Weekly Tax News - Monday 24 July 2023

July 24, 2023

OECD releases new documents on the Two-Pillar solution

On Monday 17 July, the OECD published a series of new documents concerning the Two-Pillar solution. It first published a second set of administrative guidance on Pillar Two, which completes the first one released in February 2023. It includes guidance on currency conversion rules when performing GloBE calculations, tax credits, the application of the Substance-based Income Exclusion (SBIE), the design of Qualified Domestic Minimum Top-up Taxes (QDMTT) and introduces two new safe harbours. As part of its work under Pillar Two, the OECD also published a Subject-to-Tax Rule (STTR) model treaty provision and commentary and the GloBE Information Return (GIR) which sets out a standardised information return to facilitate compliance with the GloBE Rules. Finally, the OECD released for public consultation a draft discussion paper on the main design elements of Amount B under Pillar One. As highlighted in the Outcome Statement published on 11 July, further work is still ongoing on the appropriateness of the pricing framework, the application of the framework to the wholesale distribution of digital goods, country uplifts within geographic markets, and the criteria to apply Amount B utilising a local database in certain jurisdictions. Interested parties are invited to submit their comments on the draft by 1 September 2023 through this online questionnaire. The aim of the OECD is to agree a final Amount B report by year-end and to incorporate it into the OECD Transfer Pricing Guidelines by January 2024.

G20 Finance Ministers welcome the progress made on the implementation of the Two-Pillar solution

During their meeting on Monday 17 July and Tuesday 18 July, the G20 Finance Ministers welcomed the recent progress made on the implementation of the OECD Two-Pillar solution and called countries to settle the remaining issues.  “We welcome the delivery of a text of a Multilateral Convention (MLC) on Amount A, significant progress of work on Amount B and the completion of the work on the development of the Subject to Tax Rule (STTR) and its implementation framework as set out in the July 2023 Outcome Statement of the OECD/G20 Inclusive Framework on BEPS (Inclusive Framework)”, they wrote in a statement issued at the end of the meeting. They also called the OECD to swiftly resolve the pending issues related to the MLC with a view to prepare the MLC for signature in the second half of 2023 and complete the work on Amount B by end of 2023.

Tax experts and MEPs discuss the future SAFE proposal

On Monday 17 July, the European Parliament organized a hearing on the upcoming proposal for a Directive to tackle the role of enablers that facilitate tax evasion and aggressive tax planning (Securing the Activity Framework for Enablers or SAFE). On this occasion, Gabriela Figueiredo Dias, Chair of the International Ethics Standards Board for Accountants (IESBA) presented to MEPs the framework that the IESBA is currently designing on ethical conduct in tax planning, which could apply not only to accountants but also to all tax planning service providers, she pointed out. The exposure draft was issued in February 2023 for feedback and the aim is to approve it by the end of this year, she said. Olivier Boutellis-Taft, CEO of Accountancy Europe, said a common EU definition of aggressive tax planning would be useful for taxpayers and authorities, provided it is implemented consistently. According to him, due diligence procedures could also help in respect of unregulated tax intermediaries who may not be obliged to undertake "know your client" and other procedures. For Ivan Lazarov, Research Associate at the International Bureau of Fiscal Documentation (IBFD), a more proportional approach might be to limit the registration requirement to enablers who provide advice on cross-border arrangements and introduce a de minimis threshold excluding small taxpayers with cross-border activities. Any registration requirement as a prerequisite for providing services must be balanced against the freedom to conduct business and take into account the professional privilege, he warned. Despite being invited to the hearing, DG TAXUD of the European Commission decided not to send anyone, due to the fact that the SAFE proposal was put on hold until there is an agreement on the UNSHELL proposal.

