Weekly Tax News - Monday 11 March 2024

March 11, 2024

On Thursday 29 February, Advocate General Nicholas Emiliou delivered his opinion in case C-623/22 Belgian Association of Tax Lawyers concerning the conformity with EU law and fundamental principles of the DAC6, Directive (EU) 2018/822 on the mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements. Mr Emiliou suggests that the CJEU should answer the questions put by the Belgian Constitutional Court to the effect that the examination of the questions has not revealed any problem affecting the validity of DAC6 and states that the obligation to report any aggressive cross-border tax arrangements to the competent authorities imposed by DAC6 does not represent a serious breach of the principles of Union law. Furthermore, Nicholas Emiliou stated in his conclusions that Member States may only exempt intermediaries from the obligation to report on cross-border reportable arrangements if the reporting obligation breaches the professional secrecy afforded to lawyers and other professionals who are treated in the same way as lawyers in exceptional circumstances and adopts a restrictive interpretation that this exemption cannot be extended to the activities of professionals such as accountants, auditors and tax advisers who are not involved in the administration of justice. However, the conclusions of Advocate General Nicholas Emiliou are not binding on the Court, which will deliver its judgment in the coming months.

European Commission proposes a VAT waiver on EU defence investments

On Tuesday 5 March, the European Commission presented a European Defence Industrial Strategy (EDIS) and a European Defence Industry Programme (EDIP), aimed at strengthening the industrial pillar of the EU’s defence readiness. These new proposals include a VAT waiver for EU defence equipment. The Commission proposed that Member States allow jointly procured and owned defence equipment, technology, or services to benefit from a VAT or excise duty exemption as part of the new Structure for European Armament Programme (SEAP). “A cooperation under this framework should also allow Member States, under certain conditions, to benefit from an increased funding rate, simplified and harmonised procurement procedures, and, where Member States jointly own the procured equipment, a VAT exemption”, the proposal says. Member States would also be able to issue bonds for financing long-term armament programs, according to the proposal. SEAP would be considered an international organization for the purposes of issuing VAT and excise duty waivers and bonds.

Finance Ministers meet in Brussels on 12 March

EU Finance Ministers are set to meet in Brussels on Tuesday 12 March to exchange views on the state of play of the implementation of the Recovery and Resilience Facility (RRF), as well as on the state of play of the economic and financial impact of Russia’s aggression against Ukraine. On this occasion, the Belgian Presidency of the Council of the EU and the European Commission will inform ministers on the main results of the G20 Finance Ministers and Central Bank Governors meeting of 26-29 February 2024. Moreover, the Council will seek to approve its guidelines for the 2025 EU budget and adopt its recommendation on the discharge to be given to the Commission for the implementation of the EU budget for 2022. On the same day, EU Finance Ministers will also take part in a debate with employment and social affairs ministers on social investments and reforms for resilient economies. No tax proposal is on the agenda for the March Ecofin meeting.

Ministerial discussion on the FASTER proposal set for May Ecofin

The Belgian Presidency of the Council of the EU has reportedly decided to postpone until the May Ecofin meeting a ministerial discussion on outstanding issues concerning the Faster and Safer Relief of Excess Withholding Taxes (FASTER) proposal. Member States still need to resolve a few issues, including Member States' self-assessments of their withholding tax relief systems, the carveouts in article 10 and exemptions from Chapter III of the proposal for EU countries with small stock markets and comprehensive relief-at-source systems. Defining small stock markets, who will determine whether Member States’ relief-at-source systems are “comprehensive” as well as carveouts are likely to be major points of discussion. Those outstanding issues will reportedly be further discussed at the technical level by the working party on tax questions on 15 March and 16 April, where the Belgian Presidency is expected to present new compromise texts.

New EU Tax Observatory’s study on the development of tax havens

The EU Tax Observatory published on Tuesday 5 March a new working paper analysing the determinants and consequences of the development of tax havens. The author, Sébastien Laffitte, used for his research a novel database that tracks the creation and development of offshore institutions in 48 tax havens. Building on the idea that tax havens are the suppliers in the market for offshore services, he showed that demand shocks explain why countries become tax havens. He also found that competition shocks explain why tax havens update their regulations. This reaction is facilitated by the diffusion of legal technologies between tax havens. Lastly, the author shows that becoming a tax haven generates GDP per capita gains and sectoral reallocation in countries adopting this status. In return, the tax structure of non-haven countries is affected by the rise of tax havens, resulting in an increased tax burden on labour relative to capital. Recent developments in the regulation of tax havens, such as the OECD-led Common Reporting Standard (CRS) and the two-pillar reform of the international corporate tax system introduced, in his view, substantial negative shocks on tax havens’ rents. According to the paper, these policies may induce tax havens to update their legal architectures, for instance by implementing "high-risk" Citizenship-by-Investment schemes to circumvent the CRS. Consequently, the paper underscores the importance of designing international regulations of tax havens to be robust against legal innovations and their diffusion.

The last meeting of the FISC subcommittee of the European Parliament for the current mandate will take place on Thursday 19 March, from 3:00 pm to 4:30 pm. On this occasion, FISC MEPs will hold an exchange of views with the European Commission, the OECD and the UN on the state of play and the future of European and international tax policies. The hearing will address in particular the recent UN resolution in favour of opening negotiations on a framework convention on international cooperation, which would strengthen the UN's role in international tax policies. MEPs and experts will discuss the future global governance of tax policymaking, including the question of the role of the UN and its cooperation with the OECD, as well as the EU's place within these two fora. The FISC subcommittee will discuss these matters with Manal Corwin (OECD), Gerassimos Thomas (European Commission) and Eamonn Prendergast (Delegation of the EU to the UN).

The OECD is hosting the fourth edition of its “Tax and Development Days” on 12-13 March virtually on Zoom. All members of the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework) and key stakeholders are invited to participate, with all sessions also open to the public, allowing a glimpse into the various international tax-related workstreams undertaken by the Inclusive Framework to date. More specifically, the event will provide an update on some of the OECD's initiatives to strengthen tax capacity and improve tax policy and compliance in developing countries and explore future challenges. The topics include the implementation of the Two-Pillar Solution, new realities of carbon pricing and implications for developing countries, tax transparency, tax morale as well as taxation and inequality. To follow the sessions, register here.

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