Pillar II saga ends with an agreement between EU Member States
After months of blockade, EU Member States reached an agreement on the Implementing Directive for Pillar II of the OECD agreement, i.e. the minimum 15% effective tax rate for large multinational enterprises, in the margins of the European Council summit on Thursday 15 December. On Monday 12 December already, the Czech Presidency of the Council of the EU announced an agreement between ambassadors of EU Member States on the file as part of a “megadeal” linking Pillar II, the Hungarian recovery plan and an EU financial aid of 18 billion € to Ukraine. On that day, Hungary reportedly confirmed that it is ready to lift its veto on Pillar II but Poland maintained a reservation, asking for a further assessment. On Thursday, the deal was finally confirmed, with new assurances given to Poland on the link between Pillars One and Two and with Hungary abstaining on Pillar Two. In its conclusions, the European Council calls on the Commission to monitor ongoing negotiations of the multilateral convention (MLC) on Pillar One and to put forward if appropriate a proposal by the end of 2023 in case of absence of agreement on a Pillar One solution. The final text of Pillar II remains mainly unchanged from the June version. The new rules will apply to any large group, both domestic and international, which meets the annual threshold of more than €750 million of consolidated revenues in at least two of the four preceding years, and with either a parent company or a subsidiary situated in an EU Member State. The rules will start to apply as of 31 December 2023 instead of 1 January 2023. ETAF welcomed the agreement in a press release.c
Swedish EU Council Presidency unveils its priorities
Sweden, which will hold the Presidency of the Council of the EU from 1 January to 30 June 2023, unveiled on Wednesday 14 December its work programme. “Sweden is taking over the Presidency at a time when the European Union is facing unprecedented challenges. A greener, more secure and freer Europe is the foundation of our priorities”, Sweden’s Prime Minister Ulf Kristersson said in a speech. In the area of direct taxation, priority will be given to measures aiming to prevent tax evasion, tax avoidance, aggressive tax planning and harmful tax competition, such as updating the EU list of non-cooperative jurisdictions, the programme says. The Presidency will also work to ensure greater tax transparency and to reinforce the exchange of relevant information within the EU, in particular on working on DAC8. Sweden promises to continue the discussions in the Council on the Energy Taxation Directive and to start the work on the VAT in the digital age package as well as to advance the negotiations on the AML package.
Final agreement on CBAM
An agreement has been reached on Tuesday 13 December between the European Parliament and the Council of the EU on the Carbon Boarder Adjustment Mechanism (CBAM), published in July 2021. The main objective of this piece of legislation is to equalise the price of carbon paid for EU products operating under the EU Emissions Trading System (ETS) and the one for imported goods. This will be achieved by obliging companies that import into the EU to purchase so-called "CBAM certificates” to pay the difference between the carbon price paid in the country of production and the price of carbon allowances in the EU ETS. It will apply from 1 October 2023 but with a transition period where the obligations of the importer shall be limited to reporting. CBAM will cover iron and steel, cement, aluminium, fertilisers and electricity, as proposed by the Commission, and extended to hydrogen, indirect emissions under certain conditions, certain precursors as well as to some downstream products such as screws and bolts and similar articles of iron or steel. This agreement was conditional to an agreement on the revision of the ETS, which has also been reached on 18 December.
EP draft report on DEBRA published
The European Parliament has started its work on the proposal for a debt-equity bias reduction allowance (DEBRA). The proposal was presented in May 2022 and aims at ensuring that equity receives similar tax treatment as debt. In his draft report, the rapporteur MEP Luděk Niedermayer (EPP/Czech Republic) says that, despite some reservations on the proposal, he believes that there is a strong economic reason to consider this proposal positively. To address some concerns, the option to roll out the rules gradually provides a good response, he adds. The rapporteur also introduces minor changes to the Commission’s text, which aim to assist SMEs. Since SMEs are more exposed to longer periods of losses, increased allowance on equity as well as a longer period for tax deductibility should be considered, he explains. In addition, the rapporteur proposes higher equity allowance to better reflect the higher costs of capital for SMEs. A gradual introduction of the limitation to interest deduction’s rule as well as permanent full deduction of interests for small loans would ensure that the proposal will not have a negative impact for smaller SMEs that cannot effectively use equity financing, according to him. The non-binding opinion of the European Parliament is due to be voted in March 2023. In the Council of the EU, the discussions on the proposal have been put on hold by the Czech Presidency due to its interlinkages with other corporate tax files.
This newsletter contains information about European tax policies and developments gathered from official documents, hearings, conferences and the press. It does not reflect the official position of ETAF nor should it be taken as a written statement on behalf of ETAF.