Weekly Tax News - Monday 2 October 2023

October 2, 2023

EU’s position on tax cooperation at the UN

The EU reacted to the conclusions of the UN Secretary General report published on 26 July 2023, which explores various options for enhancing international tax cooperation with a focus on inclusivity. In a document approved by the ambassadors of EU Member States on Wednesday 27 September, the EU starts by recalling that it remains committed to the ongoing work of the OECD/G20 Inclusive Framework on the Two-Pillar solution. “Considering the impressive work and progress already achieved and the continued effort to advance further through the OECD/G20 Inclusive Framework on BEPS, it is important to continue to develop these global tax standards and avoid duplication of work or inconsistent outcomes”, it outlined. This being said Member States react on the three proposed options in the report: - a legally binding multilateral convention on tax; - a legally binding framework convention on international tax cooperation; and - a non-binding framework for international tax cooperation. The EU rejects options 1 and 2 as it would risk leading to duplicate ongoing or completed international work linked to the existing global tax framework. Amongst the three options proposed in the report, the EU could consider option 3, i.e. working at the UN on a non-binding multilateral agenda for coordinated actions. However, such an agenda should be developed in such a way that it avoids duplication with existing international tax agreements and brings concrete benefits to the participating countries, while facilitating parallel and sustained progress at the OECD, the document says.

Recommendation on taxpayers’ rights to come later, the Commission says

In a written answer to MEPs published on Wednesday 27 September, EU Tax Commissioner, Paolo Gentiloni, assured that the Commission is envisaging to follow up on its 2021 announcement of a recommendation to Member States to improve the situation of taxpayers and to simplify tax obligations but at a later point in time. The recommendation was indeed announced in the Commission 2021 Action Plan for Fair and Simple Taxation Supporting the Recovery Strategy. From March to June 2021, the Commission undertook the accompanying public consultation. However, two years later, there is no proposal in sight, which has led several EPP MEPs to ask the Commission what its intention about this initiative were. According to these MEPs, it would be “beneficial to counterbalance the surge of tax legislation, which always creates context costs for people and businesses, with a new initiative focusing on protecting taxpayers' rights”. In his written answer, Commissioner Gentiloni is however outlining that the Commission recently adopted a key package of tax initiatives to reduce tax compliance costs both for large, cross-border businesses (BEFIT) and to give small and medium-sized enterprises operating cross-border the option to interact with only one tax administration – that of the Head Office – instead of having to comply with multiple tax systems in the EU.

EP study on national tax measures in response to the Covid-19 crisis

A study commissioned by the FISC subcommittee of the European Parliament and published on Friday 22 September shows that Member States reduced the tax burden on businesses in response to the Covid-19 pandemic but failed to reduce the number of people at risk of poverty. The study provides a comprehensive analysis of the impact of national tax measures implemented in response to the Covid-19 pandemic so as to provide policy recommendations for how to address future crises effectively. With regard to personal income, reforms focused on permanent changes to the tax rate, both downwards and upwards, as well as temporary tax-base reductions, according to the study. With regard to corporate taxes, changes were made to the tax base, which resulted in decreases and tax benefits. Other policies were adopted, such as lowering the value-added tax (VAT) rate in a majority of countries. Nevertheless, policy initiatives aiming to modify the tax system did not really exhibit higher purchasing power parity, according to the study. Likewise, the introduction of policies targeting low-income earners did not enable the number of people at risk of poverty to be reduced. It is imperative to carefully assess the nature of the crisis, fiscal sustainability, social impact, and policy objectives in the decision-making process, the authors say. Flexibility and adaptability are essential, enabling adjustments based on the nature and severity of the crisis, they conclude.

