European Commission releases its BEFIT proposal
The European Commission released on Tuesday 12 September 2023 its so-called Business in Europe: Framework for Income Taxation (BEFIT) proposal. The aim of this proposal is to reduce compliance costs for large businesses which operate in more than one Member State and make it easier for national tax authorities to detect which taxes are rightly due. This shall be achieved by an introduction of a new, single set of rules helping to determine the tax base of groups of companies. It specifically means:
1. companies which are members of the same group will calculate their tax base in accordance with a common set of rules
2. the tax bases of all members of the group will be aggregated into one single tax base
3. each member of the BEFIT group will have a percentage of the aggregated tax base calculated on the basis of the average of the taxable results in the previous three fiscal years
The proposal builds on the OECD/G20 international tax agreement on a global minimum level of taxation, and the Pillar Two Directive adopted at the end of 2022. The proposed rules would be mandatory for groups operating in the EU with an annual combined revenue of at least €750 million, and where the ultimate parent entity holds at least 75% of the ownership rights or of the rights giving entitlement to profit. The rules would be discretionary for smaller groups, which may choose to opt in as long as they prepare consolidated financial statements. In case the proposal gets adopted by the Council, it should come into force on 1 July 2028.
European Commission unveils SME Relief Package
On 12 September 2023 the European Commission published the SME Relief Package consisting of a Regulation on late payments in commercial transactions and a Directive establishing a Head Office Tax System for SMEs (HOT). The Late Payment Regulation aims to tackle payment delays which compromise the cashflow of SMEs and hamper the competitiveness and resilience of supply chains. The new rules would repeal the 2011 Late Payment Directive and would replace it with a regulation. The proposal introduces a stricter maximum payment limit of 30 days, eliminates ambiguities and addresses the legal gaps in the current Directive. The proposed text also aims to ensure an automatic payment of accrued interest and compensation fees and introduces new enforcement and redress measures to protect companies against late payments. The advantage of the HOT proposal shall be that SMEs who operate cross-border through permanent establishments have to interact only with one tax administration, namely that of the Head Office, instead of having to comply with multiple tax systems. However, this does not apply for group companies with independent daughter companies. The Commission aims at increasing tax certainty and fairness, reducing compliance costs and distortions in the market that influence business decisions, while minimising the risk of double and over taxation and tax disputes.
State of the Union 2023 speech by the President of the Commission
On 13 September 2023, the President of the European Commission, Ursula von der Leyen, held her State of the European Union 2023 speech at the European Parliament in Strasbourg. The President touched upon a number of issues. With regard to hurdles slowing down business, she pointed out that small companies do not have the capacity to cope with complex administration or are often held back by lengthy processes. This often resulted in the situation that SMEs have less time for actual business activities and therefore miss out on opportunities to grow. Hence, von der Leyen announced that by the end of the year, the Commission would appoint an EU SME envoy reporting directly to the President of the Commission about the challenges which SMEs face on a regular basis. She added that for every new piece of legislation, a competitive check will be conducted by an independent Board and next month, the Commission will make the first legislative proposals towards reducing reporting obligations at EU level by 25%.
G20 leaders remain committed to the swift implementation of the Two-Pillar solution
On 9 and 10 September 2023 the summit of the G20 leaders was held in New Delhi resulting in the New Delhi Declaration which sets out goals concerning several global issues. Regarding international taxation the G20 leaders decided to swiftly implement global tax reforms, which entail a framework on digital economy taxation and a global minimum corporate tax. "We reaffirm our commitment to continue cooperation towards a globally fair, sustainable and modern international tax system appropriate to the needs of the 21st century. We remain committed to the swift implementation of the two-pillar international tax package." the declaration said. Leaders welcomed the significant progress, which has been made on Pillar One, one of the key components of the global tax reform, including the delivery of a text of a Multilateral Convention (MLC). This multilateral tax document is expected to be ready for signature in the second half of 2023. Additionally, work is also progressing regarding Pillar Two. The declaration stated that leaders acknowledged the steps taken by various countries to implement the Global Anti-Base Erosion (GloBE) Rules as a common approach.
OECD Secretary-General TAX Report to G20 leaders
On 11 September 2023 the OECD Secretary-General Tax Report has been delivered to the G20 leaders. The report sets out the latest developments in international tax reform since November 2022. The report states that a historic milestone was reached at the 15th Plenary Meeting of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (Inclusive Framework) on 11 July 2023, as 138 members of the Inclusive Framework approved an Outcome Statement on the Two-Pillar solution in order to address the tax challenges arising from the digitalisation of the economy (Two-Pillar Solution). The report further includes an Outcome Statement summarizing the package of deliverables developed by the Inclusive Framework to address the remaining elements of the Two-Pillar solution: a text of a Multilateral Convention (MLC), Amount B of Pillar One, the Subject-to-Tax Rule (STTR) together with its implementation framework and a comprehensive action plan prepared by the OECD to support the swift and co-ordinated implementation of the Two-Pillar Solution. “This is the culmination of an enormous amount of work to implement the landmark agreement of October 2021 and reflects collaboration and compromises among all during the negotiations” the report said.
European Parliament approves DAC8 Directive
During the plenary meeting in Strasbourg on 13 September 2023 MEPs have approved a report supporting the European Commission’s proposal for an eighth Directive on administrative cooperation (DAC8). DAC8 will require crypto-asset platforms and service providers to report income earned from crypto-asset investments to tax administrations, which will exchange the information with Member States. EU Finance Ministers already agreed on DAC8 in May 2023, less than six months after the proposal was released by the European Commission. However, MEPs disapproved that the Council did not wait for the EP’s non-binding opinion before reaching an agreement. The report includes amendments, which increase the requirements for Member States to communicate with the Commission on the effectiveness of the Directive's measures and put more focus on the harmful tax practices and potential abuse surrounding crypto-assets that the Directive seeks to prevent. The report supports the Commission's proposal and invites the Council to ask the European Parliament, which only holds an advisory role in tax matters, if it intends to depart from the approved text and if it intends to “substantially amend” the Commission’s proposal. The position of the European Parliament will be forwarded to the Council, the Commission and to the National Parliaments.
OECD – Tax Policy Reforms 2023
On 13 September 2023 the OECD published the eighth edition of Tax Policy Reforms: OECD and Selected Partner Economies, an annual publication that provides comparative information on tax reforms across countries and tracks tax policy developments over time. The report tracks developments regarding tax policy over time and describes the latest tax reform trends. This year’s edition puts its focus on tax reforms, which were introduced or announced during the 2022 calendar year in 75 member jurisdictions of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting, including all OECD countries. The report examines the macroeconomic and tax revenue background and which changes to tax policy have been made, as well as providing an overview of developments in tax reform trends across tax categories.