MEPs discuss further reforms of corporate taxation rules

On Monday 17 July, the FISC subcommittee of the European Parliament met to discuss the EP draft initiative report on further reform of corporate taxation rules elaborated by MEP Isabel Benjumea Benjumea (EPP, Spain). A total of 292 amendments have been tabled to the draft report, some of which call for a simplification of procedures, making sure that businesses in Europe can continue to flourish. The second group of amendments focuses on the negative impacts on the SMEs, pointing out that the SMEs are already under a lot of burden. Many amendments also aimed at stressing the importance that the future “Business in Europe: Framework for Income Taxation” is a success and addresses the issue of tax burden. Ms Benjumea Benjumea saw a lot of room for compromise between the political groups. She only argued against amendments naming specific companies in the report, which would go against their goal of setting up a framework for corporate tax, she said. The first shadow meeting will take place after the summer holidays. The vote of the report in the ECON committee is scheduled for 24 October, before a plenary vote in December.

EP fine-tunes its opinion on the VAT in the digital age package

On Tuesday 18 July, the ECON committee of the European Parliament held a debate on the proposals of the VAT in the digital age package, presented in December 2022. While progress has been made during a recent shadows meeting on technical aspects, there were still areas where an agreement had yet to be found. The rapporteur MEP Olivier Chastel (Renew Europe, Belgium) said there now seems to be a common ground on the postponement of the dates of entry into force by one year, the extension of the deadline for electronic invoicing and the transmission deadline. The duration of short stays at accommodation rentals was also discussed, with the Commission's original proposal standing at 45 days, though some wanted this lowered to 31. Compromises were also discussed in the area of data protection. The vote in the ECON committee is scheduled for 24 October 2023.

European Commission urges 17 Member States to transpose the CbCR Directive

The European Commission decided on Thursday 20 July to send a letter of formal notice to 17 Member States (Belgium, Bulgaria, Czechia, Estonia, Greece, Croatia, Italy, Cyprus, Latvia, Luxembourg, Malta, Netherlands, Austria, Poland, Portugal, Slovenia Finland) for failure to notify national measures fully transposing the country-by-country reporting Directive (CbCR) by the deadline of 22 June 2023. The Directive requires all multinational companies active in the EU's single market with a permanent presence in the Union and that have revenues above EUR 750 million to publish a report on the amount of corporate taxes they pay in each Member State and in non-cooperative jurisdictions. These reports also include additional information such as the number of employees or turnover per country. The Member States concerned now have two months to reply to the letters of formal notice and complete their transposition, or the Commission may decide to proceed with the second step of the infringement proceedings and issue reasoned opinions.

European Commission rules out the idea of a harmonised capital gains taxation framework

On Monday 17 July, in an answer given to a written question drafted by six Greens/EFA MEPs, the President of the European Commission, Ursula von der Leyen ruled out the idea of a harmonised capital gains taxation framework. “As EU law stands, capital gains taxation falls essentially within the competence of Member States, who may design their own tax systems and decide whom, what, when to tax, and at what rate, provided they do not discriminate against taxpayers from other Member States”, she said. In that regard, in some Member States capital gains are subject to personal income tax or corporate income tax, whereas others have separate capital gains taxation, she recalled. Moreover, the European Commission outlined that capital gains taxation is only one element of the much broader category of capital income taxation and that realised capital gains are only a fraction of the total tax base. Consequently, the implications of capital gains taxation alone on the functioning of the single market seem rather limited, according to the Commission. Nevertheless, the Commission assured that it monitors closely developments in Member States in this area, including the efficiency and distributive implications of current practices of capital income taxation. The Commission is reflecting on additional new own resources, in line with the interinstitutional agreement of 2020 and the Commission 2023 work programme, Ms von der Leyen concluded.

OECD Global Forum publishes 10 new peer review reports on exchange of information on request

The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) published on Wednesday 19 July new peer review reports on transparency and exchange of information on request (EOIR) for eight of its members (Antigua and Barbuda, Argentina, Belize, Faroe Islands, Greenland, Lesotho, Paraguay, Saint Vincent and the Grenadines), and supplementary reports that reflect progress made by two members (Anguilla and Seychelles) in implementing the EOIR standard. More than half of the Global Forum members have now been fully reviewed in the second round of EOIR peer reviews and the ratings assigned are generally very good, with 85% of the jurisdictions obtaining satisfactory overall ratings (“compliant” or “largely compliant”), 13% assessed as "partially compliant" and 2% as "non-compliant", the OECD said.

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