Call for AMLA’s host city applications opens

As of Thursday 28 September, European cities can officially submit their applications to host the future EU authority to fight money-laundering (AMLA). The call for application includes details of the application procedure, including the selection criteria, the application template to be used by Member States and the technical specifications for the seat of the AMLA. Several Member States have already expressed their wish to host the AMLA prior to the opening of the call for applications. The candidate cities currently declared are reportedly Paris, Frankfort, Vienna, Vilnius, Madrid, Dublin, Brussels, Rome and Luxembourg. Amsterdam was also reportedly on the list, but the Netherlands eventually dropped out. In July 2022, the Court of Justice of the EU established that selecting the host cities of EU agencies should be part of the ordinary legislative procedure, where Parliament and Council have equal power as co-legislators. The European Parliament and the Council of the EU therefore jointly agreed on the criteria for choosing the host city of the AMLA. “Now that the Parliament has equal say in selecting the host city, we will push for a transparent selection process as we move forward, with candidates presenting their bids in hearings”, co-rapporteurs MEPs Emil Radev (EPP, Bulgaria) and Eva Maria Poptcheva (Renew, Spain) said in a press release. The law establishing the AMLA is part of a larger package of measures against money-laundering, currently being negotiated between the European Parliament and the Council.

European Commission urges Hungary to correctly transpose AMLD5

On Thursday 28 September, the European Commission decided to open an infringement procedure by sending a letter of formal notice to Hungary for having incorrectly transposed the 5th Anti-Money Laundering Directive (AMLD5). The European Commission has identified an instance of incorrect transposition of the Directive into national law, related to the obligation to register, license, or regulate services providers. Indeed, under Hungarian law, there exists no requirement to register or license providers of exchange services between virtual currencies and fiat currencies. Hungary now has two months to give a satisfactory response about this incorrect transposition or the Commission may decide to continue the infringement procedure.

IASB amends IFRS for SMEs Accounting Standard related to international tax reform

The International Accounting Standards Board (IASB) issued on Friday 29 September amendments to the IFRS for SMEs Accounting Standard, based on the amendments to IAS 12 Income Taxes issued in May 2023. These amendments have resulted from the introduction of the OECD Pillar Two model rules and were urgently asked by affected stakeholders.  Concretely, they provide a temporary relief from accounting for deferred taxes arising from the implementation of the Pillar Two model rules. They also clarify that the Standard requires companies that apply the Standard to disclose information that enables users of their financial statements to evaluate the nature and financial effect of income tax consequences of the Pillar Two legislation. Companies can benefit from the temporary exception in this amendment immediately. To do so, they are required to provide the disclosures set out in the amendments for annual reporting periods beginning on or after 1 January 2023.

OECD 2023 Tax Administration report published

The Organisation for Economic Co-operation and Development (OECD) published on Wednesday 27 September its 2023 report on tax administration. It highlights the significant progress that tax administrations have made in delivering benefits to taxpayer compliance with digital transformation. Tax returns, online payments and partial or total pre-filling of tax returns are now commonplace with over 85% of private individuals and 95% of businesses filing their returns electronically. More than 60% of administrations offer virtual or digital assistants to help answer taxpayer queries and support self-service, almost 30% more than in 2018, according to the report. The increasing availability and sharing of data means that these approaches can be extended to other sources of income and other categories of taxpayer, including the pre-filling of corporate income tax and value added tax returns, in some cases, according to the OECD.

EU General Court annuls the recovery of a Spanish state aid

The EU General Court decided on Wednesday 27 September to overturn the 2014 European Commission’s decision that found Spanish rules granting deductions for goodwill arising from the acquisition of indirect shareholdings in non resident holding companies to be illegal state aid. The fact that in its decision of 2014, the Commission ordered the recovery of the entirety of the aid granted under the scheme in question amounts, according to the Court, to a withdrawal of lawful decisions, in so far as initial decisions already covered the indirect acquisition of shareholdings and accorded them the benefit of the protection of legitimate expectations. Even if the Commission was entitled to adopt the 2014 decision, it erred in law by refusing to acknowledge that there was a legitimate expectation similar to that acknowledged in the initial decisions in favour of the beneficiaries of the aid schemes in question in respect of their indirect acquisition of shareholdings, it concluded.

Save the date: ETAF Conference on the OECD Two-Pillar solution on 29 November 2023

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