use of tax treaty shopping strategies by multinationals and curb the conduit function of EU tax havens, researchers find.

A study commissioned by the European Parliament's Socialists and Democrats group in the European Parliament, published on Tuesday 5 December, makes a proposal for an EU single market levy (SML) on multinational groups to finance the EU budget. In the authors’ view, the scope of the SML should be consistent with previous EU legislation, namely the mandatory automatic exchange of country-by-country reports in the Administrative Cooperation Directive and the Pillar Two Directive on a minimum level of effective taxation. The SML should target multinational groups operating in the EU Member States and thus benefiting from the internal market with revenues of at least €750 million in at least two of the four fiscal years immediately preceding the fiscal year, they say.  The SML should be designed as a surcharge on the EU-harmonised taxable base. In other words, the Union would levy a surcharge in areas where the Union has already exercised the competence to harmonise the taxable base, the study explains. According to the report, such a levy could raise between €4 and €10 billion a year.

On the occasion of COP28, Antigua and Barbuda, Barbados, Spain, France, Kenya, the African Union Commission and the European Commission as an observer reportedly launched a new task force on international taxation on Friday 1 December. Supported by the European Climate Foundation, the group is to examine new sources of revenue that could unlock additional funding for action in favour of development, nature and the climate, in particular through innovative tax mechanisms. Its aim will be to identify the most promising avenues and put forward concrete proposals at COP30. The task force will meet for the first time in early 2024, to appoint supporting experts and define its work plan. 

High energy prices triggered by Russia’s war of aggression against Ukraine prompted governments to reduce excise taxes during 2022, leading to lower tax levels in many countries, according to a new OECD analysis published on Wednesday 6 December. The report shows that the average tax-to-GDP ratio in the OECD fell by 0.15 percentage points (p.p) in 2022, to 34.0%. This was only the third such decline since the Global Financial Crisis in 2008-09, the OECD says. Revenues from excise taxes fell as a share of GDP in 2022 in 34 of the 36 countries for which preliminary data is available, declining in absolute terms in 21 of these. In some countries, notably in Europe, these declines were related to reductions in energy taxes as well as lower demand for energy products. Revenues from value-added tax (VAT) also declined as a share of GDP in 19 countries, in part due to policies to cushion consumers against high prices for energy and food. The decline in revenues from excise taxes in 2022 was partly offset by increases in revenues from corporate income taxes (CIT), which rose as a share of GDP in more than three-quarters of OECD countries amid higher corporate profits, especially in the energy and agricultural sectors. Overall tax revenues declined as a share of GDP in 21 of the 36 countries in 2022, increased in 14 countries and remained at the same level in one, the OECD finds.

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